Glorianne Stromberg comments on advisors

What “professional advisor” means
It usually brings on the legal and moral obligations of a fiduciary nature
By Glorianne Stromberg
Advertisement



There cannot be a financial advisor alive who is not having to deal with the changing expectations of clients and regulators regarding the provision of financial services. These expectations include a heightened emphasis on the advisory role and the need for professionalism. Given the controversy provoked by David Brown, outgoing chairman of the Ontario Securities Commission, when in a recent speech to the Toronto CFA Society he said that financial advisors are professionals with a duty to understand the products they recommend and the risks they entail, it is timely to look at what just what it means to be a “professional financial advisor.” The starting point is to remember that when you hold yourself out as providing advice, regardless of the descriptive words you use, you are representing to your clients that: > You have recognized expertise in your chosen field; > You are competent to provide the particular type of advice you are offering to your clients; > They can rely on you for such advice; and > You can be trusted to act and conduct your operations with integrity, objectivity and in the client’s best interests. This implicit representation normally gives rise to the legal as well as the moral obligations of a fiduciary, whether or not you are exercising discretionary authority. In the days when people simply called themselves mutual fund or insurance “salespeople,” the consequences of being in the advice-giving business didn’t arise. The public knew it was dealing with people whose job was to sell products and that any “advice” given was purely incidental to the sales transaction and usually didn’t create fiduciary obligations.One of the consequences of positioning yourself as a professional financial advisor rather than a salesperson is that you are exposed to being judged by standards that are applicable to professionals rather than salespeople. The common characteristics of a professional with a capital “P” include:> Successfully completing a common post-secondary educational program whose curriculum has been independently and rigorously designed to encompass independently and rigorously identified competencies and is delivered by institutions accredited to do so by an independent oversight body;> Being a member in good standing of a self-regulatory organization that sets standards of practice and conduct that are rigorously monitored and enforced, including standards that prohibit conduct and transactions in which the professional has a conflict of interest or in which the client is vulnerable to the influence of the professional;> Clearly disclosing in a written engagement agreement the services to be provided, who will provide them, what that person’s qualifications are, what reporting will be done, what form the reporting will take, how and when you will be compensated for your services and by whom, what conflicts of interest exist (if any are permitted to exist), and the like; and> Clearly disclosing to the client the amount of the fees and other compensation, including referral fees (if any), that you receive or are receivable in respect of the services you have provided.Professionals with a capital “P”, are not paid on a commission basis. They do not receive embedded compensation from third-party suppliers; they do not borrow money or receive financial assistance from clients or third-party suppliers who are hoping the “professional” will use their services or products. They do not accept incentives from such suppliers. Referral fees (if permitted at all) are strictly regulated, disclosed and flowed through to the benefit of the client, unless the client’s express consent to do otherwise has been obtained. Any deviation from these standards is looked on as being conduct that is unbecoming to the professional and exposes the professional to disciplinary action.These expectations of a professional financial advisor are reasonable ones for clients to have. The industry and the regulators need to work on making sure advisors meet these expectations. IE

(advocate comments...........in court with 92 year old Norah Cosgrove V RBC, RBC used as their defense that they did not owe a duty of care to this, and by similar logic to over 90% of their clients. Industry is still asking for the respect and trust of professionals and yet not able to deliver it so far.

I would go so far as to say that the use of the name "advisor" is misleading at minimum, and quite possibly illegal, (for most salesperson in Canada) according to the definition of who can use this title in the Securities Act.)

go to discussion forums at www.investoradvocates.ca for further

regulators in sympathy with those they regulate?

A brief comment on “regulatory capture ”

Gabriel Kolko is a Marxist historian, who reworked his doctoral thesis into the The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 in 1963 and followed it up with a more detailed study of a single industry in Railroads and Regulation in 1965. The first thing to note here is those dates. This is not a recent development. "Regulatory capture" is the name Kolko and others applied to a particular phenomenon: when regulators serve the interests of those they're allegedly regulating in the general public interest. It was known before Kolko's work, but regarded as a dysfunctional aberration that sound policy reliably enforced could take care of. Kolko put the heyday of Progressive regulation under close scrutiny and argued that in fact regulatory capture wasn't just common, it was the norm. He found no important exception to it emerging, and usually emerging very early on in the history of a regulatory agency.

Over time, however, regulators and regulatees end up getting to know each other and working together, with or without any real sense of cooperation. Regulatees who provide information and make a show of cooperation earn the appreciation of regulators who find that endless crusade takes its toll in energy, enthusiasm, and efficiency. Regulators find that if they cooperate with their subjects in some areas, they'll get cooperation back on others.

In addition, regulatees who gain the sympathy of regulators as "team players", "responsible, cooperative enterprises", and the like get favors. There's nothing innately sinister about this - we pretty much all give extra consideration to the people we deal with who don't screw us over, help us out, and the like. The problem is that incremental small shifts can add up to big consequences. Over years and decades, the net effect of such tweaks of the course of regulation is to draw the regulatory agency in directions that the public is likely neither to understand nor to feel represents the original intent of the legislation that created the agency. More at Political: Regulatory Capture July 3/02 http://fortunewriter.blogspot.com/2002_06_30_fortunewriter_archive.html Bruce Baugh

this posting is part of the forum titled, "OSC makes is easier for issuers to get exemptions", at the forum discussion site www.investoradvocates.ca for further discussion

Investment Advocacy Discussion Forum Worth a Look

I am finding less time to post blogs to this site, but the good news is that the forum at:

www.investoradvocates.ca

is reaching more people who either need help or are willing to be of help to abused investors.

Feel free to visit the forum. No registration necessary. Just jump in and give your best.

So far it is working to help educate the public and improve conditions for investors.
cheers
Larry

another OSC town hall question that does not hold true

39. My financial planner was charging a yearly fee, plus must have been receiving commissions from the mutual funds, which he never disclosed. Is the securities commission scrutinizing this practice?
If your financial planner is a representative of a dealer, then there are rules that require that information about commissions paid for trades be disclosed to you. For mutual fund dealers, commissions charged for a trade as well as amounts deducted as sales, service or other charges are required to be disclosed in trade confirmations.

"this advocate questions whether there is anyone out there who has a trade confirmation that shows how much commission they paid, or the advisor earned, or they became liable to pay, or any trailing commission..............I have never seen one"

IS the OSC right on this one?

go to www.investoradvocates.ca for the forum on these topics and others