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
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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