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Securities Law

NIN 99/46 - Publication for Comment of Proposed Multilateral Instrument 33-107 - Proficiency Requirements for Registrants Holding Themselves Out as Providing Financial Planning Advice [NIN - Rescinded]

Published Date: 1999-12-03
Effective Date: 1999-12-02
Related Document(s):


The Commission, together with certain other members of the Canadian Securities Administrators ("CSA"), is publishing for comment the text of proposed Multilateral Instrument 33-107 (the "Proposed Instrument"), and proposed related Forms 33-107F1, 33-107F2, and 33-107F3 (the "Forms").The Proposed Instrument and the Formsdeal with the regulatory regime applicable to all registrants that hold themselves out as financial planners.

The Proposed Instrument and the Forms are initiatives of all CSA jurisdictions except Québec. The Proposed Instrument is expected to be adopted as a rule in each of British Columbia, Alberta, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan and as a policy in some jurisdictions. The Manitoba and Newfoundland securities regulators have participated in the development of this initiative and are treating this Notice as a concept proposal at this time.

The Commission des valeurs mobilières du Québec (the "CVMQ") notes that a comprehensive regulatory regime governing financial planning came into force in Québec on October 1, 1999, as part of a larger regime governing professions in the province. Accordingly, securities and insurance regulators in Québec have not participated directly in this initiative.

In addition, the proficiency requirements set out in the Proposed Instrument have been developed in conjunction with insurance regulators, including both provincial government insurance regulators and insurance councils from British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia, New Brunswick and Prince Edward Island. It is expected that British Columbia, Saskatchewan and Ontario will recommend the adoption of an analogous regulation, by-law or other instrument. The Alberta, Manitoba, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland insurance regulators have expressed an interest in reviewing the results of the comment process. Accordingly, this notice is intended to serve as a means to solicit comments from stakeholders in both the securities and insurance sectors.

The Proposed Instrument and Forms contain footnotes that are not part of the Proposed Instrument or Forms which have been included to provide background and explanation.

Summary of the Proposed Instrument

1. Proficiency Requirements

The Proposed Instrument applies to individuals and firms registered in the dealer or adviser categories under securities laws. The Proposed Instrument uses a "title-based" or "holding out" approach to identify the registrants required to meet the proficiency standards. It requires individual registrants to satisfy an objectively determined proficiency standard. The restricted titles and services descriptions are identified by the use of words found in two word pools. One is a pool of "subject" words; the other is a pool of "activity" words. The use of these titles by registrants conveys the impression that financial planning or similar advice is offered.

Any title or description of a service used by a registrant that includes the word "planner" is restricted. This provision is proposed in response to the widespread use of the term "financial planner" by registrants, most notably in connection with the sale of life insurance and mutual funds. As a result, the term "financial planner" has taken on an enhanced significance beyond that of other "advisory" type words. As a result, even if used in combination with the name of a type of product such as "mutual fund", "securities" or "insurance", the term "planner" would be associated by a consumer with a broader spectrum of advice than would a sales activity.

2. Proficiency Standard

The proficiency standard required by the Proposed Instrument will include the following

(a) Examination requirement - Registrants will be required to pass the Financial Planning Proficiency Examination (the "FPPE") being developed by the CSA and insurance regulators and councils. The FPPE will be identical for both securities registrants and insurance licensees and will be administered on a national basis.

(b) Experience Requirement - Registrants will be required to have two years of insurance or securities industry experience in the five years period preceding the date on which the registrant begins to hold himself or herself out as described in the Proposed Instrument. The timing of the industry experience period is not tied to the date the examination is written. Registrants can write the examination at the beginning, the end, or at any time during the two-year experience period. Each requirement must be satisfied, however, before the registrant can begin to hold himself or herself out as offering financial planning advice. Consideration was given to a supervised experience requirement. The CSA relies on the fact that the supervisory regimes already applicable to registered or licensed individuals and firms under relevant legislation or self-regulatory organization ("SRO") by-laws will apply to the additional restrictions around financial planning and similar activities.

(c) Approved Continuing Education Program - The CSA expect to rely on a harmonized standard being developed by industry associations that will integrate financial planning topics and hours of study with continuing education requirements already applicable to registrants and licensees. For registrants, this may also include the development of requirements by self-regulatory organizations such as the Investment Dealers Association of Canada or the Mutual Fund Dealers Association.
Potential harmonization of industry supervisory structures and regulatory supervisory models is a larger question currently under consideration by securities and insurance regulators. Some of the related issues are discussed in the position paper published in August 1999 by the CSA Distribution Structures Committee1.

1 CSA Notice 33-304, published August 27, 1999

3. Restrictions on Firms

The Proposed Instrument restricts the way registered firms may hold out themselves or their individual employees and agents to the public. Where a firm holds out its employees or agents using any of the titles whose use is restricted for individual registrants, or provides a financial plan to a customer, the individual who deals with the customer must satisfy the proficiency standard.

The Proposed Instrument also provides that a firm cannot hold itself out as a financial planning firm, or using a similar expression, unless it provides the services described by the title.Consideration was given to specifying a minimum number of qualified individuals as a condition of a firm holding itself out under one of the restricted titles. However, the CSA have concluded that as long as the client deals with a qualified person, the client’s interests are protected. It is the responsibility of the firm to determine the number of qualified employees and agents necessary to meet this requirement.

4. Transitional Grandfathering Relief

The Proposed Instrument sets out specific grandfathering exemptions from the requirement to pass the FPPE for individuals who have passed certain examinations that test financial planning expertise. These exemptions are based on a review by the CSA of programs offered by the industry associations and the content of their courses and examinations. The CSA were assisted in this review by an analysis of the course content by Brendan Wood International ("BWI"). The exemptions include persons enrolled in multi-year programs, who will have two years after the Proposed Instrument comes into effect to complete their programs.

The provisions are transitional only. They reflect a balance between fairness to those persons who have previously completed a program that tests financial planning expertise with the public interest in ensuring a common national proficiency standard. The inclusion of an examination does not mean that the CSA view it as equivalent to the FPPE.

The CSA based its proposed grandfathering relief for individuals on completion of examinations and courses of study rather than letter designations and accreditations, focusing on the fact that a grandfathered individual has voluntarily submitted their financial planning knowledge to an objective testing process. A designation is included in the grandfathering criteria only where the designation implies a testing procedure over and above a required course of study otherwise identified as a grandfathering criterion.

Because the criteria are testing based rather than designation based, the proposed grandfathering provisions would not exempt individuals who received a designation without having passed a proficiency examination. Any such individual will be required to meet the FPPE requirement. This approach responds to concerns expressed by various stakeholders with the validity of the grandfathering processes underlying particular designations and accreditations of financial planning expertise. Grandfathering relief is provided from the FPPE exam only. The experience and continuing education requirements will apply to all.

The grandfathering exemptions are only available to a registrant who files the required notice within three years after the Proposed Instrument comes into effect. Therefore, an individual enrolled in a grandfathered course of study by the effective date of the Proposed Instrument will have two years to complete the course and one additional year to file the required notice. An individual who has already completed a grandfathered course of study will have three years to take advantage of grandfathering relief. The three-year limitation addresses the problem of individuals who decide to become registrants who provide financial planning advice long after the Proposed Instrument comes into effect.

The grandfathering regime was based on programs that were brought to the attention of the CSA for assessment during the development of the Proposed Instrument. Comment is solicited as to any additional programs that should be included on the list.

5. Equivalency

On an ongoing basis, regulators will have the discretion to recognize proficiency attainments as equivalent to the various elements of the Proposed Instrument. It is intended that discretionary exemptions will be available in limited situations, based on the general premise that everyone will be required to pass the FPPE unless grandfathered. An exemption under the experience requirement could be available, for example, to someone who has experience as a fee-for-service financial planner without having been a registrant, but that individual would still be required to pass the FPPE unless he or she could demonstrate equivalent educational attainments.

6. Limited Exemption for Portfolio Managers

The Proposed Instrument provides that registrants in the category of portfolio manager, some of whom have traditionally described their discretionary portfolio management services using terms such as "wealth management" or "asset management" are not required to meet the financial planning proficiency standard in order to continue to use these titles. This exemption for certain restricted titles is not available to registrants other than registered portfolio managers. The restricted titles, when used by individuals registered to trade, dealers or registrants in other advisory categories, imply financial planning or related advice.

The exemption is available only to registered portfolio managers that restrict their activities to discretionary portfolio management. The proficiency requirements will apply to portfolio managers that also engage in trading or financial planning activities. While the proficiency standards applicable to portfolio managers under securities laws are rigorous, they do not test the breadth of knowledge to the extent intended for the FPPE.

7. Notice

Before registrants hold themselves out using one of the restricted titles, they must provide notice to any applicable regulator that they have satisfied the proficiency standard in accordance with a prescribed form.

The notice must be accompanied by evidence that an individual has satisfied the examination or a grandfathering requirement and the experience requirement. For a registrant that has been registered with the applicable regulator for two years in the five years preceding the date the notice is filed, a statement to that effect would suffice as evidence of satisfaction of the experience requirement. A registrant relying on a grandfathering exemption is not required to file the notice until the next due date for payment of the applicable registration fee.

8. Effective Date

The effective date of the Proposed Instrument is expected to coincide with the earliest date by which the FPPE can be implemented operationally. The CSA are targeting early 2001.

9. Impact on Existing Registrants and Licensees

The CSA wish to emphasize that the Proposed Instrument will have no effect on the ability of registered dealers to act on behalf of their clients in buying or selling securities for which they are registered to trade. Similarly, the analogous insurance regime will not prevent licensed insurance agents from selling insurance products.

However, this initiative will restrict the use of titles by individuals that are licensed or registered to sell financial products that convey to customers the impression that objective, comprehensive, integrated financial advice tailored to their present and future financial circumstances is being offered. These registrants and licensees will not be able to hold themselves out to the public using these titles unless they have demonstrated their competence. By the same token, registered firms will not be able to hold themselves out under the equivalent business titles unless the financial planning or similar advice is provided to customers by qualified individual registrants and licensees.

10. Industry Participation

Currently, any person, regardless of demonstrated proficiency, is entitled to market financial planning and similar advice. Industry organizations, including the Investment Funds Institute of Canada ("IFIC"), the Investment Dealers Association of

Canada ("IDA"), the Canadian Association of Insurance and Financial Advisers ("CAIFA") and the Canadian Bankers Association ("CBA"), have raised this concern with the CSA. It has also been raised by a large number of individuals who have made a considerable personal investment of time and resources in preparing themselves to provide competent financial planning services.

The industry associations named above and certain related industry educators (the Canadian Institute of Financial Planning ("CIFP"), the Canadian Securities Institute ("CSI"), CAIFA’s educational division, and the Institute of Canadian Bankers ("ICB")) are assisting the CSA in developing the FPPE, and making joint recommendations as to continuing education requirements and administration options as described under "Background of the Proposed Instrument". It should be emphasized however, that the content of the Proposed Instrument and this Notice have not been subject to a consensual process with industry representatives.

Background of the Proposed Instrument


1. Financial Planning and Similar Advice

The value of assets in the hands of retail investors available for investment has grown significantly during the last couple of decades. This is expected to continue over the next decade. At the same time the number of firms and individuals purporting to provide general financial and investment advice to individuals is also increasing to meet and, to an extent, create the demand for financial advice.

"Financial planning" is a widely used term which is generally understood by consumers to be advice focussed on retirement, taking a client’s overall financial situation into account. The goal of a financial plan is often to achieve a certain income stream, particularly following retirement.

Individuals providing financial planning advice are at present self-styled and self-educated from a regulatory point of view. There are a wide variety of letter designations and accreditations that purport to attest to financial planning proficiency which are available from course providers, trade organizations, professional associations and the Financial Planners Standards Council ("FPSC"), an umbrella organization comprising certain course providers, trade organizations and professional associations. Despite the efforts of the FPSC, none of these designations and accreditations is generally accepted as pre-eminent, and there are no practical restrictions on the use of terms such as "financial planner" or "financial consultant".

The majority of self-styled "financial planners" are registered as salespersons of a mutual fund dealer or licensed as life insurance agents, and are primarily remunerated by the sale of the products purchased to implement the plan. The CSA anticipate that an increasing proportion of "financial planners" will be employees of financial institutions, such as banks and credit unions, and of full service dealers. Other persons referring to themselves as financial planners include employees of registered advisers and a small number of non-registrants providing financial planning services solely on a fee-for-service basis.

Current proficiency and other requirements applicable to registered dealers and salespersons, as well as licensed insurance agents, focus on the particular products they are permitted to sell, not the comprehensive advice comprising financial planning or on the overall quality of advice that the registrant or licensee delivers to his or her customers.

2. Regulatory Concerns

It is recognized that a large portion of the investing public view financial planning activities, on the one hand, and the provision of advice regarding securities transactions, on the other hand, as the same discipline. Many investors do not recognize that financial planning involves many considerations beyond those involved in a determination of the suitability of a security for an investor.

The CSA is also aware that a portion of the investing public mistakenly believes that registration under securities laws means the registrant is qualified to advise regarding all matters of financial planning. Misconceptions expose the investing public to potential harm from registrants that are not proficient in all aspects of financial planning. The investor may place undue reliance on the advisor’s legal authority to trade in securities. and consequently, may not fully investigate the registrant’s financial planning credentials. Even after investigation, an investor may not be in a position to critically evaluate financial planning credentials. Either of these situations may result in improper advice. Investors may mistakenly believe that the advice they are receiving regarding securities transactions or the purchase of an insurance product is comprehensive financial planning advice when it is not. This may result in incomplete advice.

The CSA recognize that incomplete or incompetent financial planning advice provided by registrants exposes investors to unnecessary losses. This could have a negative impact on the integrity of the securities markets. The impact results from the close relationship between financial advice and implementing the advice by the purchase of financial products. The Proposed Instrument will:

  • help to ensure investors are not improperly relying on the securities regulators registration process; and
  • minimize the impact that improper or incomplete advice has on the integrity of securities markets.

An increased emphasis on the quality of advice does not change the nature of the relationship between the registrant and the investor, but rather enhances the likelihood that investors will rely on the expected transparency, objectivity and competence of the advice. Where a registrant markets itself as a financial planner solely to bring customers in the door for potential product sales, it is misleading customers who are genuinely seeking and need more comprehensive advice.

The principal goal of the Proposed Instrument is to protect the public from seeking comprehensive financial planning advice from persons who are unqualified to provide it. Where a registrant attempts to provide such advice despite lacking qualifications to do so, a client can be harmed by such things as a lack of understanding of the tax implications of various types of investments to the client’s situation, a lack of understanding of estate planning implications, or the planner’s knowledge being limited only to one type of investment such as mutual funds.

Although a proficiency requirement will not in itself necessarily eliminate the concern of registrants marketing themselves as financial planners with no intention of providing comprehensive financial planning services, it is anticipated that registrants or licensees who have made the effort to achieve an acceptable proficiency level in financial planning will be motivated to provide proper financial planning services.

3. Applicability to Both Insurance and Securities Sectors

When the CSA Committee (the "Committee") was constituted by the CSA, it soon became evident that the concerns being addressed were shared by the Canadian insurance regulators and councils. Due to the large, and increasing, number of affected persons who sold insurance products as well as securities, decisions taken by the Committee would impact on agents who were separately regulated in respect of their insurance activities. At the same time, insurance agents who were not dually registered under securities law would remain unregulated in respect of their financial planning services.

Were the insurance regulators to address their own concerns through a different approach than that taken by securities regulators, an overly complex and expensive overlay of regulatory systems could result. Greater public confusion could follow from persons holding themselves out as financial planners being subject to one of three overall regulatory regimes, depending on whether they were securities registrants, insurance licensees or both.

As an area which, outside Québec, had generally not been regulated2,

2 In British Columbia, Local Policy Statement 3-22 ("LPS 3-22"), among other things, sets out criteria for registrants holding themselves out as financial planners. It is anticipated that LPS 3-22 will be amended to remove duplicative provisions to those found in the Proposed Instrument, if it is made a rule. In Alberta, a statute dealing with financial planning is already in effect, but has been promulgated only in part. No regulations have been enacted under that statute, and it is not operational.

financial planning presented an opportunity for insurance and securities regulators to work together not just in creating a regulatory system generally harmonized on a national basis, but also one harmonized between industry sectors.

As a result, the Committee was expanded to include any interested insurance regulators and insurance councils. All subcommittees of the Committee have included both securities and insurance representatives. In addition, each jurisdiction having both securities and insurance representatives on the Committee was asked to work toward the goal of simultaneous adoption of a regulation, rule or policy in respect of the securities registrants and insurance licensees in the jurisdiction.

The publication of this Notice and Proposed Instrument through the rule-making publication procedure is intended to elicit public comment both from persons interested as it applies to securities registrants and from those interested in the impact of an analogous document as applied to insurance licensees. Any comments received will be reviewed and considered by both securities and insurance regulatory authorities.

4. Future Rule-Making

The principal regulatory concerns of securities regulators regarding general financial advice, including financial planning services, are proficiency, conflicts of interest driving self-interested transactions, and transparency of fees and costs for the advice. Going forward, securities regulators plan to examine the applicability of the present product-centered regulatory model under provincial securities legislation to the advice delivered incidental to the sale of a product in the context of recent industry developments, including financial planning. This review would include conflicts of interest, disclosure requirements, and the advisory activities of those now relying on an exemption from regulatory requirements under securities law. The most effective regulatory instrument to achieve any reforms proposed will also be considered. Insurance regulators and insurance councils are not at present committed to participating in the next stages of this project.

Development of the FPPE

1. The FPPE as a Proficiency Filter

The CSA have concluded it is not necessary to make a detailed assessment of courses or the competing merits of various designations in order to protect investors. Instead, the CSA have chosen to focus their proficiency standard on the FPPE, a uniform examination sponsored by the regulators that will apply across the entire financial services sector.

The FPPE will act as a proficiency filter independent of any accreditation body or course provider. In dealing with any registrant or licensee using the title "financial planner" or a similar title, or in receiving from them a "financial plan", an investor will have the comfort of knowing that the individual serving him or her has met a rigorous uniform proficiency standard.

Most financial planning advice will be directly or indirectly generated by, and benefit, the main institutional product vendors - mutual funds, banks, insurance companies and full service dealers. The CSA recognize that the organizations representing these institutions are in the best position financially and operationally to support work towards a proficiency standard for financial planning and similar advice that extends across the financial services sector. These organizations also have educational arms with a high degree of expertise in developing courses in the financial planning area.

In undertaking this initiative, the CSA concluded that the appropriate level of investor protection is best obtained by drawing on the resources of this group and working with them directly in the standard setting process. It should be emphasized, however, that approach taken by the CSA in developing the Proposed Instrument has not otherwise been subject to a consensual process with either the course provider representatives or their affiliated organizations,

Although the FPSC had a similar objective in developing its Certified Financial Planner ("CFP") exam, after an exhaustive series of discussions, it became clear to the CSA that the many divisive issues among the members and former members of the FPSC would preclude it from accomplishing this objective in a reasonable time frame. As a result, the CSA initiated a process of exam development that is transparent and which uses accepted procedures in the measurement profession, being applied by the principal group of course providers and a specialist in measurement evaluation. The expectation is that the FPPE will be less susceptible to the criticisms of bias and emphasis made to the FPSC as a result of its more informal and less consensual development process.

2. Content Domains

The CSA recognize that the key to successful implementation of the Proposed Instrument is a rigorous examination developed objectively through recognized analytic techniques. As an initial step in developing the FPPE, the CSA retained BWI to create a blueprint for test development with the assistance of the participating industry organizations and their test development consultants.

BWI pooled the results of research that had already been conducted on behalf of the industry organizations participating in the development of the FPPE as to appropriate topics and proficiency levels for financial planning advice to consumers. BWI developed eight broad content domain areas: investment, retirement planning, estate planning, risk management and insurance, taxation, law and ethics, financial planning process and fundamentals. It then developed test specifications that include the topics falling under each domain and their inter-relationship. BWI consulted the industry organizations for their preferences for how much weight to give to each content domain and their priorities for content mastery of each domain at the levels of knowledge, understanding, application, analysis and synthesis. Appendix A to this Notice sets out the weights given to each content domain.

BWI also reviewed the content that falls under each domain heading by assessing the curriculum outlines used by the various industry organizations and the content of the various examinations currently in use. BWI found a high level of agreement, both in the definition of content domains and in their apparent emphasis. Based on curriculum outlines used by the industry organizations and with feedback from them, BWI also identified the specific content that falls under each domain heading. Appendix B sets out the topics falling within each domain.

The FPPE will be created through domain sampling, in which a sample of topics within each of the eight domains is tested on each examination, although particular core topics would be covered in every FPPE. A proficient financial planner would be required to achieve a particular level of mastery of the various domains. No two examinations would necessarily have the same items, but the various examinations are intended to have a comparable number of items from each domain. The notion of domain sampling presumes that an examinee will learn a broad content area and not be able to pass the FPPE solely by taking a cram course directed toward a particular examination.

3. Question Drafting and Testing

Based on BWI’s blueprint, the CSA have retained Les McLean, Professor-Emeritus in the Measurement and Evaluation Program of the Ontario Institute for Studies in Education of the University of Toronto, to work on the question drafting phase of the project with members of the industry group. Although work on this phase of

the FPPE is in its preliminary stages, it is currently anticipated that the FPPE will be a full day exam. It is expected that up to 40-50% of the FPPE will consist of constructed-response tasks rather than multiple choice questions.

For the test building process, members of the industry education group have been invited to submit questions. The questions will be reviewed by Dr. McLean and a panel of industry educational consultants to ensure they meet both content and item screening objectives. Approved questions would then go into a pool for use in the domain sampling process. This pool initially would be used to create a pilot test to be taken by financial planners considered knowledgeable in particular areas. Statistical methods will be used to confirm the validity and reliability of the questions used in the pilot test. Once the FPPE is in place, new questions generally would be tested by inserting test questions into actual examinations.

The CSA intend to continue to work with the industry organizations in developing both the FPPE and an administration structure. The CSA have not yet determined the delivery system for the FPPE. The CSA understand that consideration is being given to the concept of a "blended examination", where a course given by one of the industry groups could use the results of the FPPE as one of the examinations for the course. The CSA intend to make information about the topics being sampled under each of the eight domains available to course planners.

4. Relationship to Courses of Study

Because the CSA are designing the FPPE to be a comprehensive test of financial planning knowledge, the CSA will not designate any particular course as necessary preparation for the FPPE. The CSA expect that existing financial planning course providers will adapt their courses of study as necessary to prepare students adequately to pass the FPPE. Based on research conducted by BWI on behalf of the CSI and shared with the CSA, it seems that most leading financial planning courses of study currently offered could be easily adjusted.

Alternatives Considered

A number of alternatives to the Proposed Instrument have been considered:

1. Facilitate the Return of the IDA/CSI and CBA/ICB to the Financial Planning Standards Council

The FPSC was established as an umbrella, standard-setting body representing various sectors of the financial services industry, including the Canadian Association of Financial Planners ("CAFP"), CAIFA, the Canadian Institute of Chartered Accountants, the CBA/ICB, the CIFP/IFIC, the Certified General Accountants Association of Canada, the IDA/CSI, the Credit Union Institute of Canada, and the Society of Management Accountants of Canada. The FPSC ceased to be broadly representative of the financial services sector when the IDA/CSI and the CBA/ICB withdrew their support, citing irreconcilable differences relating to the examination development process, grandfathering decisions underlying the CFP designation conferred by the FPSC and the governance of the FPSC. After extensive discussions with members and former members of the FPSC with a view to facilitating a reconciliation with the FPSC, the CSA have concluded that this approach would not produce a practical result in a reasonable time frame.

2. Approve Courses of Study and Designations

The process of assessing courses of study and designations is complicated by the fact that there are at least 26 different letter designations and accreditations relating to financial planning advice that reflect the successful completion of a course of study, or an assessment of expertise leading to a designation in Canada. The CSA concluded that the interests of investors would best be served by applying a single proficiency filter for all providers of financial planning advice in the form of a uniform examination with cross-sector participation. This would leave the responsibility for developing the appropriate preparation to pass the examination to financial planning educators and individuals seeking to become proficient.

3. Sponsor an SRO for Individuals and Firms Providing Financial Planning and Similar Advice

At present no industry organization has the combination of resources, operational capability and broad industry representation necessary to take on an exclusive self-regulatory role for registrants and licensees offering financial planning and similar advice. Financial planning advice is difficult to separate conceptually from the spectrum of advice provided by registrants as an adjunct to product sales generally or advice which is offered as investment counseling. As a result, it would be difficult to carve out the responsibilities of an SRO with exclusive jurisdiction over "financial planning" activities. Further, the proliferation of competing standards of expertise and the lack of specificity in industry-generated definitions of the activity is inconsistent with the theoretical underpinnings of the SRO concept.

A separate financial planning SRO would primarily include individuals who are already regulated by other SROs or professional organizations, and would create duplicate responsibilities with other SROs, such the new Mutual Fund Dealers Association, the IDA and the insurance councils. The CSA prefer to regulate financial planning as an activity within their existing regulatory frameworks rather than as a separate activity, with potentially duplicative and overlapping regulatory processes and responsibilities.

Québec has developed a comprehensive regulatory scheme for financial planners, including a new SRO, the Bureau des services financiers, and the Institut québécois de la planification financière to administer an examination, and a requirement to complete a designated course considered equivalent to one year of university courses. The Québec regulatory scheme also establishes insurance requirements for financial planners, compensation funds for clients and a complaint procedure. The CSA view the Québec scheme to contain features specific to the regulatory system in Québec. The CSA did not consider certain aspects of the Québec scheme to be feasible at a national level.

4. Enact Comprehensive Uniform National Legislation Regulating Financial Planners and Similar Advice

This alternative would delay the implementation of a proficiency requirement for many years, and is not necessary to achieve the results of most immediate concern. A new body of legislation could have the advantage of covering all persons engaging in financial planning services, not just registrants and licensees. However, the CSA understand that the number of individuals offering financial planning advice without a product license or membership in a professional organization that regulates conduct and proficiency is negligible compared with the number of registrants or licensees. Concerns about consumer abuses have arisen predominantly in the case of persons registered to sell products who offer their services under the rubric of "financial planning" as a potentially misleading marketing device when they lack the competence or interest to provide the public with adequate financial planning services.3

3 As one example, the person representing the defendant Associated Financial Planners Limited (previously called Moneystrat Inc.) in Druiven v. Warrington, Ont. C.J. 11971/96 (Feb. 18, 1998), testified that "‘financial planning’ was employed as a synonym for ‘mutual fund sales’".

Regulators also are particularly concerned with activities conducted by registrants or licensees because the public is aware that the individual or firm is already regulated in respect of the services being provided.

5. Mandate a Disclosure Statement to Potential Investors

Consideration was given to the proposal that a disclosure statement about relevant professional designations could be provided to potential investors. The CSA decided that this approach would not provide adequate protection for investors. Given the existing panoply of designations, initials, courses and examinations, it was unreasonable to expect the average investor to be able to make an informed assessment of this disclosure, whereas a properly designed uniform exam would ensure a base level of competence, leaving investors to focus on other aspects of the delivery of the advice.

Specific Requests for Comment

Comment is requested on all aspects of the Proposed Instrument and Forms. The CSA specifically invite comment on the following issues:

1. The scope of the Proposed Instrument is based on selecting titles from a pool of various terms. Comment is solicited on whether the proposed words are over-inclusive or under-inclusive. Does the approach adequately capture those who invite reliance from investors on their provision of financial planning services?

2. Paragraphs 2.1(1)(b) and (2)(b) of the Proposed Instrument identify individuals who "provide a document referred to as a financial plan" to impose the proficiency requirements. Comment is requested whether this drafting approach might create unanticipated interpretive difficulties due to the manner in which firms are organized.

3. Comment is requested on the appropriate level of continuing education, including the number of hours per year. Comment also is requested on the current availability of suitable continuing education programs for persons providing financial planning services, including whether there are any subjects that are not adequately covered. Comment is also requested as to whether the CSA should impose mandatory continuing education requirements from the domains covered in the FPPE.

4. The proposed grandfathering exemptions in the Proposed Instrument cover programs that were brought to the attention of the CSA for assessment. Comment is requested as to any additional programs that should be included on the list. Shortly before publication of this Notice, the CSA Committee received grandfathering submissions from CAIFA and the IDA. These will be considered during the comment period.

Unpublished Materials

In developing the Proposed Instrument, the CSA have relied on unpublished studies and reports prepared by BWI for the CSA or provided to them concerning the content of existing examinations and the development of the FPPE.

Anticipated Costs and Benefits

1. Costs and Benefits of Development and Administration

The initial out-of-pocket costs for developing the FPPE, consisting principally of consulting fees to BWI and Dr. McLean, are being borne by the Ontario Securities Commission ("OSC"). Significant time towards the development of the FPPE also is being provided by various industry organizations and industry participants, both in assisting the overall creation of the FPPE and in providing test items for the FPPE. However, to the extent the industry group blends the FPPE into the requirements for their own courses, the CSA anticipate the industry group could recover much, if not all, of its time commitments to this project.

On an ongoing basis, the cost of the FPPE will be covered by fees payable by persons taking the FPPE on a non-profit basis. The OSC plans to recover its out-of-pocket costs relating to the development of the FPPE, both initially and ongoing, if any.

The ongoing administration of the Proposed Instrument is designed to be low cost. Registrants and insurance licensees will be required to a complete a simple form. The same form would be filed with both the securities and insurance regulators. The CSA are not themselves likely to require ongoing filings in respect of the completion of continuing education requirements, although other organizations might do so.

2. Costs and Benefits to Individuals and Firms Required to Comply

Registrants currently using titles covered by the Proposed Instrument who do not intend to satisfy its proficiency standards could incur some cost in replacing letterhead, business cards and promotional material. However, because the Proposed Instrument is not expected to come into effect before 2001, ample time should be available to use up much of this material. Additional costs would be incurred by a firm, if any, that uses one of the titles in its corporate name and does not intend to satisfy the proficiency standards. The CSA have taken into consideration the costs that might be borne by firms currently using titles covered by the Proposed Instrument in generally providing grandfathering exemptions to persons who have already completed appropriate industry examinations.

The Proposed Instrument should reduce the concern for unqualified persons competing unfairly against those who have made the commitment to attain the knowledge and skill required for providing a high level financial planning service. Moreover, to the extent persons hold themselves out as financial planners despite being unqualified, the reputation of those who provide a proper financial planning service can be harmed. Concerns that anybody can call themselves a financial planner without being qualified to provide financial planning advice have been expressed by those in the industry directly to the CSA as well as through the media.

Costs, including time expended to become sufficiently proficient, the tuition fees for courses and the examination fee, will be incurred by people who are required to write the FPPE. However, the CSA believe that for those who do provide financial planning services, these costs will be outweighed by the higher quality of service provided to the public. To the extent registrants would have taken adequate courses in any event, the Proposed Instrument will not impose significant additional costs, and likely will not impose any additional costs in the case of industry courses that choose to incorporate the FPPE into their requirements.

The continuing education requirement is not expected to impose significant costs on registrants as a result of being harmonized with industry requirements. In the case of those registrants or licensees not otherwise subject to industry continuing education requirements, the CSA again are of the view that the proficiency gained from fulfilling these requirements will more than offset the costs.

The development of a cross-industry, cross-regulator, largely national examination will maximize mobility among related occupations and across the country at the lowest cost. Someone working in one industry group who satisfies the requirements of the Proposed Instrument will remain qualified for holding out as a financial planner on changing to a different industry group. Moreover, compliance with a single set of requirements will, for the first time, simultaneously satisfy obligations under both securities and insurance laws. Only one form must be completed, though it still must be filed with both regulators if applicable. The CSA and the insurance regulators hope this cooperative initiative will serve as an example for future coordination of the two regulatory structures.


Interested parties are invited to make written submissions with respect to the proposed Instrument by March 6, 2000.

Submissions should be sent to the Canadian securities regulatory authorities, insurance regulatory authorities and insurance councils listed below in care of the Ontario Securities Commission, in duplicate, as indicated below:

British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Securities Division, Newfoundland
Registrar of Securities, Northwest Territories
Registrar of Securities, Nunavut
Registrar of Securities, Yukon Territory

Insurance Council of British Columbia
Alberta Insurance Council
Superintendent of Insurance, Saskatchewan
Insurance Council of Saskatchewan
Superintendent of Insurance, Manitoba
Financial Services Commission, Ontario
Superintendent of Insurance, New Brunswick
Superintendent of Insurance, Prince Edward Island
Insurance Division, Department of Government Services and Lands, Government of Newfoundland and Labrador
Superintendent of Insurance, Yukon Territory

c/o John Stevenson, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario
M5H 3S8

A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. Alternatively, comments may be sent via e-mail to the above address, and also to any of the individuals noted below at their respective

e-mail addresses. It is not necessary to submit comments to multiple regulatory authorities because copies of comment letters will be circulated to each of the persons listed below. However, registrants and licensees might also wish to send their letters directly to their local regulators. All comments will be evaluated on a consultative basis.

As securities legislation in certain provinces requires that a summary of the comments received during the comment period be published, confidentiality of submissions received cannot be maintained.

Questions may be referred to any of the following:

British Columbia
Wendy Sullivan
Chief Examiner
British Columbia Securities Commission
(604) 899-6752
or 1-800-373-6393 (in British Columbia)

Noreen Bent
Senior Legal Counsel
British Columbia Securities Commission
(604) 899-6741
or 1-800-373-6393 (in British Columbia)

Agnes Healey
Director, Licensing and Administration
Insurance Council of British Columbia
(604) 688-0321, ext. 325

Melinda Ando
Legal Counsel
Alberta Securities Commission
(403) 297-7274

Wayne Alford
Legal Counsel
Alberta Securities Commission
(403) 297-2092

Joanne Abram
General Manager
Alberta Insurance Council
(780) 421-4148

Barbara Shourounis
Saskatchewan Securities Commission
(306) 787-5842

John Waugh
Director, Regulatory Affairs
Insurance Council of Saskatchewan
(306) 352-7870

Chris Besko
Assistant Legal Counsel
Manitoba Securities Commission
(204) 945-2561

Julia Dublin
Senior Legal Counsel
General Counsel’s Office
Ontario Securities Commission
(416) 593-8103

Ralph Lindzon
Senior Legal Counsel
General Counsel’s Office
Ontario Securities Commission
(416) 593-8207

Martin Ship
Senior Manager, Insurance and Deposit Institutions Policy
Policy and Communications Branch
Financial Services Commission of Ontario
(416) 590-7270

Prince Edward Island
Mark Gallant
Department of Community Affairs & Attorney General
Prince Edward Island
(902) 368-4552

Susan Powell
Securities Analyst
Securities Division
Department of Government Services and Lands
(709) 729-4875

Doug Connolly
Director of Insurance and Pensions

DATED at Vancouver, British Columbia, on December 2, 1999.

Douglas M. Hyndman

Ref: Local Policy Statement 3-22
CSA Notice 33-304

This NIN refers to other documents. These documents can be found at the B.C. Securities Commission public website atwww.bcsc.bc.cain the Policy Documents Database.