September 2023

In this issue, we discuss the need to establish a national standard for financial planner and financial advisor titles and why this would be in the best interest of consumers. We shed light on investors increasingly using fintech to access and manage their finances, and steps regulators are taking to protect investors in this area. Also, we highlight the risks do-it-yourself investors face when engaging in online trading, and the importance of understanding the documents you sign when opening trading accounts online. 



Title Protection: Opening Pandora’s Box

Manitoba has become the fifth province to consider creating a regulatory framework for those in the financial services industry who want to use the financial planner or financial advisor titles. Unfortunately, outside of Quebec, there is no consensus on how to do so in a way that delivers meaningful consumer protections.

And while Ontario was out of the gate first in protecting both titles, its approach has drawn criticism calling into question whether it is a suitable blueprint for other provinces.

In our view, it would be better for Manitoba and other Canadian provinces and territories to hold off on implementing these sorts of frameworks, until we agree on a common and workable approach. What we need is an approach that truly protects financial consumers, as opposed to the entrenched interests of credentialing organizations and their members.

In Ontario, financial advisors do not have to be able to provide comprehensive financial advice related to all their clients’ financial circumstances.

Unfortunately, one of the biggest barriers to creating a common national standard is the lack of agreement as to what a financial advisor even is. Quebec does not allow anyone to use the financial advisor title because they view it as too confusingly similar to the financial planner title that is protected. In contrast, Ontario permits individuals to use both titles with the public, but in a way that makes it near impossible for the average person to understand who they are dealing with or how they are being protected.

Furthermore, in Ontario financial advisors do not have to be able to provide comprehensive financial advice related to all their clients’ financial circumstances. Instead, Ontario’s rules only require them to be familiar with the specific financial product(s) they sell, such as insurance, mutual funds, or other investments (for example, stocks and bonds). They are not even required to make their limited focus clear to consumers by incorporating this information in the title they use. For example, by stating they can only offer financial advice regarding insurance products.

In addition, every financial advisor in Ontario must obtain one of the four credentials from one of three (soon to be four) credentialing bodies approved by the Financial Services Regulatory Authority of Ontario (FSRA). While FSRA has imposed basic minimum standards, the credentialing bodies and their credentials differ in terms of their educational requirements and ways of testing proficiency. They also have different requirements around professional conduct. Despite all these differences, they all are permitted to use the same title. This suggests to consumers there is a common standard when, in fact, there is not.

The differences among financial advisors in Ontario are also magnified by regulatory differences. Put simply, because Ontario’s model assumes that a license to sell one kind of financial product qualifies an individual to give financial advice, not every financial advisor is subject to the same regulatory requirements or overseen by the same regulatory agency. The Ontario Securities Commission (OSC) and the Canadian Investment Regulatory Organization (CIRO) regulate financial advisors who sell mutual funds and other investment products (such as stocks or bonds). These financial advisors have, among others, legal obligations to:

• Resolve all conflicts of interest in the best interests of their clients, and

• Only recommend investments to their clients that are suitable and that put their clients’ interests first.

However, financial advisors in Ontario who are not regulated by the OSC and CIRO do not necessarily have the same legal obligations. This is a problem for consumers, because the use of a common title, such as financial advisor, potentially misleads consumers into believing all financial advisors must follow the same laws and professional standards.

Until we develop national standards, investors need to be cautious and recognize that not all financial advisors are created equal. If you’re working with a financial advisor, you should ask them about:

• What products are they licensed to sell?

• Who regulates them?

• If they advertise that they hold any designations, what do those designations mean?

• What responsibilities do they have towards their clients, and are those enforced by a regulator?

• If you have a dispute with your advisor, is there an independent, external body to whom you can take your complaint?

The financial advisor’s answers to those questions will determine to what extent your interests are protected in the client-advisor relationship.



Fintech: The Promise and Perils for Investors

Financial technology, or fintech, refers to the use of technology and innovative solutions to improve the design and delivery of financial services. In the investing world, fintech includes robo-advisors that use algorithms to provide investment recommendations, do-it-yourself investing platforms, and crypto assets such as bitcoin.

Fintech has revolutionized investing, making it easier and more accessible than ever. Fintech platforms offer user-friendly interfaces and streamlined processes, creating an efficient investing experience. Investors can trade, monitor their portfolios, and access financial information from the comfort of their smartphones.

Also, fintech has lowered investing costs, helping to enhance financial inclusion. The fintech platforms often charge lower fees and commissions than traditional financial institutions and many have no, or low minimum, investment thresholds. As a result, individuals from diverse financial backgrounds can more easily access investment opportunities.

However, like any disruptive force, fintech comes with risks that investors should be aware of. The digital nature of fintech exposes investors to cybersecurity threats, such as data breaches and identity theft. Also, biased or deficient algorithms could produce unsuitable investment recommendations that lead to poor outcomes.

Another concern with fintech is the minimal human interaction, which may be problematic for inexperienced investors who would benefit from personalized advice. As FAIR Canada’s Investor Survey revealed, almost 80% of Canadian investors use an advisor and most rely heavily on their advisor’s advice.

Fintech has also been criticized for benefiting sophisticated investors and amplifying investor inequality. Research by the Bank for International Settlements found that fintech mostly favours financially savvy investors, increasing their returns relative to less financially literate investors. Another study showed that, for retail investors, technology can create an illusion of knowledge and control, which can lead to poor investment decisions. It concluded that fintech could enhance the advantages that sophisticated investors already have.

Securities regulators have been actively addressing the rise of fintech. The Canadian Securities Administrators (CSA) created a “regulatory sandbox” that allows companies to test innovative products and services in a controlled environment. The CSA has also issued guidance for funds that invest in crypto assets and for crypto asset trading platforms. In addition, some securities commissions have established fintech advisory committees that advise staff on fintech developments.

But fintech is quickly evolving and regulators struggle to keep up with the rapid pace of change and to protect investors from the risks.

Here are some tips to help protect yourself when using fintech.

• Research the fintech platform: Before using a fintech platform, conduct thorough research. Read user reviews and look for whether the provider has strong security measures, such as multi-factor authentication and data encryption.

• Limit how much data you share: Fintech apps store your sensitive financial and personal information. Only provide the required information. The more information you share, the more information is at risk if there’s a data breach.

• Be vigilant: Look out for suspicious activity in your account and any transactions that you didn’t make.

• Consider balancing fintech with human advice: Think about combining the benefits of fintech with advice from human financial advisors, who can provide valuable insights. If you’re new to investing or have limited investment knowledge, a human advisor might be worth considering.

A Lesson for DIY Investors

Investing is easier than ever before, thanks to the rise of online trading platforms. Many people are drawn to the idea of taking control of their finances as a do-it-yourself (DIY) investor. The DIY approach may give some individuals a feeling of empowerment, but it also comes with important responsibilities.

One crucial aspect DIY investors must prioritize is understanding the documents they sign when joining a trading platform, such as the Relationship Disclosure Information (RDI) document.

The RDI document describes your relationship with the firm, the services and products it offers, fees, how the firm will mitigate conflicts of interest, and the risks to consider when investing.

While digital platforms offer convenience and ease of access, they also demand a thorough understanding of the documents you sign. Investors must take the time to read and comprehend these agreements…Text text text.

A recent case in the Supreme Court of British Columbia serves as a stark reminder of the potential consequences investors face if they fail to fully understand the documents they sign when registering for an investment platform. In this case, a DIY investor sold more shares than he actually held in a mining company, leaving his account in a negative position. The trading platform covered the shortfall by buying shares on the market. It also sold some of the investor’s other securities to partially offset the resulting debt. The investor sued the platform, claiming it wrongly converted his shares and was negligent in allowing him to sell more shares than he owned.

The court ruled in favour of the trading platform, emphasizing that the investor should have been aware of the shares he owned. The court also held that the platform had the right to sell the investor’s other securities to cover the deficit, as outlined in the account agreement he signed.

This case illustrates the risks DIY investors face when engaging in online trading. While digital platforms offer convenience and ease of access, they also demand a thorough understanding of the documents you sign. Investors must take the time to read and comprehend these agreements, as failure to do so could lead to unintended and severe financial consequences.

Investing carries inherent risks, and trading over the Internet introduces additional challenges, such as potential delays or inaccuracies in information and data. DIY investors need to be aware of these risks and that firms may not be liable for losses arising from technical problems beyond their control.

Here are some resources that discuss DIY investing and help you improve your financial knowledge:

• FAIR Canada: Do-It-Yourself Investing resource provides an overview of DIY investing, including the pros and cons.

• Ombudsman for Banking Services and Investments: Consumer Bulletin: Be Aware of the Risks of DIY Investing discusses the risks of DIY investing. It also highlights the complaints they’ve been receiving about DIY investing platforms, including transaction errors, service issues and margin issues.

• Financial Consumer Agency of Canada: Financial Literacy Database allows you to search for resources, events, tools and information on various financial matters from several Canadian organizations.

• Ontario Securities Commission: Get Smarter About Money covers many topics, such as investing basics, planning for retirement, crypto assets and fraud.

What’s New



Environmental, Social, and Governance (ESG) Disclosure Standards and the Impact on Investors

The International Sustainability Standards Board introduced a set of global reporting standards related to sustainability risks and specific climate disclosures. The standards establish a “common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.” This is beneficial for investors as it will provide consistent, reliable company disclosures and enhance their investment decisions.

The standards have not yet been adopted by Canadian regulators, but are being reviewed to determine to what extent they could be implemented in Canada. If implemented, they may help to alleviate concerns about corporate greenwashing and provide ESG-focused investors more trust in the accuracy of a company’s climate-related claims. Learn more

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To learn more about our advocacy for investors, visit FAIRCanada.ca