Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 28 - Evidence
OTTAWA, Wednesday, October 29, 2003
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-21, to amalgamate the Canadian Association of Insurance and Financial Advisors and The Canadian Association of Financial Planners under the name The Financial Advisors Association of Canada, met this day at 4:05 p.m. to give consideration to the bill.
Senator Richard H. Kroft (Chairman) in the Chair.
[English]
The Chairman: After we have dealt with this item on our agenda, Bill S-21, we will move to an in camera meeting for the balance of our meeting to give consideration to our report. Our witnesses today from are Advocis. Please proceed with your presentations, and then we will enter into a discussion with you.
Mr. Steve Howard, CA, President and Chief Executive Officer, Advocis: We will make a brief presentation, but before doing so, I would thank you for giving me and my colleagues the opportunity to meet with your committee today to present information and respond to your questions about this special bill.
Advocis is the new brand name of the largest national association in Canada representing professional insurance and financial advisers. Advocis is the result of the merger of the Canadian Association of Insurance and Financial Advisors, CAIFA, and The Canadian Association of Financial Planners, CAFP.
Although our brand name is Advocis, under the proposed new act, our legal name will be The Financial Advisors Association of Canada. With me today, are Mr. Terry Taylor, past president of CAFP and Advocis' Chief Operating Officer; Mr. Fraser Mills, Vice-President, Policy Analysis and Standards; and Ms. Beverly Brooks, Vice-President of Public Affairs.
Mr. Taylor and I, representing the members of the two associations, will explain why our two organizations wish to merge. Mr. Mills will address questions you may have on legal issues in the bill, in particular, the reasons for the retroactive effective date. Ms. Brooks can provide details on our branding initiative and our advocacy function.
Advocis started on the process of amalgamation when CAIFA and CAFP voted, in November of 2002, to merge our two organizations. At the time of the vote on the merger, I was the Chief Executive Officer of CAIFA, and I have held the position of President and CEO of Advocis since January of this year.
Founded in 1906 under the name, The Life Insurance Association of Canada, CAIFA has had a long history of representing the interests of professional insurance and financial advisers across the country. As a voluntary, self- governing association, CAIFA and CAFP have joined together as advocates representing 15,000 professional advisers who are licensed to sell life and health insurance, mutual funds and other securities to approximately 12 million consumers from coast to coast.
Our reach is considerable, given our 50-strong network of Advocis chapters located in most major cities and towns across Canada. Advocis' core activities mirror those of CAIFA and CAFP, particularly education, market conduct and advocacy. We uphold standards of proficiency through educational programs. We designate qualified individuals as chartered life underwriters.
Both CAIFA and CAFP are founding members of the Financial Planning Standards Council, FPSC, which designates certified financial planners. As Advocis, we continue to have a seat on the board of the FPSC. We also consult with governments on regulations and policies affecting financial advisers, and our focus is on preparing and promoting advisers who will provide financial services that are in the best interests of Canadian consumers.
During our first year of operation, Advocis applied good governance procedures to its operations, and held a national conference and annual general meeting on the basis of the new general by-laws of Advocis. These general by- laws provide one member, one vote. Every member was given an extensive proxy circular setting out the issues that would be decided at the AGM.
The Advocis board consists of former board members of both associations. We are here before you today because once CAIFA and CAFP had decided that they wished to merge, it was determined that the preferred legal alternative was amalgamation. CAFP was a corporation under the Canada Corporation's Act and CAIFA was a special act corporation and so the only way to amalgamate was by means of a special act. There is no provision under the CCA to allow the amalgamation of a special act corporation and a Canadian Corporations Act corporation. This is the reason we are before the Standing Senate Committee on Banking, Trade and Commerce seeking the approval of Bill S-21.
The alternative methods of affecting the merger were not as desirable. A transfer of assets and liabilities from the smaller CAFP to the larger CAIFA would have been complicated and time-consuming. The concern about an overlooked asset or liability was ever-present.
Proceeding by way of continuing CAIFA as a letters patent corporation under section 156 of the Canada Corporations Act would have discarded the 100-year history of CAIFA's special act organization.
Finally, the merger is between two parties that see themselves as equals, and the best way to ensure that the two parties look equal and are treated equally is to proceed by amalgamation. There are other technical reasons, legal and financial, for amalgamation. I will leave it to my colleague to speak about CAFP's activities and mandate prior to the merger,
On behalf of CAIFA, I would emphasize that merging with another professional association that has the same high standards and objectives creates positive synergies for financial advisers. We will continue to develop advisers who operate with integrity. This is important for client protection and for positioning our members at the forefront of financial services.
Through Advocis' commitment to high standards and professionalism, consumers, advisers, regulators and governments all win. Regulators are assured of consumer protection. Companies are equipped with professional distribution networks. Consumer interests are our priority. As well, advisers are able to preserve their independence.
I now invite Mr. Taylor to present his views on the merger.
Mr. Terry Taylor, Past President, CAFP, and Chief Operating Officer, Advocis: I would also like to thank the Senate Banking Committee for the opportunity to appear to express our support for the special act and the merger of CAIFA and CAFP.
As the President of the Canadian Association of Financial Planners, I wish to express my strong support for the merger and this special act. Formed in 1982, CAFP was the national association representing individual practitioners in the financial planning profession. With a membership of more than 2700 individual financial planners across Canada, CAFP's goal was to increase the standards of financial planning in Canada and to increase consumer awareness of the value of financial planning services.
What unites our two associations and our members is the common activity of helping Canadians to realize their financial goals and to protect their assets. What is at stake is the savings of Canadians and the financial security of their families and themselves. CAIFA and CAFP have come together under the brand name Advocis to build on an already well-established foundation of member services: practice management programs, advocacy, education, networking and information. Advocis' code of conduct and practice standards set out the relevant standards and practice guidelines for professional advisers who make up the new organization.
Support for the new organization was strong prior to the merger. Separate surveys of the CAIFA and CAFP members both indicated levels of support in excess of 80 per cent. The national conference and annual general meeting held in St. John's in June 2003 revealed that this support is continuing to grow. The Advocis board, which consists of members from both associations, is working well together. Over the summer, Advocis launched an initiative to incorporate professional designations into provincial securities regulatory legislation. This major initiative is strongly supported by both associations.
One of the most important issues for both associations is a retroactive effective date for the legislation. I will now turn to Mr. Mills to provide a short overview of the retroactive date issue.
Mr. Fraser Mills, Vice-President, Policy Analysis and Standards, Advocis: The special act is drafted with a retroactive date of June 12, 2003. A summary of the reasons for asking for the retroactive date has been given to the committee, but I would point out some of the key reasons. The administrative and operational merger has been completed and we are operating under the brand name Advocis. We are holding out as Advocis in all our dealings with the public. We were committed to a June 13, 2003 annual general meeting, and it would have been expensive and difficult to cancel that particular meeting. There was some administrative delay, and I believe there is precedent, under other special acts, for retroactivity. The full reasons are set out in the submitted document. I can expand on any of these reasons, if you wish. Thank you very much.
Mr. Howard: That concludes our remarks.
Senator Lynch-Staunton: First, allow me a few minutes to get something out of my system, which I have on a number of other occasions, as have other colleagues, and that is: When will we find a way to eliminate Parliament's participation in changes, however minor they might be, to any companies or corporations that have been set up through an act of Parliament? These gentlemen, I am sure, are finding it lengthy, cumbersome, costly and somewhat archaic to support a private member's bill that has to go through two Houses and be given Royal Assent. Surely there must be a way to absolve corporations incorporated under an act of Parliament from having to return to Parliament. Perhaps it could be done by some form of omnibus bill or exemption.
I am looking to you, Mr. Chairman, to see whether this committee would have an interest in pursuing that. It would save us all a lot of time, time which we could spend more productively elsewhere. Of course, I am taking nothing away from the intent of the two associations before us. It would save those who have to come before Parliament, like these two associations, a lot of time and resources. What is really a routine matter could certainly be executed, without any slight to Parliament, elsewhere, perhaps through an administrative feature of some form or another.
The Chairman: Senator Lynch-Staunton, I could not agree more. I would be delighted if we would take that on as a committee.
Several years ago I was involved as a sponsor of a bill on two special act companies relating to two religious institutions. I had the same reaction as you, and I raised all the same questions. I can see no reason for the time, the costs and the difficulties associated with this procedure being necessary. As the chair of the committee I will certainly try to do something about it. We might make a small beginning by including a comment on that in our report on this particular bill.
Senator Lynch-Staunton: We could do that unless our witnesses are so happy to have the cachet of a parliamentary corporation that they are willing to go through this whole process.
The Chairman: You said you had to do this, so, implicit was the fact that you did it because there was no other way. Perhaps we should, just for the record ask: If you had the opportunity to do this administratively under the Corporations Act, would you take that course?
Mr. Howard: Absolutely and unquestionably.
The Chairman: That is quite clear.
Senator Lynch-Staunton: When Senator Kirby explained the bill, I expressed some concern about the retroactivity feature in this bill. It is a fait accompli, in effect. You are acting as if you are merged.
Mr. Howard: Yes.
Senator Lynch-Staunton: All you need is our seal of approval. In effect, our seal of approval should have come first. Why did you act in such a fashion? Why did you come to us last when you should have come to us first? You have been administratively and operationally merged since January 1, and we only got the bill in June. It has been explained that there were some delays. However, why shouldn't those delays, or whatever impediments, have been overcome before coming to us for approval — and then carry on as you have since January 1?
The Chairman: If I may intervene, this question just struck me with some amusement as you were asking. How many clergymen might have asked that question of people coming to seek the sanctity of a marriage?
Mr. Howard: May I say that we have been trying for some time to get before this committee to have this matter addressed. The reasons that we are here only today stem from the procedural issues that we had to deal with in getting here. Had we had our druthers, we would have appeared before you before our annual general meeting.
Senator Lynch-Staunton: Were you advised to go ahead with the merger and then come before us when time was available? It is not a question of pride in Parliament, but just the sequence that should have been followed, which was to come to Parliament first. I know you are anxious to get this over with, because of the rumours of adjournment or prorogation. However, it begs the question: Why do it? Why put it into effect at a time when Parliament had yet to give its approval?
Mr. Howard: I will turn to Mr. Mills for the response on that, but my own view is that we are merged in spirit. We are acting as if we are merged, and we are now seeking the legal and parliamentarian endorsement of that.
Senator Lynch-Staunton: Many of the Alliance and Conservatives like myself are also merged in spirit, but we are a long way from being administratively and operationally one.
Mr. Mills: Sir, I would address that issue by saying that we have been very careful not to mislead any person with whom we are contracting that the legal merger or amalgamation has taken place. Our letterhead clearly indicates that everything is being done in the name of the Canadian Association of Insurance and Financial Advisors. We are very aware that the process, in terms of our branding, is ahead of the legal situation, but we have been very careful not to mislead anybody on the legal situation. All contracts are done in the name of CAIFA, carrying on business as Advocis.
Senator Lynch-Staunton: I have a final question. You have two letters here. Will you address these letters, Mr. Chairman, asking for some minor amendments to the bill? Will somebody else raise that? The Investment Funds Institute of Canada and the Independent Financial Brokers of Canada are unhappy with two words. Will they raise that issue or will somebody else?
The Chairman: My understanding is that those amendments have already been agreed to, so the parties are coming before us, having agreed to those points.
Senator Lynch-Staunton: Will that be incorporated in the final bill?
The Chairman: Yes. There are no points of contention.
Senator Massicotte: Our information is that the Investment Dealers Association of Canada is recommending two amendments and we understand you agree with those. The essence of the amendments take you away from a regulatory role and make you more like an organization to promote members' interests.
As a starting point, I always like to see organizations self-regulate, otherwise, other people will do it for you. Why is it that you back off self-regulating the behaviour of your members, and allow, effectively, laws or other associations to do so?
Mr. Howard: The term ``self-regulatory'' has different interpretations and different definitions.
First and foremost, we are an organization that members voluntarily join. Members are not compelled to join our organization. Other organizations operate under different paradigms. In the sense that we are voluntary, we self- regulate those members who voluntarily join us. The clarification that is provided in the letters is valid, because the definition and the approach of the self-regulation of the IDA are different from our own. That extends from a statutory authority.
Senator Massicotte: Do you have a code of ethics, so that if members behave in a way that is unethical, they can be removed from your association?
Mr. Howard: Yes.
Senator Lynch-Staunton: Not to be picky, but I do have another point in relation to the brief, specifically to do with the financial activity. We had a bill dealing with the Salvation Army, which had an element of retroactivity to it. In that instance, the bill was to merge two existing Salvation Army units, one Canada East and the other Canada West, so a comparison with that situation is not exactly one that should be used in any argument. Those two had been working together for a long time. They were two separate entities formed at a time when there was a Canada East and a Canada West. Canada became one country and they decided, in good time, to merge, as had the two colonies.
Mr. Howard: As to the question of precedent, I would have to refer to Mr. Mills. We did know that the question of retroactivity had been addressed in one scenario, and we were looking for the same combination, but for a different reason.
[Translation]
Senator Plamondon: With regard to the merger of the two organizations, having been involved in Quebec with the finance services office, in my opinion a financial planner and a financial advisor both having been trained in insurance, are totally different. Besides, in Quebec, two kinds of training are required. You have to be skilled in financial planning and you have to be skilled also in insurance sales. A financial planner can only do financial planning, without selling any product whereas an insurance sales representative can do a needs analysis and also sell insurance. His objective is to sell a consumer-oriented product following a needs analysis whereas financial planning can be done with a request for fees and without selling any product. Therefore, to merge the two organizations while claiming to protect consumers arguing that they would not know whether this financial advisor's intention was to sell them a product or simply being there to give them sound advice but without selling any product, there is quite a difference.
Moreover, in Quebec under Bill-188 insurance sales people cannot use the word financial advisor. I should like to know what you would want this merger when each of you has received a different training.
[English]
Mr. Taylor: Perhaps I could answer that, senator.
Both CAIFA and CAFP call themselves, on one hand, financial advisers and, on the other hand, financial planners, but it is a very small difference in actual practice.
In the financial planning world and in the financial advice world, the professional adviser or the professional planner will provide clients with a letter of engagement at the beginning of the process. That letter of engagement will stipulate the services that the planner or adviser will be providing to the client, and how he or she will be compensated. In many cases, the current practice is that the planner or adviser will charge a flat fee for providing advice. If you choose to purchase products from him or her subsequent to the provision of that advice, that is also stipulated in the letter of engagement.
Thus, the consumer has the opportunity to take the advice from one adviser and planner, and purchase products, if they are recommended, from another adviser or planner. It is up to the consumer. The consumer's interests are always put first in the letter of engagement.
[Translation]
Senator Plamondon: In Quebec, there was almost an all-out battle regarding the fact that a financial advisor is quite different from someone making a needs analysis before selling a product. It is true that the financial planner can get a licence in personal insurance and sell pooled investments funds as well as segregated funds. That is very clear.
At the same time, when you deal with someone who is skilled in insurance, you know that he is there to sell you a product. A financial planner would prefer not to get involved in this approach statinge that he has received additional training and that he can do independent financial planning, while being paid, without selling any product. I am surprised that your organizations would want to merge in the interest of consumers.
[English]
Mr. Taylor: The professional financial adviser and the professional financial planner, if they subscribe to their code of ethics and if they operate with the highest professional practice standards, will always make it clear to the consumer the nature of the services that they are prepared to provide, and it makes it very clear to the consumer whether or not they are under any obligation to purchase products or to take advice.
Perhaps in the province of Quebec, the difference between advisers and planners is more distinct than in the rest of the country. I grant you that.
We found that in the rest of the country, and I believe also, to a certain extent in the province of Quebec, most of our members — probably 75 per cent — were licensed to sell products as well. It was not unusual for a financial planner to offer advice and lay out a recommended plan for financial security, and then be able to provide the products that would help fund that plan.
[Translation]
Senator Plamondon: One gets the title of financial planner as a result of training. There are no financial advisors, this is confusing. An insurance financial advisor, basically, makes a needs analysis while the financial planner has a much more elaborate training. He does a whole financial planning which encompasses much more than the sale of an insurance product. That is all.
[English]
Senator Massicotte: I have a question to follow up on those of my colleague. She is attributing a different meaning to certain words. One has a sales orientation and the other stems more from an educational background.
You say the client will know at the start what services will be offered. Is the client always aware of any conflicts that a party giving advice may have? Often his or her commission is being paid on the sale of proprietary products and so on. Is that always clear to the clients up front?
Mr. Taylor: Yes, senator. One of the other goals of the letter of engagement is to provide the adviser or the planner the opportunity to announce any conflicts that might exist. In many cases, you will find, these days, that advisers work for organizations who have their own products to sell. Those advisers will tell their clients, ``I can sell you products from many mutual funds or many insurance companies. I happen to represent this particular organization. I am not under any obligation, necessarily, to sell their products, but I can if you choose to buy them. I will provide you with the appropriate comparisons between our products and other products that are available in the market.''
Senator Massicotte: Does your code of ethics require one party to tell the other party that there is a commission being paid if he or she sells that product?
Mr. Taylor: The code of ethics requires that all sources of compensation be disclosed and the practice standards surrounding the letter of engagement require that that information be disclosed. The code of ethics requires that the client's interests must always come first.
Senator Massicotte: Is that done in writing up front?
Mr. Taylor: The code of ethics is in writing.
Senator Massicotte: Is the inherent conflict of being adviser and salesman disclosed at the same time, at the initial meeting with the client?
Mr. Taylor: We publish guidelines for letters of engagement. In the guidelines and in the samples for letters of engagement there are those disclosure clauses.
The Chairman: Are there no other questions?
Mr. Taylor: If a consumer brought an allegation to us that a member had breached the code of ethics, it would be vigorously pursued and enforced.
The Chairman: There being no further questions, is it agreed that we go to clause-by-clause study?
Hon. Senators: Agreed.
The Chairman: Shall the title stand postponed?
Hon. Senators: Agreed.
The Chairman: Shall the preamble stand postponed?
Hon. Senators: Agreed.
The Chairman: Shall the short title, clause 1, stand postponed?
Hon. Senators: Agreed.
The Chairman: Shall clause 2 carry?
[Translation]
Senator Massicotte: I propose that clause 2 of Bill S-21 be amended on page 2 of the French version, by substituting, on line 18 the following:
les conseillers financiers du Canada.
[English]
The Chairman: Shall the amendment carry?
[Translation]
Senator Plamondon: In Quebec it is prohibited to use the expression ``conseillers financiers.'' If the Association has members in Quebec, how are they going to be able to use the expression ``conseillers financiers''?
Senator Massicotte: Very good question. We could ask our experts.
[English]
I think we require an amendment, because the French copy of the bill has the wrong use of words. It refers to ``conseillers en finances.'' That is not the intent if you look at the English copy.
We are proposing to amend the French version to read, ``conseillers financiers,'' in other words, ``financial counsellors'', but we are being told by my colleague that in Quebec it is prohibited to use those specific words in French. Are you aware of that?
Mr. Mills: We are not aware of that. We had the bill examined by both counsel in Toronto and they retained somebody in Montreal to look at it. I was advised that the name was in order.
Senator Massicotte: Was that advice given by a major law firm in Montreal?
Mr. Mills: I do not know the name of the law firm. It was an agency out of the Toronto law firm.
Mr. Howard: May I ask what you might suggest would be an acceptable word?
[Translation]
Senator Plamondon: I know a financial institution which calls them personal finance advisors so as not to use the word financial advisors. This is why I was asking you this question because financial planners in Quebec have requested that insurance salesmen do not use the title ``conseillers financiers.''
[English]
Senator Massicotte: Do you know what those words mean? The honourable senator is recommending ``personal financial adviser.'' In other words, she used the word ``personal,'' so as to refer to an individual.
Senator Angus: It will not mean the same thing as the English, unless we change that, too.
[Translation]
Senator Hervieux-Payette: I think that someone did not do their homework. Provincial legislation cannot be infringed upon by amending federal legislation, especially if it is against the law. We will have to revisit this matter and make sure that we act in accordance with the Quebec legislation.
[English]
The Chairman: I understand the point. May I make a suggestion? The difficulty arises only out of the amendment, correct?
Senator Massicotte: Yes.
The Chairman: We could pass the bill unamended, refer it to the law clerk and, if there is an agreement, we can bring forward an amendment in the Senate. I am advised that is another way of going about it.
Senator Hervieux-Payette: The same amendment would be required to several clauses. It runs throughout the bill. We must ask for a legal opinion to ensure that we are being respectful of Quebec legislation. It would not be in the best interests of this merger if these people cannot be given that title, and if they are, they would be in contempt of the law. We must revisit that.
The Chairman: It is clear that we do not have a comfort level to proceed on this basis.
Senator Massicotte: Why do not we do a strict or literal translation of ``financial advisers''?
The Chairman: Enough uncertainty has arisen that I think we should refer it immediately to our law clerk and revisit the matter tomorrow. We do not want to stand in the way of passage of this bill, but we do not want to proceed improperly, either. If that is agreeable to everyone, we will meet tomorrow at 11:00 a.m. You will have to coordinate with the clerk as to the precise timing of this item on the agenda because we will have other matters on our agenda. If we proceed in that way, we will, at least, be able to report back.
Mr. Mills: Thank you for that accommodation.
Mr. Howard: Thank you for that accommodation. Would you like us all to attend?
The Chairman: No. We have your presentation. With no disrespect meant, I do not think your presence will be necessary.
Mr. Howard: Would it be helpful if we were to provide to you the legal support that we have for the position that is in here?
The Chairman: Certainly. We ask that you provide that to the clerk.
Senator Plamondon: I could suggest someone in Quebec. Réjean Ross is from a French-speaking company. He was the one who fought so that no one could use the name ``conseiller financier.''
The Chairman: We will continue our meeting in camera at this time.
The committee continued in camera.