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Advisor vs. adviser

Are you sure you should trust the person who is advising you on your financial future?

Life, business and farming are all becoming increasingly complicated. As a result, individuals in every walk of life, including farmers, are turning to advisers for help. The public has an expectation that these advisers are highly trained, that they are experts in their field, and that they will work in the best interests of the client at all times.

If only this were true!

Nowhere can it seem that the gulf between the public’s expectations and the actual role and responsibilities of their advisers is more pronounced than in the financial services sector.

In October 2016 the Small Investor Protection Association (SIPA), a non-profit, Canadian organization which bills itself as “a voice for small investors” released a presentation entitled: Advisor Title Trickery: Your Financial Advisor is a Commission Sales Person.

This report challenges the way persons employed in the financial services sector represent themselves. It points out many of the titles used by financial advisers may be meaningless at best and borderline fraudulent at worst.

The presentation begins by pointing out the difference between an “Advisor” and an “Adviser.” Unfortunately, to most people, the terms are likely synonymous, simply two different spellings of the same word. SIPA refutes this perception and claims there is actually a very big difference. The SIPA paper states:

  1. “(The) Securities Acts define an “Adviser” as having responsibility to look after investors’ best interests.”
  2. “Regulators say “Financial Advisor” is an unregulated business title that can be used by anyone.”
  3. “Sales persons are not legally required to look after investors’ best interests.”
  4. “Industry uses the title “Financial Advisor” for their sales persons to gain trust.”

(Note: Country Guide uses the CP Style Guide, which calls for the “er” spelling.)

The SIPA report reveals that as of September 16, 2016, of the 121,932 persons registered to work in the investment industry in Canada, only 4,076 (i.e. three per cent) were legally registered as Advisers or Advising Representatives. According to SIPA: “Only four thousand and seventy-six (4,076) persons are registered in the category where a true fiduciary professional responsibility is legally required to be delivered to you as the investor.”

The SIPA presentation warns investors: “Keep in mind that although recent studies show that almost all investors trust their “financial advisor,” most investors are not aware that there is no statutory requirement for fiduciary duty or looking after clients’ best interests, and they are generally registered as ‘Dealing Representative — A sales person.’”

Financial designations

The Investment Industry Regulatory Organization of Canada (IIROC) is the national, self-regulatory body overseeing investment dealers and firms dealing in Canadian equities. IIROC sets and enforces the rules governing the way dealers and firms and their employees operate and conduct business.

Even IIROC distinguishes between the designation “advisor” and any recognized registration. The IIROC website states: “‘Advisor’ is not, however, an official IIROC approval category for individuals working at IIROC-regulated firms and is not being used to represent an official registration category.”

Instead, IIROC recognizes 68 different financial certifications and registrations in Canada. And you thought advisor and adviser were confusing!

Thankfully, the IIROC website includes a searchable database of Canadian investment dealers and their approved employees and agents. The website allows anyone to find out the true meaning of the financial title of an advisor and the extent of training that must be completed to obtain that designation.

So if you are wondering what those initials behind your advisors names on their business card mean, or if you have questions about the training he or she received to earn that impressive framed certificate hanging on their office wall, the IIROC database provides you with the means to find out.

Furthermore, you can search the IIROC database by an advisor’s name to ascertain if they have the accreditation they claim, any additional certification or training they have undertaken, as well as any disciplinary action taken against them.

As an example, the Smart Certificate is a financial certification recognized by IIROC. A search of the IIROC database www.iiroc.ca/investors/UnderstandFinCert/Pages/default.aspx provides the above information about the Smart Certificate certification.

Canadian securities administrators

Hey wait, I just searched IIROC and my adviser is not listed!

Before you panic, you need to know that IIROC is not the only financial regulatory body in Canada. Other financial regulatory bodies include the Portfolio Management Association of Canada (PMAC), the Financial Planners Standards Council (FPSC), and Mutual Fund Dealers Association. As well, eight provinces have their own security regulatory commissions.

The Canadian Securities Administrators (CSA) is the umbrella organization of provincial security commissions and its website carries this warning: “An individual’s or firm’s registration category tells you what products and services they can offer. Being registered, however, doesn’t mean that all firms and individuals have the same skills, provide the same services or charge the same fees. Make sure you understand their qualifications and the products or services that they can provide.”

The CSA website, like IIROC, allows you to search individuals as well as firms to check registration status and to see if there have been complaints or disciplinary actions taken (www.securities-administrators).

Adviser credibility is not just a financial issue. Think of all the other advisers you likely are already relying on without fully understanding their qualifications or abilities. How well do you know your insurance agent and their qualifications? How did you evaluate the person(s) providing you with legal and tax advice?

Over a lifetime on a farm, most farmers will accumulate significant wealth. If the adviser you have selected to assist you in retirement, succession, legacy, and wealth transfer planning does not have a fiduciary responsibility to you, the risk is huge and potentially costly to your estate.

Is the primary goal of your grain marketing adviser to assist you in increasing your returns or is their primary function to purchase grain for a company they may be employed by? Is your crop adviser’s goal to maximize your profit or to maximize your production?

Since 1991, self-regulated Certified Crop Advisors (CCA) have provided farmers with an assurance of expertise and skills in agronomy. Farmers can even read online the CCA code of ethics which sets out the rules that CCAs must operate under.

However, the code is not as clear as farmers might like on whether a CCA has a fiduciary responsibility to the farmer client. Article III of the code states: “A CCA shall protect, to the fullest extent possible, the interest of the employer or client insofar as such interest is consistent with the law and professional obligations and ethics.” It does not prioritize client or employer. Therefore, to whom does a CCA owe a greater allegiance?

Unfortunately the maze of regulatory bodies, coupled with a confusing array of titles and specialties, places a huge onus on the public to carefully screen advisers before hiring them. You have to know exactly what you want an adviser to do, and then determine if those you are considering as advisers actually have the training, qualifications, and most importantly, the fiduciary responsibility to you. Are they actually going to be working in your best interest? Or is their primary responsibility to the firm they represent? Does their paycheque depend on the success they have in improving your business or are they more motivated by commissions from sales of products to you?

Your financial, business, and personal success hinges on how well a job you have done of choosing the right advisers.

I need advice, how do I find the right person to help?

Selecting an adviser is one of the most important business decisions you will make. It will take time and work to find an investor who has the qualifications and experience to provide the guidance you are seeking. Here are some steps to consider in looking for the right adviser:

  • Know in your own mind exactly what you want an adviser for and what you need that adviser to do.
  • Seek referrals from your network of trusted colleagues and friends, and from professional associates you already have, such as your accountant or lawyer.
  • Narrow the list of potential advisers by phone. A phone call will allow you to determine if they are taking new clients, what type of services they provide, and what type of clients they prefer to work for.
  • Following the phone screening, meet those still on your list at their office. This will give you the opportunity to see how they run their own business, which is likely a good indication of the quality of advice they will provide to you.
  • Ask lots of questions. Questions that the Canadian Securities Administrators website suggests include:
  • What is your education and professional experience?
  • How long has your firm been in business?
  • How long have you been with the firm?
  • Are you and your firm registered with a securities regulator?
  • What products and services do you offer?
  • How will you help me reach my goals?
  • What kind of account reporting will you provide?
  • How are you paid for your services (salary, commission or flat fee)?
  • What fees will I be charged and how will they be reported to me?
  • Who are your clients?
  • Can you give me references from clients who are like me?

Additional questions you might also want to ask:

  • Can you provide any type of sample of your services you have provided to other clients?
  • How closely will you work with me? How often do you contact your clients?
  • Will I work only with you or will I be working with a team or some other person?
  • Will anyone else benefit from advice you give me? How do you handle conflict of interest?
  • Have you ever been subject to disciplinary action by a regulatory board during your career?

As you ask these questions, do you feel they are listening and responding with clear answers? Do they have questions of you and your business? Do they ask about your goals and needs? Do you have good rapport with them in your meeting? Most importantly, do you feel comfortable with them?

Finally, before hiring an adviser, check out their registration, qualifications and if they have any record of disciplinary action with the regulatory body they are affiliated with.

The CSA categorizes financial advisers based on training and what an advisor is qualified to do. The CSA registrations above are posted on the CSA website.

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