FORUM MAGAZINE
EDUCATION
Learning for Life
Continuing education is a "motherhood and apple pie" issue for many financial advisors — everyone is in favour of it, at least in principle. But the stakes have been raised recently with increased product complexity, heightened regulatory scrutiny and more informed — and, unfortunately, more litigious — consumers. As Craig Harris explains, the emphasis today is on the quality of education for advisors. Lifelong learning is no longer just a feel-good option; it's become a must-have for the professional advisor
Continuing education (CE) is rapidly set to become the issue that separates the professional advisor from the product pusher in the financial services industry. The need for meaningful lifelong learning is a topic that is resonating loudly in both the regulatory and self-regulatory environments.
Today, there is a more careful evaluation of the quality and type of education advisors receive. No longer are regulators and educational bodies satisfied with advisors ticking off a list of courses to complete minimum requirements. Many educational groups are repositioning themselves to set the bar higher for what it means to be called a professional in this industry.
In recent months, The CLU Institute has rebranded itself as The Institute for Advanced Financial Education ("The Institute"). This new organization will oversee designations in Canada for financial advisors in the specialty areas of advanced estate and wealth transfer and living benefits, in particular the Chartered Life Underwriter (CLU) and Certified Health Specialist (CHS) designations, the latter of which replaces the existing Registered Health Underwriter (RHU) designation.
An integral part of this approach was a more rigorous accreditation and quality assurance process, according to Caron Czorny, chair of the Institute.
"We have worked hard to develop a documented, professional process that maintains guidelines and standards for meaningful continuing education," she says. "We are looking at core competencies that advisors must have, and how these can be maintained and developed through properly accredited professional development. That is the reason we went down this road."
The Financial Planning Standards Council (FPSC) is also in the midst of revamping its code of ethics, rules of conduct and practice standards for Certified Financial Planners (CFP). The review process is evaluating a number of key principles that govern the duties of financial planners, such as client first, integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence. On October 1, having by then received extensive feedback from the industry and the public, the FPSC plans to issue a new standards document.
For John Wickett, the FPSC's senior vice-president of standards and certification, lifelong learning is a cornerstone of professional financial planning. "I think this is less about just continuing education and a lot more about professional development," he says. "This is a richer model that does not just mean credits or hours but, rather, maintaining and enhancing skills and competence."
Other financial advisor experts say there is a renewed commitment to professional development. "I am seeing much greater interest from investment dealers — particularly in continuing education — than 10 years ago," notes Harold Geller, an associate with Ottawa-based Doucet McBride law firm and an expert on the legal issues facing financial advisors.
"Dealers see it as their duty to adopt compliance to supervise those people distributing the product. Whether they are operating on a Mutual Fund Dealers Association (MFDA) or Investment Industry Regulatory Organization of Canada (IIROC) platform, they are much more engaged in topics around continuing education and compliance."
"Compliance is a key area where things are changing," says Toronto lawyer Ellen Bessner, a litigation partner with Cassels Brock law firm and the author of Advisor At Risk: A Roadmap to Protecting Your Business. "The 'Know Your Client' process has been around for some time, but regulators are starting to pay more attention to 'Know Your Product.' This is a hot-button issue."
It is not difficult to see why the bar has been raised for professional development in recent years. There are three main trends — more intricate products, more informed consumers and a tighter focus on compliance. The onus on advisors to keep up to date on a wider range of more complex financial, insurance and wealth management instruments is one of the key reasons.
"When I started in this business in the 1970s, there were really only two choices in life insurance: term and whole life," explains Sam Albanese, industry director, insurance and wealth management at Seneca College in Toronto. "If you look at the product portfolios that exist today, it is much more complicated. You have universal life, investment and insurance products, critical illness and long-term care, and areas like estate planning. The tools, technology and choices advisors have today are phenomenal, but they also have to maintain a higher level of knowledge."
"With more complex products in the marketplace, advisors need to understand what they can sell, the product itself and what the client understands about the product," adds Bessner.
Another trend driving enhanced professional development is more sophisticated consumers. With the thrust from policymakers to increase financial literacy amongst consumers, there is now a growing number of clients who are willing to question and challenge assumptions about financial advice.
"There is an enormous amount of information at consumers' fingertips and they have become highly educated," Albanese says. "For the advisor, the responsibility is to understand this reality and set the standard higher for their professional development and education."
Czorny says this heightened level of information available to consumers is a double-edged sword. "Consumers are becoming more knowledgeable, but we need to look at this carefully," she warns. "The old saying that 'a little bit of knowledge can be a dangerous thing' often applies. A client may have read something on the Internet or heard something about a product. The role of the financial advisor is to give consumers all the facts, choices and strategies that may be relevant in a particular situation . . . The client is relying on the advisor to provide the full picture."
Yet another driving factor behind continuing education for financial advisors is an evolving regulatory environment. There is increased pressure on advisors to keep pace with changing compliance rules and regulations.
"Even if compliance is not explicitly spelled out on every form and policy an advisor uses, it is implied," Albanese says. "The responsibility falls [to] the advisor, in most cases."
"Advisors need to be aware of the risk of changing compliance issues, and respond by pursuing relevant continuing education," notes Bessner. "They need to realize that saying 'I did not know' does not work with regulators."
"[When it comes to] continuing education . . . the onus [is] on the financial advisor to continually update their knowledge to meet the standards expected of them by their association, regulators and clients," Czorny adds. "If an advisor . . . pursues true professional development, then he or she should be pretty much self-regulating."
The trends of more complex wealth management and insurance products, more informed consumers and more closely scrutinized compliance requirements have led to a "tipping point" in professional development for financial advisors, several sources argue. There is a need for reflection on what constitutes "meaningful" continuing education in an industry where the focus in the past has too often been on sales training or product seminars.
"A good continuing education course should not simply tell the advisor what to do, but how to do it," Bessner says. "It should show the advisor how to incorporate the information into his or her practice. Many advisors work as part of a team or partnership or dealership. They should be able to identify where the gaps are in terms of knowledge and education. Then they should pursue the right kind of meaningful education to fill those gaps."
"There is a need for a robust debate on the kinds of continuing education that exist for financial advisors," according to Geller. "Meaningful education has to extend to the entire financial planning process. It should challenge assumptions about models and the sales process. It needs to address issues such as communication skills, level of product understanding and also an understanding of the analysis that the financial advisor brings to the planning process."
Geller adds that he has been disappointed with some of the continuing education offered to financial advisors. "In many cases, I have seen credits offered for sales or product seminars, even for company-sponsored trips or vacations. How is that defensible from a professional standpoint? These are product-specific sales trips and do not represent meaningful educational opportunities."
Geller has a laundry list for what kinds of questions should apply to a continuing education program before it is considered meaningful content. Is the course truly independent and free from conflict of interest? Does it explain a product, but also show comparable products in the market? Is there context? Does it identify not just a product but how that product can be integrated into the financial planning process? And finally, will the course be audited?
"These are some basic questions that should lead to a healthy debate," Geller says. "That debate has to be less theoretical and much more practical for the financial advisor on the ground who is actually doing the planning and selecting products for consumers."
The need for greater quality assurance is a central reason why the Institute for Advanced Financial Education developed seven decision criteria for an educational program to be accredited (available at www.iafe.ca). These measures range from audience relevance to learning objectives to delivery format, but the goal is to ensure the course at hand is meaningful.
"If we are to be recognized for our professional role, we need to set guidelines and standards that are transparent and meaningful," Czorny says. "We have to ensure we set the bar higher for CE than regulators or even consumers expect. If we want to call ourselves professionals, there really is no other choice."
The drive for more impartial, verifiable and relevant continuing education for financial advisors is a theme echoed by several sources. Albanese contends there should be a separation between "soft skills," which tend to involve sales training and product promotions, and "technical skills," such as estate planning and taxation. In some cases, he adds, education credits are given away for free.
"That is not meaningful education," Albanese says. "It has become [diluted] over time. Continuing education should focus on technical skills and you should have to pay for it. There should be measurable standards and criteria in place. That is what Advocis has done with The Institute, and this should be applauded. You will get some advisors and agents who may complain, but put it this way: the truly professional advisor will welcome it."
"Quality assurance can be a challenge when it comes to professional development," Wickett notes. "There are a number of product seminars that may be done under the guise of a true educational opportunity, but the courses a CFP takes must meet our guidelines. Typically, if a course is simply about a product, only a small portion of that time — say, 10 minutes — will qualify as continuing education."
Wickett adds that, from a compliance perspective, continuing education can help identify sources of consumer complaints and areas where financial advisors and planners "may be falling down."
"We can see what kinds of educational opportunities are there to address any causes of concern," he says, "and whether there are gaps in knowledge or practise in certain areas."
One example of such an area is behavioural finance, according to Wickett. "This is growing in prominence — not just educating the client about financial goals but trying to understand his or her perceptions, biases and motivations. However, this field may not be that widely understood by some financial planners. We can identify this type of gap and see if continuing education can address it."
A recurring challenge for financial advisors is the number of regulatory and self-regulatory bodies that govern various aspects of the profession. Each organization has differing requirements and standards for continuing education. For example, The Institute, FPSC and IIROC all have different credit requirements, not to mention other specialized designations that exist among financial advisors, such as the Trust and Estate Practitioner (TEP) or the Fellow, Life Management Institute (FLMI).
"One of the issues we face is the diverse number of bodies that govern parts of the advisory profession," says Albanese. "There is some overlap in terms of the courses and requirements, but it can still be confusing. When you add in the fact that different provinces have different education standards, it really is a mixed bag."
For Geller, this can mean an uneven application of, or interest in, professional development in certain parts of the financial services industry. "Where I see less engagement in continuing education is on the insurance side," he says. "In most cases, insurance companies as 'product manufacturers' have contractually delegated issues of training, education and supervision of advisors to managing general agencies (MGAs)."
A cursory approach to continuing education in general can result in more consumer complaints — and court cases, several sources note. "One area where financial advisors have a hard time is explaining the analysis or thought process that led to their recommendations," Geller says. "As a lawyer, this is where I see the most complaints. The advisor may understand the product, but they don't necessarily integrate that into the financial planning process. You would be surprised how many complaints I have seen where there is no real financial planning process that has been docu-mented or followed by the advisor."
"Continuing education is critical to meet the changing needs and demands of an advisor's client base," Bessner adds. "Clients are clearly the ones who tend to complain. Advisors should be able to handle the complaint, but also to recognize the issues before a complaint happens. They need to be sensitized to ward off the dangers of a client complaint or lawsuit."
"Consumers have shown an increased willingness to go to the courts or to regulators if they have a complaint," notes Albanese, who has acted as an expert witness in dozens of cases involving financial advisors. "In most instances, the agent or advisor either was not trained properly or did not have the appropriate knowledge. He or she ended up making the wrong recommendation in that particular situation. So the consequences of not having the right knowledge or updated education [can be] very serious."
Sources all agree that if financial advisors want to adopt the mantle of true professionals and be held in the same company as lawyers, doctors and accountants, they must be fully committed to continuing education and professional development.
"I think the debate about the need for continuing education is past," Geller concludes. "The debate now is about the need for substantive education that focuses on advisor skills and knowledge versus sales or product pushing. I think the financial advisory profession has some catching up to do, but it has made some important strides."
HOW FINANCIAL ADVISORS STACK UP
Institute for Advanced Financial Education
Effective January 1, 2011, the annual continuing education (CE) requirement for the CLU designation is a minimum of 30 continuing education (CE) credits each calendar year, one credit of which must be from a recognized ethics program. Each hour of CE credit must be approved by The Institute in order to qualify as a CE credit. For the CHS designation, individuals must meet the annual requirement of 10 CE credits.
Investment Industry Regulatory Organization of Canada
Individuals registered to do retail business and give advice must complete a compliance course and a professional development course during each cycle. The compliance course will require a minimum of 12 hours, and the product knowledge/professional development course will require a minimum of 30 hours of study. These courses must be completed in three years.
Financial Planning Standards Council
Certified Financial Planners (CFPs) have an obligation to ensure that their knowledge and competence remains current. In order to renew their licence to use the CFP marks, a CFP must attest to having completed 30 hours of CE activities every year, of which 20 hours must be verifiable CE.
Law Society of British Columbia
The Law Society of British Columbia requires that all practising B.C. lawyers complete at least 12 hours of continuing professional development (CPD) in accredited educational activities per year. At least two of the 12 hours must pertain to any combination of professional responsibility and ethics, client care and relations, or practice management.
Law Society of Upper Canada (Ontario)
Commencing January 1, 2011, lawyers and paralegals who have been practising or providing legal services for more than two years must complete at least 12 hours of CPD in eligible education activities per year. A minimum of three of the 12 hours must be on topics related to professional responsibility, ethics and/or practice management ("professionalism hours"). Only professionalism hours must be accredited by the Law Society. The remaining nine "substantive hours" need not be accredited. Substantive hours may address substantive or procedural law topics and/or related skills.
Institute of Chartered Accountants of Ontario
The minimum CPD that must be completed in 2010 is 20 hours, of which at least 10 hours must be verifiable CPD; the remaining hours may consist of unverifiable CPD. The new overall CPD cycle is from January 1, 2010, to December 31, 2012. The three-year requirement is 120 hours of CPD, at least half of which must be verifiable.
Certified General Accountants Association of Canada
Every member shall accumulate a minimum of 120 hours on a moving total basis for each three-year reporting period ending December 31. It is recommended that a minimum of 20 hours be earned annually. Of the 120 hours required, a minimum of 60 hours must be verifiable learning. A member must retain documentation to support the hours claimed for the most recent three-year reporting period.