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'Financial advisers': What exactly do they do?

To the uninitiated, a financial adviser is a financial adviser is a financial adviser. But behind the scenes, a more fragmented and convoluted flow-chart you could not create.

Some advisers are only allowed to sell mutual funds and government savings bonds. Some are licensed to also sell exchange-traded funds and individual securities like stocks and bonds. Life insurance agents can sell products that on the surface look and feel like mutual funds, but carry some complex features and benefits with arguably much less compliance and regulatory burden. And those who offer broad advice or coaching but who do not advise or transact on securities with respect to an individual's particular circumstances are not even required to be licensed at all. They can provide guidance on asset allocation and can steer investors to model portfolios that they can implement themselves, as well as provide financial planning.

Different financial adviser licensing bodies have different licensing requirements but compared to graduating medical or law school, they are all about the equivalent of one semester in summer school. Of course, many advisers study and train beyond the relaxed licensing requirements, which is a good thing. The flipside of that coin is that there are dozens of designations an adviser can put behind their name which further confuse the public.

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Just looking at financial planning alone, here are three you might come across: the Certified Financial Planner (CFP), the Registered Financial Planner (RFP), and the Personal Financial Planner (PFP) designations. If a problem of choice isn't enough to wrap one's brain around, across most of Canada anyone can simply call themselves a financial planner without any licensing or designations.

A former colleague of mine had earned seven different designations but chose to only use three: the CFA (Chartered Financial Analyst), the CFP, and the FCSI (Fellow of the Canadian Securities Institute). His belief was that having the better part of the alphabet after his name was more laughable than laudable.

He's right. If there are so many designations available, the perceived value of those designations diminishes. Some require a few weeks to obtain, others require the sacrificing of one's personal life for the better part of three years. How does the average consumer tell the difference?

Consumers should not be left to hope, as they walk into the financial adviser's office, that this is the right fit for them. Everyone acknowledges that financial literacy could be higher, but that's only part of the solution. A collective professionalization and simplification of the industry itself, from top to bottom, is necessary to install a higher level of confidence from consumers.

Consumer advocates aren't the only ones pushing for this change – so are financial advisers themselves. Advocis, an association representing over 11,000 advisers in Canada is asking for tougher standards right on the front page of their website.

Is it too much to ask that someone who merely takes orders, or has a monthly quota for credit card accounts to open, is not commonly, or from a regulator's perspective, called a financial adviser? Can we reserve that for professionals who provide comprehensive planning and advice, and who act in the best interests of clients above anyone else?

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About the Author
Personal Finance columnist

Preet Banerjee is a consultant to the financial services industry. You can follow him on twitter at  @PreetBanerjee. You can find his conflict of interest disclosure on his website. More

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