Sunday, May 15, 2011


Proposed changes to CFP code of ethics

The changes would bring the Canadian CFP practice standards and code of ethics in line with the global CFP principles

CERTIFIED FINANCIAL PLANNERS will face an explicit expectation to put their clients' interests first at all times under proposed changes to the CFP designation's code of ethics.

The Toronto-based Financial Planning Standards Council is seeking comments on updated versions of the CFP practice standards and code of ethics. The proposed changes aim to bring the FPSC's standards in line with global CFP principles and standards, which were updated a year and a half ago by Denver-based Financial Planning Standards Board Ltd. The FPSB works with member organizations in 24 territories to develop international competency, ethics and practice standards for CFP professionals.

"The changes' are relatively small," says John Wickett, senior vice president of standards and certification at the FPSC. "In a few places, we wanted to clean up the language a little bit, tighten it up, make sure it was very dire'ctive to CFP professionals but also very clearly protecting of clients."

The most significant change is the addition of a new "client first" principle to the code of ethics, which states that "a CFP professional shall always place the client's interest first" and must "place the dient's'interests ahead of their own."

Although the code of ethics has always been implicitly client centric, this addition would make the principle explicit, Wickett says: "[There was] a desire to hit that issue head-on. Instead of not speaking to it directly, it's time to just say it outright."

The Toronto-based Canadian Foundation for Advanceme'nt of Investor Rights (a.k.a. FAIR Canada), which has called for regulations that would require all financial advisors to put their clients' interests first when providing investment advice, lauds the proposed principle.

"We think it's a step in the right direction," says Marian Passmore, FAIR Canada's associate director. "We will be interested to see how it will be enforced in practice."

FAIR Canada would like to see the FPSC add even more clarification to its code of ethics on the importance of putting clients first. Specifically, Passmore says, the principle should explicitly state that CFP professionals must not only place the client's interests ahead of their own, but also ahead of the interests of.the firm with which the CFP is associated. FAIR Canada plans to make this recommendation in the comments that it will submit as part of the consultation process.

Canada is one of many countries that recently have been engaged in a debate around the prospect of imposing a fiduciary duty on financial advisors as a way of enhancing investor protection. The proposed "client first" principle would bring CFPs in Canada one step closer to facing this type of standard.

"Really, we're not asking anything more of a CFP professional than is asked of a lawyer or a physician or anyone else put in that kind of position," says Wickett. "If you're a professional, you're a professional- and this is how you have to conduct yourself,"

Another of the FPSC's proposed changes would make the CFP code of ethics enforceable in all professional dealings by a CFP - not just in situations in which a CFP is providing financial' planning servi,ces. For instance, when a CFP is engaged in the sale of a financial product or another activity that's not, strictly speaking, financial planning, the CFP would still be expected to adhere to the ethical principles.

"That's just to make sure," says Wickett, "that there's no avoiding being held accountable to the code of ethics based on what may be a technicality."

"Conduct that contravenes these principles "may be subject to disciplinary action by [the] FPSC's enforcment department," the proposed code of ethics says.

Meanwhile, the CFP practice standards have been tweaked only modestly. Introduced in 2003, these standards outline the process that CFPs are obliged to follow when engaged in comprehensive financia! planning. For instance, the standards stipulate that financial planners must provide clients with a letter of engagement that dearly articulates the scope of services.

The proposed changes include primarily minor adjustments to the language in order to add clarity, Wickett says: "There's no shift in what is expected of a CFP professional."

Wickctt doesn't expect that the proposcd changes to either document would have much of an impact on the day-to-day activities of most CFPs; most CFPs, he says, already conduct themselves in a compliant manner.

"I don't think it's going to have a major effect on most," he says. "But I think it sends a very important message to industry, to CFP professionals and to the public that this is what's expected."

The FPSC's code of ethics and practice standards are reviewed by the council every five to eight years, and usually the changes are minor.

"You don't expect ethical principles to change that much over time," says Wickett. "But how you describe them can shift a bit as the landscape changes."

The process of revising the current standards was conducted by two task forces composed of FPSC staff, CFPs and representatives from the FPSC's seven member organizations. This last group includes the Montreal-based Institut quebecois de planification financiere, which is currently reviewing its own code of ethics. The FPSC and the IQPF aim to keep their ethical standards as consistent as possible.

The deadline for feedback on the FPSC's proposed changes by financial services industry members and the public is May 16.

Megan Harman
Investment Executive 
May 2011

Saturday, May 14, 2011


1960 - 1990


Large corporations began to dismantle defined benefit pension plans over 20 years ago.

The first demographic group who were targeted were those in their mid 50's. Why? Because it is costly to fund a lifetime retirement with 10 years left (i.e. 55 - 65). This left those affected with only one choice - do it on your own. A $100,000 / year retirement income requires $2,000,000 in capital assuming a 5% rate of return on the capital - that's $200,000 / year in retirement funding. That sum speaks for itself. Most corporations did not start the retirement funding early.

Once a corporation removes a guaranteed pension for all intents and purposes an employee becomes self employed. The only advantage anyone has financially in a large institution is the opportunity to receive a pension and retire with peace of mind. Once you are on your own you are acting as an independent entrepreneur and not an employee. Loyalty cuts both ways.

That's the background that has resulted today in 60% of all working Canadians not having a defined benefit pension plan which would allow them to sleep soundly throughout the 30 - 40 years of their retirement (from as early as 55 to as late as 95 - look around you in your own family.)

Ask public servants why they work for the government from a financial point of view - their defined benefit pension.

Financial planning was done by the corporation - not the employee. Employees budgeted – income – expenses – that’s it. The employee traded his or her financial time for a guaranteed lifetime income at retirement.

Employees bought financial products for their individual accumulation purposes but had very little certainty whether they would be able to transition their accumulated savings capital into a sufficient and sustainable lifetime retirement income.

That brings us to 2011 where 14,000,000 boomers in Canada are preparing to retire and are inadequately aware of which professional financial practitioner can replace the corporate financial management team who once upon a time designed and implemented their defined benefit retirement plans......

That's where we are today.

Friday, May 13, 2011



It will be the 'biggest social issue we're going to be debating in our society'

Talking about pensions may seem deadly boring but it will likely emerge as a much bigger issue in the years to come.

That's because of several colliding factors - aging baby boomers, low interest rates and weak stock market returns.

Plus more companies, especially small and medium-sized businesses, don't offer pension plans. Those that do are switching from defined benefit programs, with guaranteed . payouts, to defined contribution plans, which are based on accumulated contributions.

A number of pension plans have been damaged severely by the last recession or corporate bankruptcies. Nortel pensioners have engaged in a high profile public fight for their benefits, which have been compromised by the company's demise.

"Pensions will be the biggest social issue that we're going to be debating in our society over the next 10 years:' said Rick Robertson, an associate professor at the Ivey School of Business.

Statistics Canada reported this week that about 6 million Canadians were in registered pension plans as of Jan.1, 2010. Of those, 3.02 million work in the public sector as bureaucrats, nurses and teachers.

Nearly 60 per cent of working Canadians have no company pension, StatsCan says

Those working in the private sector know fewer employers offer pension plans, and more companies are switching to defined contribution plans from defined benefit plans. Some only offer defined contribution plans to new hires.

Air Canada is trying to switch newemployees to these cheaper plans. Its 3,000 pilots, who have reportedly balked at the idea. are in the midst of a ratification vote on a tentative deal. Statistics Canada says nearly 60 per cent of working Canadians - or 12.3 million peopIe - have no company pension.

While government supports are in place the Canada Pension Plan for all working Canadians, Old Age Security for all Canadians and the Guaranteed Income Supplement for low-income Canadians - it's the middle earners who are feeling the pinch.

A defined benefit plan has one huge advantage: people don't go to sleep at night worried when they have retired," said Robertson. ''It leads to very different lifestyle choices."

With these latest statistics, he believes it's only natural for governments to try to pull back on pensions, though it would lead to a very tough fight with unions.

"There are some pretty powerful unions.

Think of the teachers. Everyone says, 'Take them on: but as soon as somebody's kid doesn't have a place to go that day, then they say, 'Just solve it;" Robertson said

Any move to introduce pension changes would not solve immediate fiscal problems, but some U.S. states, where unions are weak or non-existent, have already done it

Newly hired state workers in VIrginia are now on a retirement savings program instead of the traditional defined benefit plan.

Paul Forestall, senior partner at Mercer, a human resources consulting firm, believes there will be growing pressure on governments here to move toward defined contribution plans.

The Statistics Canada data shows about 143,000 government workers were on defined contribution plans in 2009, compared with 2.8 million on defined benefit plans.

''Pensions are a big part of compensation in the public sector. Changing it won't be easy;' he said, adding public sector employees like teachers also make significant contributions to the plans. Given the decline in manufacturingjobs, Forestall is not surprised public sector workers now make up more than half of those with pension plans.

Ultimately, any changes may be dependent on government action.

While Finance Minister Jim Flaherty has expressed concern Canadians aren't saving enough for retirement, efforts to reform CPP have been thwarted by certain provinces, notably Alberta

Flaherty has floated the idea of a privately administered, voluntary program designed to help mainly the self-employed and workers at small businesses.

"I think it would be a positive change if implemented, but I'm not sure it will be enough to address coverage," Forestall said

If government reforms offer tax advantages to companies or make it easier to offer pensions, companies may start to offer defined contribution plans, though probably not defined benefit plans, he added. 
Vanessa Lu, Business Reporter
Toronto Star
May 13, 2011