How to Perform a Quick Background Check on a Canadian Financial Advisor
In Canada any man, woman or child can call themselves a “Financial Advisor”. Outside of the province of Quebec the Financial Advisor title is completely unregulated. Our country currently hosts just over 119,000 people who are registered with a regulatory organization to provide financial advice – the majority of these ‘advisors’ are actually just salespeople.
Running into someone with a less than exemplary record and flimsy professional qualifications is more common than you’d think. Before you consider hiring an advisor spend a little time checking into some of the hard facts of who they are rather than who they claim to be.
As a starting point there are a few questions you’ll want answered:
• Are they registered with a Canadian Regulator – either IIROC, the MFDA or a Provincial Securities Commission?
• Have they ever been disciplined by a Regulator?
• What about Industry courses? Have they completed courses other than the bare minimum required?
• Do they hold the professional designations that appear on their business card or website?
Step 1. Begin your Background Check
The best place to start your check is the Canadian Securities Administrators “National Registration Search”.
The CSA database includes everyone currently registered to recommend stocks, mutual funds, bonds, etc., in Canada. All you’ll need for your search is the advisors name. Here you’ll find an advisor’s category of registration, the provinces where they’re licensed to do business, if there are any ‘terms and conditions’ on their registration and in some cases, their industry start date.
If someone doesn’t appear in this database – they aren’t registered with a Canadian regulator.
The rules for ‘non-registrants’ are simple – they can’t offer advice that is considered “in furtherance of a trade”. In other words, non-registrants cannot make specific recommendations on the purchase or sale of any investment.
Fee Only Financial Planners are not required to be registered with a regulator. These advisors provide financial and retirement planning advice – not investment advice. Fee only planners are paid on either an hourly or project basis, or a monthly or annual retainer. If you’re hiring a Fee Only Planner ensure they have a relevant professional designation (such as a CFP® or R.F.P) and lots of relevant experience (check their LinkedIn profile!).
If your ‘financial advisor’ only carries an Insurance License you won’t find them in the CSA database either. Insurance advisors should never be used for investment advice – this includes investment advice for your RRSP, TFSA, or RRIF account. Insurance advisors should only be used to purchase insurance - not investments.
Step 2. Check if Your Advisor has broken any regulatory rules
The CSA website also hosts the ‘Disciplined List’:
Advisors who commit regulatory infractions are not always permanently banned from the industry. Offenders will frequently only face a slap on the wrist such as a fine, a temporary suspension, a requirement to rewrite an industry course – or a combination of all three. Any violation of industry rules should be taken very seriously. The rules aren’t difficult to follow – and just because regulators give these people a second chance, you shouldn’t.
Step 3. If your advisor is registered with IIROC – dig deeper
Advisors registered with IIROC (the Investment Industry Regulatory Organization of Canada) can recommend Stocks, Bonds, Exchange Traded Funds, Mutual Funds and in some cases Stock Options. The IIROC Advisor Report provides some details not included in the CSA Registration database such as industry courses they’ve completed as well as a list of all the dealers who have sponsored the advisor’s registration since 2003.
The minimum course requirements for an IIROC license are not rigorous. All that’s required is passing a few multiple-choice tests.
Look to see if the advisor has taken more courses and obtained certifications beyond what is just ‘required’. To be considered a true professional, an advisor should have designations such as the CFP®, CFA®, CIM®, a recognized accounting designation or a graduate degree such as a master’s in business administration (MBA). The advisor report does not list university degrees but will show courses completed through the Canadian Securities Institute as well as the CFP® and CFA® designations.
The advisor report also provides a list of all the dealers where the advisor has worked post March 2003. Moving dealers is not unusual. Over the course of a career an advisor may change dealers 2 or 3 times. In some limited cases this list might include a dealer that has undergone a name change as the result of a merger or acquisition by another dealer. However, if they appear to have moved around a lot, especially over a short period of time, it’s reasonable to ask why.
Step 4. How to Confirm Designations
Certified Financial Planner®
If an advisor is using the Certified Financial Planner (CFP®) designation you can confirm this at the Financial Planners Standards Council website through this link:
*In Canada there are more than 17,000 people with the CFP® designation. It’s the most common 'professional' designation. Lot's of CFP’s use this to gain credibility - a ‘licence to sell’ rather than a ‘licence to advise'.
Chartered Financial Analyst®
An advisor using the highly regarded Certified Financial Analyst (CFA®) Charter can be confirmed at the CFA Institute website here:
Chartered Investment Manager®
Anyone using the CIM® designation will be listed in this directory here. Advisors with the CIM® are frequently registered as Portfolio Managers who have a fiduciary duty to always act in your best interests:
Financial Planner (Quebec)
The use of the Financial Planner title in Quebec is strictly regulated anyone using the title must be certified by the institut québécois de planification financière and can be identified by the F.Pl. designation. Here’s a link to their member directory:
Step 5. Social Media profile
Social media is a great place to poke around if your interested in some more personal details. Not all advisors have a social media presence. Activity on social media is closely monitored by compliance departments – for some advisors participating in certain social media channels isn’t worth the hassle of ongoing monitoring and approval.
LinkedIn – Most, if not every advisor should have a LinkedIn profile. LinkedIn will provide some generic information – education, credentials, work history, perhaps they’ll have posted an article they’ve written.
Facebook – You can search an advisor by either their name or if they have one, their practice trade name. If their personal facebook page is public, you might just find yourself looking at pictures of your advisors’ kids or their recent trip to Cuba. An advisor’s business page might be searchable under their business name (i.e.: Jane Smith Wealth Management). These pages typically supplement an advisor’s website with information on upcoming and past events and other goings on about their office.
Twitter – Advisors tend to use twitter the least of all social media platforms – from a compliance perspective, monitoring twitter can be cumbersome. Advisors who are present on twitter will frequently provide commentary on where they stand on current events or markets providing some unique insights into their personality.
Step 6. Google the Advisor’s Name
Googling an advisor by name might be the obvious first step in your background check. In addition to entering the advisors name into your search engine, try using their name + the firm they work for or their name + their regulator. It’s remarkable what you can uncover with a simple search – detailed information about their firm, their work history, organizations and charities they are involved in….and of course pay attention to any past bad behaviour.
A financial advisor should never be hired solely based on the recommendation of a friend or family member. Hiring a lousy, underqualified advisor will cost you a lot of money and grief in the long run. There are lots of ‘nice’ advisors out there, never put ‘nice’ at the top of your list when hiring an advisor.
Danny MacKay is the founder of SeekAdvisor, a former Bay Street Executive and Industry Insider turned Investor Advocate.