Adviser, advisor, financial adviser: but should we have the word advise in there at all…?

We all know that most financial advisers provide advice as to how much to save, how to invest, where to invest, what to invest in and when and how much to sell, if at all.

The trouble, in Canada, lies in the accountability and responsibility for that advice.   I am not going to quote any one particular study, or name any one particular company or firm, but most consumers (in most countries) believe the advice they receive is made in their best interests by advisers/ors committed to professional standards of conduct, and most firms market their advice as a very important, if not the most important, component of their service.   So are they advisers/ors?

Well not really, because while many may operate as such, and many may pretend they deliver such, and regulators and the media loosely use the word “advisors/ers”, regulation does not consider most of those who call themselves advisers/ors actual advisers/ors in the best interests/fiduciary standard context.   They are to be blunt regulated with respect to their transactions, and the advice they provide is limited in an ephemeral and extremely limited way to the products they sell and the brief information they collect (KYC).

But our dear regulators (the CSA and the OSC in particular and self regulatory organisations, i.e. IIROC) do not make it easy for investors to work out just what activities advisors are regulated to provide.  

Which of our dear registration categories are advising registrations in the best interests/fiduciary standard context?   The following two e mails, that I recently sent with respect to questions on the subject, provide my thoughts on the issue:

As I said in my last e mail the only categories which specifically denote the verb advise in the regulatory terms for roles are the “Advising Representative” and the “Associate Advising Representative”  and the only entity requiring registration as an adviser are portfolio managers.

The term advisor is used by IIROC, instead of adviser I believe, because the term adviser is already used by the CSA for a specific registration category and for a specific set of responsibilities (i.e. fiduciary responsibilies).   An “Investment Advisor” is a term used to denote a registered representative who can advise on products and securities transacted but is not in itself a registration category.  

I believe that regulation clearly demarcates the role of an adviser from an advisor because of this and that the use of the term adviser in the context of regulation is misleading, even though CSA/OSC communication to public includes the term “financial adviser” and therefore, in my mind, impart an incorrect message to the consumer as to the role of the “financial adviser”.   It is nevertheless clear from CSA/OSC communication that the role of the non advising “registered rep” registration is purely one of advising on products and relating profiles as defined by the KYC to products.  The issue of investors relying on advice (as in a fiduciary relationship) is ascribed to advising representative registrations and not the other categories. 

I believe that once advisors are held to a best interests standard then they will be classed within an advising registration nomenclature and will be able to be termed adviser, that is if the securities act retains the term adviser.

The following link provides a tab through which you can access all the registration options.

  And the second e mail:

Re style preference: advisor or adviser

I believe it is clearly more than a question of style. 

Technically: I believe the term adviser is restricted to portfolio managers who have to be registered as advisers and their advising and associate advising representatives.   An investment advisor is registered as a registered representative (IIROC) and it is for this reason that I believe that IIROC uses the term investment advisor instead of investment adviser. 

At an altogether more fundamental level, if a person is to be considered an adviser/or, the relationship is going to be different to one where the relationship is effectively a recommendation in response to a transaction request, which is basically the foundation of the current regulation of the transaction via the KYC.  

By loosely referring to advisors/advisers the media is ignoring the issues of best interests standards and the associated issues of responsibility, transparency and accountability.   I do agree that if we ignore the technical niceties of regulatory speak that the terms advisor and adviser are interchangeable, but the responsibilities should not be.  

As such, I believe, the term advisor is used very loosely, in a “careless word costs lives” kind of way.   The term “advisor” (and increasingly and erroneously too “adviser”) is really the nomenclature assigned to one who offers transaction advice by those who wish to spin the transaction relationship into an advice based relationship without the regulatory overlay. 

So commentators are effectively misleading the public about the true nature of the relationship, if they know better, and are being led by the industry if they do not. 

To ascribe the reason to one of style is an insubstantial argument that implies the issue is not of importance.   But it should be of concern if you understand, or care about, the issue.

Leave a Reply