Raising Proficiency Standards:Certificate In Advanced Mutual Fund Advice

Presentation to Federationof Mutual Fund Dealers

September 19, 2012

by Marshall BeyerDirector, Regulatory Relations and Credentialing

Agenda

What is the Canadian Securities Institute (CSI)? Rising Professional Standards for Advisors: An

International Perspective CSI’s Credentialing Framework Introducing CSI’s Certificate in Advanced Mutual

Funds Advice

Established by Canada’s SRO’s in 1970

Full mandate for all licensing education and testing for securities industry. Eighteen courses/exams for IIROC licensing

Full set of courses and certifications for retail banking, including mutual fund licensing and branch compliance

Offers an accredited course that leads to the LLQP

Annually serves 50,000+ students and corporations via broad range of courses and services across all pillars

Focuses on delivering certificates and credentials to build industry professionalization

Sold by IIROC in 2006 and contracted by at thereafter.

Introduction to CSI

CSI’s Vision

To be a global leader in financial learning, credentialing and certification, helping

professionals and financial services companies succeed and prosper, while contributing to the

integrity of the financial markets.

To be a global leader in financial learning, credentialing and certification, helping

professionals and financial services companies succeed and prosper, while contributing to the

integrity of the financial markets.

Rising Professional Standards for Advisors: Evolution of Investment Industry Value Propositions

Order-Taking and Execution – Transaction and Data

Information – Underwritings

Service – Updates, Reporting, Guidance, Tools

Research and Opinion

Investment Recommendations (stock picking)

Professional Money Management

Financial Planning

Wealth Management

Low

High

The evolution of titles used by client-facing employees gives a mini tour of the evolution of the business:

Customer’s man

Stock Broker

Salesman

Registered Representative (still the regulatory name)

Account Executive

Mutual Fund Representative

Investment Advisor

Investment Representative (no advice)

Financial Advisor

Wealth Advisor

Rising Professional Standards for Advisors:Investment Industry Titles Evolution

Then

Now

Pre-Financial Planning/Advice Era

Duty to obtain clear instructions from the client

Duty to advise if the order was not executed

Duty to advise on the type of order and cost

Duty to advise on the fill

“Know Your Client” was as much about protecting the firm from credit risk, as it was about protecting the client

Rising Professional Standards for Advisors: Evolution of RR Suitability Standard in Canada

Financial Planning/Advice Era

The general suitability standard has risen from duty of care to (what we refer to as) advanced suitability. Fiduciary may apply depending on the dependency/vulnerability of the client vis-à-vis the RR

Advanced Suitability – Suitability determined not only for specific transactions but in the broader context of the client’s financial picture and portfolio as a whole

Rising Professional Standards for Advisors: Evolution of RR Suitability Standard in Canada

Pre-1967 – No mandated requirements

1967-1991 – Proficiency largely focused on understanding products and rules – CSC and Conduct & Practices Handbook Course (CPH) – no additional proficiency required for discretionary management (needed experience)

1991-1995 – Still largely product and rules based – proficiency now required for discretionary management (CIM or CFA)

1995-2006 – Post-licensing requirement introduced as part of basic proficiency – choice between financial planning and investment management – CE introduced

2006-Present – Towards a wealth management standard – integration of financial planning with investment management – Wealth Management Essentials (WME) as the post-licensing requirement

Rising Professional Standards for Advisors: Evolution of RR Proficiency Standard in Canada

What is happening toprofessional standards

outside of Canada?

Difference between “brokers” and “advisors”

Suitability standard for brokerso Seen to be giving investment advice incidental to tradingo Exception: ERISA investments – fiduciary duty

No requirement to find the best investments

Fiduciary standard for advisorso Must find the best investmento Must avoid or disclose conflicts of interest

Proficiency requirements for advisors include Series 65 (or CFP or CFA) – Being a fiduciary means more than knowing what fiduciary means – it means having the competency to do the job.

Rising Professional Standards for Advisors: U.S.’s Approach

Dodd Frank imposed a fiduciary duty on broker-dealers (“wirehouses”) but provision is still being debated and will not likely be determined before the U.S. election (and its fate may depend on the election results)

Regardless of whether the fiduciary standard gets imposed on brokers, there has already been significant migration by brokers to an advisory platform (or dual platform)

Issue is whether brokers should have a fiduciary standard

This would mean acting in the client’s best interests, not just considering whether the trade is suitable

Would mean higher proficiency requirements (Series 65) for brokers

Rising Professional Standards for Advisors: Proposed Changes in the U.S.

Retail Distribution Review to be effective on January 1, 2013:

All investment advisers will be qualified to a new higher level, regarded as roughly equivalent to the first year of a degreeBan on “conflicted” remuneration structuresInvestors know up front what advice will cost and how they will pay for it

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Rising Professional Standards for Advisors: U.K.’s Approach

Introduction of a fiduciary standard Considering moving to higher mandated proficiency standards (under

review) Ban on “conflicted” remuneration structures Became effective on a voluntary basis on July 1, 2012; will become

mandatory on July 1, 2013

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Rising Professional Standards for Advisors: Australia’s Approach

European Securities and Market Association recently issued a consultation paper on advisory compensation practices

It is proposing similar bans on conflicted remuneration structures Proposing harmonization of fit and proper requirements of advisory

staff

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Rising Professional Standards for Advisors: European Union

Regulators in the U.S., U.K., Australia and Canada have been responding to rising investor expectations and the shift from a transaction to an advice-based relationship.

We have recently seen regulatory proposals in several jurisdictions which focus on:

the training and proficiency of advisors the advisor’s relationship with and responsibility to his/her client compensation: getting the incentives right so the client’s and

advisor’s interests are better aligned

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Rising Professional Standards for Advisors: Summary

Fellowship Assumes an underlying profession (designation) combined with broader knowledge of the industry and includes industry contribution

DesignationA focus on the assessment of professional competency and the application of those competencies, as well as awareness of the professional practice

CertificateThe skill and knowledge requirements for a specialized or targeted role/ function. Usually builds upon an existing foundation role or knowledge

Licensing CourseThe (minimum) skill and knowledge requirements for a regulated or licensed function/role. Standards are set by regulator

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CSI’s Credentialing Framework

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CSI’s Credentialing Framework

Market Need

MFRs who manage their own book of business share many of the same competencies as RRs. Ultimately they both should be able to link a client’s financial needs and objectives at different life stages to an appropriate financial and investment plan and do so within regulatory and ethical bounds

Although the basic mutual fund licensing course has been enhanced over the years, the proficiency bar has not been raised significantly and is much lower as compared to RRs and what we are seeing internationally

The Certificate in Advanced Mutual Funds Advice is CSI’s offering to those MF firms and advisors who wish to distinguish themselves by meeting a higher proficiency standard to better service their clients

The certificate is on a mutual fund-specific path to CFP and IIROC RR licensing

Introducing CSI’s Certificate in Advanced Mutual Funds Advice

Introducing CSI’s Certificate in Advanced Mutual Funds Advice

Taking two courses beyond the basic mutual fund licensing course earns the Certificate in Advanced Mutual Funds Advice (CAMFA)

Fundamentals of Financial Planning (FOFP)

Covers the financial planning knowledge mandatory for IIROC RRs (Volume 1 of WME = the 30-month requirement course for RRs)

Roughly 65% of CFP curriculum and 50% of IIROC 30-month requirement:

o Retirement Planningo Estate Planningo Tax Planningo Insurance Planningo Budget and Savings Planningo Family Lawo Residential Mortgages

Requires 50-70 study hours + 1.5 hour multiple choice proctored exam

Introducing CSI’s Certificate in Advanced Mutual Funds Advice

Building a Mutual Funds Advisory Practice (BMAP)

The course is split into 2 parts

Part 1 focuses on practice management:o Developing a business plano Building a referral networko Marketing and business developmento Succession planning for advisorso Know Your Client and Know Your Producto CRMo Guidelines for leverage recommendationso Incorporating your practice

The course not only teaches these concepts, but learners are required to create their own business/action plan as they work though the course

Introducing CSI’s Certificate in Advanced Mutual Funds Advice

Building a Mutual Funds Advisory Practice (BMAP)

Part 2 focuses on portfolio fundamentals, accumulation and de-accumulation investment strategies and products:

o Asset allocationo Performance measuremento Advanced mutual fund analysiso Hedge funds/Commodity poolso How derivatives are used in managed fundso Segregated fundso Annuitieso GMWPs

Requires ~50 study hours + 1.5 hour multiple choice proctored exam

Introducing CSI’s Certificate in Advanced Mutual Funds Advice

Post-Certificate Options – What’s Next?

Certificate in Advanced Mutual Funds Advice

Certificate in Advanced Mutual Funds Advice

Financial Planning

Supplement

Financial Planning

Supplement

CFP® Level 1 Exam

CFP® Level 1 Exam

CFP CapstoneCFP Capstone

PFP® Certification

Exam 1

PFP® Certification

Exam 1

CSC Express*CSC Express* CPHCPH WME Express*WME Express*

CIC Fast TrackCIC Fast Track LLQP ExamLLQP Exam

AFPII CapstoneAFPII Capstone

Certificate earners will have the flexibility and advanced standing to work towards:CFP or PFP designations, and/orTransition to the IIROC platform, and/or Pursue their insurance license

* working title

For individual advisors, sales assistants or those looking to enter the industry, CAMFA offers:

Credential that will provide increased knowledge and help build credibility with clientsA mutual fund specific path to CFP or PFPGradual path to IIROC licensing

For dealers, CAMFA can:Help with advisor training and succession planning

Value Proposition of CAMFA