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Discussion Starter #1
Hi,
I'm interested in finding out how financial planners run their business. If you are a financial planner business owner or work for a privately run financial planner business I would love to speak to you. Primarily my interest is where do you buy the insurance for your clients from and where do you purchase the investment vehicles for your clients? If you would be kind to private message me that'll be greatly appreciated. Also, if anyone else knows the answers to these questions please post a reply.
Many thanks.
 

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Hi,
I'm interested in finding out how financial planners run their business. If you are a financial planner business owner or work for a privately run financial planner business I would love to speak to you. Primarily my interest is where do you buy the insurance for your clients from and where do you purchase the investment vehicles for your clients? If you would be kind to private message me that'll be greatly appreciated. Also, if anyone else knows the answers to these questions please post a reply.
Many thanks.
A bit more info might be helpful, like why are you asking this? Are you planning on becoming a financial planner?
 

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That's fer sure. More regulatory changes coming, in an industry where regulations are already beyond onerous. The beauracracy and overhead in being a financial planner is already burdensome. I've considered providing financial advice through the years, but refuse to do so simply because the reporting requirements and paperwork required is too extreme.

There's overlap in the life insurance business (which is what I stick to) but it's not there yet. I believe I'm ahead of the curve on compliance issues but I still have to defer and avoid stuff placed on my by the industry i.e. companies. For example I recently had to drive 4 1/2 hours into an area accessible only by ATV simply to look at someone's driver's license, get back in the car and drive the 4.5 hour back home again. All to make a change to an insurance policy of an existing client of a life insurance company - they were already doing business with the client.

Anyone care to tell me what that accomplished? Who that protected? All that was was overinterpretation of the guidelines by an insurance company. But that's the environment we're in. And it's worse if you're regulated by the securities industry.

In terms of the OP, I'm happy to answer questions once we have an idea of what you're looking for.
 

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Discussion Starter #5
A bit more info might be helpful, like why are you asking this? Are you planning on becoming a financial planner?
Yes. I'm thinking of becoming a financial planner but I want to run my own business rather than work in a bank. I'm trying to figure out whether besides getting a CFP I'll also have to become a licensed mortgage broker and a licensed IA to be able to purchase products for my clients or are there ways around it?
 

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Yes. I'm thinking of becoming a financial planner but I want to run my own business rather than work in a bank. I'm trying to figure out whether besides getting a CFP I'll also have to become a licensed mortgage broker and a licensed IA to be able to purchase products for my clients or are there ways around it?
CFP designation has nothing to do with the ability to offer products or advise clients. It's simply an educational designation, used for either increasing your knowledge or for impressing clients.

To sell insurance, you need to become a licensed insurance broker.
To sell most investments, you need to become a licensed mutual fund rep.
To sell mortgages you need to become a license mortgage agent.

That's it. Licensing is performed by the government. In some cases you may need sponsorship by a company in order to become licensed. And you'll probably want to be associated with a company at some level simply so you have mentoring.

Probably what you should do is decide which of those three things you are going to do (not all three at the same time), then find someone in the business to mentor you through this. Don't expect to be an expert in all three because the expertise comes with experience, not licensing.

You should also decide what you mean by the term 'financial planner' as well. It's a pretty vague term that's been discussed in the forum before I think. Are you planning on being all things? IMO that generally results in doing a mediocre job across a lot of products. That doesn't mean it's not commonly done though.
 

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CFP designation has nothing to do with the ability to offer products or advise clients. It's simply an educational designation, used for either increasing your knowledge or for impressing clients.

To sell insurance, you need to become a licensed insurance broker.
To sell most investments, you need to become a licensed mutual fund rep.
To sell mortgages you need to become a license mortgage agent.

That's it. Licensing is performed by the government. In some cases you may need sponsorship by a company in order to become licensed. And you'll probably want to be associated with a company at some level simply so you have mentoring.

Probably what you should do is decide which of those three things you are going to do (not all three at the same time), then find someone in the business to mentor you through this. Don't expect to be an expert in all three because the expertise comes with experience, not licensing.

You should also decide what you mean by the term 'financial planner' as well. It's a pretty vague term that's been discussed in the forum before I think. Are you planning on being all things? IMO that generally results in doing a mediocre job across a lot of products. That doesn't mean it's not commonly done though.
Can you identify where this is NOT the case? Licenses are held by licensed dealers, not by individuals.
 

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Discussion Starter #8
CFP designation has nothing to do with the ability to offer products or advise clients. It's simply an educational designation, used for either increasing your knowledge or for impressing clients.

To sell insurance, you need to become a licensed insurance broker.
To sell most investments, you need to become a licensed mutual fund rep.
To sell mortgages you need to become a license mortgage agent.

That's it. Licensing is performed by the government. In some cases you may need sponsorship by a company in order to become licensed. And you'll probably want to be associated with a company at some level simply so you have mentoring.

Probably what you should do is decide which of those three things you are going to do (not all three at the same time), then find someone in the business to mentor you through this. Don't expect to be an expert in all three because the expertise comes with experience, not licensing.

You should also decide what you mean by the term 'financial planner' as well. It's a pretty vague term that's been discussed in the forum before I think. Are you planning on being all things? IMO that generally results in doing a mediocre job across a lot of products. That doesn't mean it's not commonly done though.
Thank you very much for your reply. I was wondering if you could also answer how most CFP's operate then? from my understanding they offer you services such as getting you a term insurance plan and tend to help you invest. Do they usually just pass the CSC to purchase mutual funds for their clients? or do they use mortgage brokers and investment management firm that they team up with and then pass their clients funds to them?

I want to be able to be a planner rather than a seller. I want to be able to sit down with clients, determine their needs and be able to have the right set of tools to offer them to achieve it. Now, I imagine that if Mrs. Smith comes to me with retirement wishes, I can't tell her, "that's great Mrs. Smith, to do just that, you'd want to go to Manulife across the street and purchase this and that". I imagine she'd expect me to have those items ready for her. and that's my problem. How can I have them ready for her?
 

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Most people who work in the financial services industry are employed by product manufacturers (i.e., Manulife) or distributors (i.e., Investors Group, banks, etc.). Most derive their compensation from fees associated with asset management or, much more commonly, from commissions on the sale of financial products (some are paid by salary, i.e., bank employees, but that salary is ultimately paid from commissions on the sale of financial products and ongoing management fees [MERs] from financial products).

The vast majority of people working in financial services selling investment products DO NOT have the CFP designation and, as was pointed out before, that designation is NOT a requirement to sell investment products. However, a license - whether insurance, mutual funds, stocks and bonds - is required and ongoing registration with the relevant securities commission AND a firm to hold your license is also required.

If you want to be a planner rather than "a seller" you are either going to have to offer fee-for-service financial planning and NO sales (you'd charge by the hour), or you are going to have to find a place to hold your license that will allow you to offer a planning-based approach - either because they don't particularly care how you run your practice as long as you pay their fees, or the firm as a whole takes a planning approach.

In any case, the road to CFP certification is long and apparently quite difficult; the pass rate for the final exam hovers around 40% (and that's after meeting all other pre-exam requirements; many people drop off along the way). In addition to passing the educational requirements, you also need to meet work experience requirements.

Good luck in your journey; there is a lot to take in.
 

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Can you identify where this is NOT the case? Licenses are held by licensed dealers, not by individuals.
Sure - in the life business. For the first couple of years I think you need an actual life insurance company to sponsor you. After that, it's not required in many provinces. I'm about 95% sure of that. The other 5% uncertainty is because my memory is mixing different licensing requirements they've had through the decades and the fact that I don't handle that paperwork anymore.

In fact I think we just renewed my Alberta license and I queried my admin because it had to go to an insurance company - and the response was that Alberta still requires non-resident (and maybe resident) insurance agents to have company sponsorship. Which is really antique, because you know how much oversight the insurance companies provide insurance agents. That's right, exactly 0. It's a throwback to the 1950's when you only worked for one company, and you were as good as being an employee. Me, I'm entirely independent, if I have company sponsorship in a province somewhere, it's only to satisfy regulators.
 

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Huh, interesting. For mutual funds, stocks and bonds, a dealer (not a "company") must hold the license. Is there not a requirement for you to have a relationship with an MGA?
 

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Thank you very much for your reply. I was wondering if you could also answer how most CFP's operate then? from my understanding they offer you services such as getting you a term insurance plan and tend to help you invest. Do they usually just pass the CSC to purchase mutual funds for their clients? or do they use mortgage brokers and investment management firm that they team up with and then pass their clients funds to them?

I want to be able to be a planner rather than a seller. I want to be able to sit down with clients, determine their needs and be able to have the right set of tools to offer them to achieve it. Now, I imagine that if Mrs. Smith comes to me with retirement wishes, I can't tell her, "that's great Mrs. Smith, to do just that, you'd want to go to Manulife across the street and purchase this and that". I imagine she'd expect me to have those items ready for her. and that's my problem. How can I have them ready for her?
So you're going to provide unbiased advice, and then the consumer is going to coyly ask you if you know where they might find such a product, and you don't have to sell anything? Why has nobody thought of this before? If you were my kid, at this point I'd be saying sarcastically "SHEER GENIUS - IT"S A FOOLPROOF PLAN!" :).

It doesn't work that way in real life. The consumer will not ask you. You are going to be showing them why they need Manulife, and then you're going to have to prove why they need to buy Manulife from you instead of their brother in law - or worse, the hardsell expert who's coming to their house tonite. if you don't do that, you will be very rapidly out of business.

How you think consumers behave, and even how consumers will tell you how they behave is entirely disassociated with the reality of how they actually behave.
 

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Huh, interesting. For mutual funds, stocks and bonds, a dealer (not a "company") must hold the license. Is there not a requirement for you to have a relationship with an MGA?
No. Other than almost none of the companies won't deal directly so in effect we have to deal with an MGA. There's nothing regulatory about it.

This area of the business is actually nuts. The regulators I believe want to offload compliance and responsibility for agents on to the companies or others. The companies however stopped dealing directly with brokers in order to offload costs, education, and compliance onto MGA's. Except MGA's mostly provide exactly nothing in the way of any of those. They just act as an additional level of beauracracy and cost in the system. For the purposes of regulation, an MGA in the life business IS an agent. I know it's different in the investment business.

What we end up with is nobody watching agents. Instead insurers and MGA's lay restrictions on agents that serve to protect the interests of the insurer and MGA, and do nothing to monitor agents or protect consumers. But I digress (/rant) :).

For the original poster, here's a conundrum. To be licensed for investments, you have to work with a broker/dealer. The broker/dealer won't let you work with other broker/dealers, and they offer a select set of investments. Your client would be better suited with a product that you just don't have access to. Do you send them down the street? What if it's a prospect that's going to pay you $10,000 a year? What if the difference between what you have and what they should have is only worth $100 a year to them? Do you let $10,000 of income to you walk down the street over $100? Or do you attempt to explain why it's in their best interests to pay that $100 in order to deal with you? What if the your product is better in some aspects but not as good in others - now do you explain the differences between the two, but suggest to them that on balance, your products are actually better? And at what point in that process do you start to get the idea that you are actually going to have to sell stuff to earn a living?

And where are those prospects coming from? Are you going to just open an office and people are going to walk in the front door? (back to my "It's a foolproof plan" comment :) ). Are you going to start contacting friends and family? Are you going to ask those friends and family for refererrals? Are you going to bulk mail people? Call people on the phone to see if they're interested in talking to you? And again, at what point to do you start to get the idea that you are actually going to have to sell stuff :).
 

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For the original poster, here's a conundrum. To be licensed for investments, you have to work with a broker/dealer. The broker/dealer won't let you work with other broker/dealers, and they offer a select set of investments. Your client would be better suited with a product that you just don't have access to. Do you send them down the street? What if it's a prospect that's going to pay you $10,000 a year? What if the difference between what you have and what they should have is only worth $100 a year to them? Do you let $10,000 of income to you walk down the street over $100? Or do you attempt to explain why it's in their best interests to pay that $100 in order to deal with you? What if the your product is better in some aspects but not as good in others - now do you explain the differences between the two, but suggest to them that on balance, your products are actually better? And at what point in that process do you start to get the idea that you are actually going to have to sell stuff to earn a living?
Interesting discussion (on MGAs). Thanks for the details.

On investments: An independent like RayJay (for ex) offers a full product shelf, esp. if you run your business on the independent platform.

Here's an interesting profile of the financial services industry in Canada: http://www.advocis.ca/pdf/Financial-Advice-Industry-Economic-Profile.pdf
 

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Discussion Starter #15
First of all thank you very much guys, you're great, really appreciate all this. I have found that there isn't much out there on the internet to help me with understanding how this industry works so this thread is really a gold mine.
to answer LifeInsuranceCanada, right now I'm only looking at this as a part time venture. So basically I wanted to help my family and friends who are coming to me for advice. But I realized that without the ability to buy any products for them all I will be doing is sending them to various financial institutions who may not necessarily have their best interest. So I wanted to find out how I can go out and buy these instruments on their behalf. Given that I want to work part time, I don't think I can get sponsored by any company as an insurance broker or investment advisor. So given this situation, is my only choice really to find an investment broker/insurance agent who will be willing to work with me, and sell his products (if they fit my clients) or tell them to go across the street basically? can I even do that? (be the intermediary between a client and a broker? isn't a broker already an intermediary). Still rather confused about the regulation.
Again appreciate all your input!
 

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You need an MFDA shop that will hold your license and not care how you run your business. There are a LOT of not-so-great options...I'll try and remember the names of some of the better options.
 

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I don't think I can get sponsored by any company as an insurance broker or investment advisor. So given this situation, is my only choice really to find an investment broker/insurance agent who will be willing to work with me, and sell his products (if they fit my clients) or tell them to go across the street basically? can I even do that? (be the intermediary between a client and a broker? isn't a broker already an intermediary). Still rather confused about the regulation.
Again appreciate all your input!
It's simple. You get licensed by the govt if you want to make money from this stuff. Otherwise you can't make money from it. Think about it - can you not be licensed, give advice to consumers and just have someone else complete the paperwork and pay you a cut of commission instead? Covering your sales with another layer of paper work doesn't change that from being unlicensed sales.

Either get licensed (which means registering with and qualifying with the government requirements), or get rid of the idea that you get paid for the transaction and call yourself a fee-based planner. And licensing means at a minimum:
- you're going to know and abide by regulations.
- carrying practice insurance
- knowng and abiding by all the privacy regulations
- knowing and abiding by all the money laundering and terrorism requirements. e,g, Do you know what smurfing is? You're required to if you're licensed. And you have to watch for it. It's not as fun as it sounds.
- paying your licensing fees
- maintaining immaculate and burdensome records.

COnversely, being a fee based planner means you're going to convince people to pay you for your advice before you even give them the advice. That's quite a trick if you can manage it :).

Knowing and recommending product isn't the only part of the job (is it ever?). In fact, I'm not even sure it's even half the job anymore.
 

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Discussion Starter #18
It's simple. You get licensed by the govt if you want to make money from this stuff. Otherwise you can't make money from it. Think about it - can you not be licensed, give advice to consumers and just have someone else complete the paperwork and pay you a cut of commission instead? Covering your sales with another layer of paper work doesn't change that from being unlicensed sales.

Either get licensed (which means registering with and qualifying with the government requirements), or get rid of the idea that you get paid for the transaction and call yourself a fee-based planner. And licensing means at a minimum:
- you're going to know and abide by regulations.
- carrying practice insurance
- knowng and abiding by all the privacy regulations
- knowing and abiding by all the money laundering and terrorism requirements. e,g, Do you know what smurfing is? You're required to if you're licensed. And you have to watch for it. It's not as fun as it sounds.
- paying your licensing fees
- maintaining immaculate and burdensome records.

COnversely, being a fee based planner means you're going to convince people to pay you for your advice before you even give them the advice. That's quite a trick if you can manage it :).

Knowing and recommending product isn't the only part of the job (is it ever?). In fact, I'm not even sure it's even half the job anymore.
So maybe its the planner part that I don't get. Because lets say I go to a planner and he provides me a plan that is heavily relied on a 5% return on my savings for example. Is it then expected of me as the consumer to go out and find such an investment? because looking through most CFP websites it seems that they offer investment through other companies like Sunlife or AGF management for example. Do I still have to be licensed broker if I place my clients money into those companies accounts for him? Or do they carry that burden?
 

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So maybe its the planner part that I don't get. Because lets say I go to a planner and he provides me a plan that is heavily relied on a 5% return on my savings for example. Is it then expected of me as the consumer to go out and find such an investment? because looking through most CFP websites it seems that they offer investment through other companies like Sunlife or AGF management for example. Do I still have to be licensed broker if I place my clients money into those companies accounts for him? Or do they carry that burden?
It seems you're making this intentionally difficult. You need to be licensed, it's not really any more difficult than that. The gov't takes a dim view of unlicensed people selling products. They'll slap you into next week and you'll get your picture in the Globe and Mail. http://www.fsco.gov.on.ca/en/insurance/enforcement/Pages/default.aspx contains example if you get rooting around. It doesn't matter how you phrase it or what you call it, the gov't is wise to terminology shenanigans and 'what if' scenarios.

Actually, see here, go down and read the section on Fronting - it discussed exactly what you're talking about:
http://www.fsco.gov.on.ca/en/insurance/lifehealthbulletins/Archives/Pages/lh-01_99.aspx

As I've already noted, the licensing isn't just some onerous barrier in your way that you get to skip because you're doing good things for consumers. The licensing requires you follow practice guidelines when dealing with consumers - which protects consumers. It requires you follow money laundering guidilines - which protects consumers. And it requires you maintain adequate E&O insurance which protects consumers. And it requires ongoing education.

Here's things I've heard from advisors through the years, and you're treading in this territory:
- I saw the copy of the license, so I can witness the signature. Because I'm verifying that the signature is correct, and I know it is.
- I answered the question 'I met the client' as a Yes, because we met on the phone.
- I can split commission as long as I call it consulting fees or referral fees.
And none of those are allowed. If you're advising clients on specific funds - basically you're selling those funds, then you just need to get licensed. Licensing is intended to protect consumers.

I have a new client who moved provinces and his advisor (who's not licensed in the new province) told him he needs to find a new advisor. That new advisor ended up being me. The client ran everything I did past his old advisor who reviewed and approved - but was not paid for this. So that's fine. I cannot cut his old advisor in for a split of the commissions. (which again, is 99% correct and if you look at the 1% you're going to go off on a tangent again).
 

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Just to be clear, licensing protects agents/registered reps as well as consumers. I'd argue that the protection for the agents/reps (the "economic moat" function of a license) is generally viewed as more important than protection for consumers.

Also: nothing prevents anyone from providing any financial advice they like. The prohibited activity (for securities law) is *charging people for advice* in respect of "any act in furtherance of a [securities] trade."
 
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