Financial professionals title protection framework fees consultation summary report

Many stakeholders noted their general support for FSRA’s approach to fees based on the principles of simplicity, consistency, fairness, effectiveness and efficiency. A stakeholder suggested that the value to credential holders associated with the title protection framework outweighs the estimated cost proposed by FSRA to maintain the framework.

A couple of stakeholders raised concerns that additional fees could have the unintended consequence of discouraging individuals from obtaining approved credentials and that, ultimately, additional costs could be passed on to consumers.  

A commenter suggested that the proposed approach, which allows CBs to collect fees in a manner that best suits their business needs, could lead CBs to pass on new and additional costs to credential holders that may extend beyond the applications fees and the annual assessment fees.

A stakeholder suggested that spreading the cost as broadly as possible (e.g., more CBs in the framework) will effectively reduce the cost to each CB.  

Another stakeholder supported the idea of CBs blending the costs to credential holders into the fees they already charge.
One stakeholder suggested FSRA should share details of the data it used to produce the proposed estimated fees.

A couple of commenters submitted the following feedback for FSRA’s consideration:

• concerned that any fees the Mutual Fund Dealers Association of Canada (MFDA) and/or the Investment Industry Regulatory Organization of Canada (IIROC) will be required to pay as approved CBs will be passed on to the members and individuals they oversee through additional fees and/or raising already extensive existing fees levied on members
• the proposed annual assessment, which is intended to cover in part the cost associated with FSRA oversight of the CBs, does not differentiate between Self-Regulatory Organizations (SRO) and non-SRO CBs

• As a self-funded independent regulator, FSRA must recover the costs associated with overseeing its regulated sectors and delivering on its priorities.
• The proposed fee structure enables the recovery of approximately $3.1 million in costs associated with the design of the title protection framework (“start-up costs”), and a current estimate of approximately $1.1 million to oversee the sector annually. 
• FSRA’s costs for regulating the sector will provide added professionalism and benefit to the financial services sector. The framework will ensure that FP and FA title users meet a minimum standard of technical knowledge, professional skills and competencies. 
• This will provide consumers/investors with increased confidence that the individual they are dealing with is qualified to provide financial planning and advisory services.
• FSRA took a principles-based approach to designing the proposed fee structure. This approach allows for flexibility and minimizes prescriptive requirements where appropriate.
• FSRA believes this approach also allows CBs to leverage existing administrative and operational processes to pay relevant fees to FSRA, minimizing additional cost and burden.
• FSRA acknowledges that some CBs may incur additional costs to improve their processes and oversight functions in order to obtain FSRA approval. However, it is unlikely that fees to individual credential holders will increase significantly as a result of implementing the framework.
• Based on FSRA’s initial estimates, it is anticipated that implementation of the title protection framework will cost a combined annual average cost of approximately $22 per credential holder for the first five (5) years of the framework.
• As a result, FSRA does not anticipate any unintended consequences, such as additional materials costs to consumers or individuals choosing not to increase their professional standard by obtaining an approved credential.
• FSRA assumed seven (7) CBs and 81,000 credential holders in order to develop its proposed fee estimates as outlined in the Notice of Rule and Request for Comment (“the Notice”). However, there could be potential for fewer CBs and credential holders to be approved under the framework. FSRA is mindful that the proposed fee structure is dependent on the number of CBs and credential holders participating under the framework, and the potential impact it would have on the fees payable by CBs. 
• To minimize the upfront financial impact of participating organizations, FSRA has amended the amortization period of start-up costs from five (5) years to ten (10) years.
• In keeping with its principle of fairness, FSRA has not distinguished between CBs, and the framework does not allow for a separate fee schedule for the SROs or their registrants. FSRA does not have a factual basis for assessing how each CB will drive costs differently, other than by the number of credential holders. FSRA will consider whether such evidence exists when it conducts future reviews of the FP/FA fee structure.
• The consultation Notice provides FSRA’s assumptions and methodology for calculating the fee estimates.

A stakeholder noted that the start-up costs associated with designing the policy and regulatory framework for the financial professionals title protection framework should not be fully absorbed by CBs and credential holders.

• As noted in the consultation Notice, FSRA must recover approximately $3.1 million in start-up costs incurred to design and implement the title protection framework up to March 31, 2022. 
• During this time, FSRA has appropriately allocated the necessary resources to ensure the timely implementation of the framework and that it has the appropriate infrastructure to regulate the sector.
• A key principle in designing the proposed fee structure for FP/FA, as well as for the overall FSRA Fee Rule, is to ensure fairness so that there is no cross-subsidization between sectors. Requesting other regulated sectors to pay for activities that are not directly associated with overseeing their sector would not be consistent with FSRA’s fairness principle.
• FSRA has recovered start-up costs from its regulated sectors in the past.  FSRA accumulated a deficit to support FSRA start-up and must repay a loan which was funded by the government to cover costs incurred.  The loan is being repaid through appropriate assessments to the regulated sectors.
• Based on the feedback received and to lessen the financial impact of start-up costs on participating organizations, FSRA will lengthen the amortization period of the start-up costs from five (5) years to ten (10) years. 

• the proposed $25,000 fixed annual CB fee may represent a barrier to entry for some prospective CBs
• the adoption of similar frameworks across Canada and associated fees in each jurisdiction is a potential disadvantage for smaller entities
• the proposed fixed fee amount is very reasonable and would not hinder the ability of legitimate CBs to enter the framework

As an alternate option, a commenter suggested FSRA should consider a tiered fixed annual CB fee schedule. For example:

• a CB with less than 2,000 credential holders could pay $10,000
• a CB with more than 2,000 credential holders could pay $25,000

• A key principle in establishing the proposed FP/FA fee structure is fairness
• Regardless of the size and scale, FSRA believes each approved CB will require a minimum level of oversight following implementation
• FSRA determined that the proposed $25,000 fixed annual CB fee is appropriate to ensure that all CBs pay a reasonable minimum contribution to the operational costs associated with overseeing the sector
• Implementing a tier-based fee would not align with this approach
• FSRA will continue to engage with other Canadian regulators to discuss how fees and processes can be harmonized to minimize potential financial impact on approved CBs and credential holders

The proposed FP/FA fee structure allocates a portion of a CB’s fees based on their number of credential holders.

In the consultation paper, FSRA asked for comments on how it should apply the “credential holder” variable. For example, the number of credential holders could be determined based on whether a person:

1. resides in Ontario 
2. conducts business in Ontario
3. holds an approved credential 
4. uses the FP or FA title
5. a combination of the above factors

Most stakeholders suggested that FSRA should implement fees based on whether the individual:

1. conducts business in Ontario
2. holds an approved credential

However, a commenter requested that FSRA define what is meant by “conducting business in Ontario.”

Another stakeholder recommended that FSRA also consider the following elements to assess the “credential holder” variable:

1. the individual is renewed and in good standing with the CB
2. the individual resides in Ontario

A couple of stakeholders suggested that the “credential holder” variable should be defined as only those who use the FP/FA title within Ontario. Similarly, a stakeholder suggested that fees applied to an SRO that has come forward as a CB should be based on the number of SRO registrants who use the FP or FA titles and not SRO registrants who are qualified to use the titles (i.e., credential holders).

One stakeholder suggested that FSRA should provide CBs with a clear assessment formula, consistent definitions, and the process each CB will be expected to follow to determine the variable portion of their fees.

• The proposed FSRA Fee Rule allocates the CB assessment based on the “number of approved credentials issued to individuals”. FSRA informally referred to this as the “number of credential holders” in the consultation paper.
• In the Notice, FSRA noted that the number of credential holders was a suitable proxy for allocating costs among approved CBs as the benefit of the framework can be applied equally to all individuals who hold an approved credential.
• The title protection framework is intended to bring added professionalism to the financial services sector and increase consumer confidence in the qualifications of individuals providing financial planning and advisory services. 
• As a result, holding an approved credential not only permits title use, but should also increase the value and professionalism of the services provided.
• FSRA acknowledges that some individuals who hold an approved credential may not “use” the credential and title for all or part of a given year. However, calculating fees based on both a credential and title “use” does not adequately capture the benefit received by individuals operating in the sector as a result of the implementation of the framework.
• This approach could also impose additional administrative burden on CBs by requiring them to verify “use” of both a credential and title and to ensure the validity and reliability of any declarations of credential holders as to usage.
• The FSRA Fee Rule calculation applies to “the total number of approved credentials issued to individuals” – “use” of both a credential and title is a less relevant factor (other than possibly with respect to a nexus to Ontario – see below).
• As a result, for the purposes of calculating assessments, the “use” of an approved credential or FP/FA title is less relevant, and any purported lack of “use” does not permit excluding a credential from the calculation of assessments.
• Credentials included in the calculation of assessments must have a nexus to Ontario. 
• FSRA considers a nexus to exist if the credential holder:
  • is resident in Ontario
  • has an office or other place of business in Ontario
  • provides financial planning and advising services to clients in Ontario
  • uses the credential in Ontario, regardless of whether the credential holder has a direct or indirect presence in Ontario. An indirect presence in Ontario includes communicating with actual or potential Ontario clients via mail, telephone, email or any other method
  • The foregoing is not an exhaustive list. Whether a credential has a nexus to Ontario will depend on the specific facts.
• If an approved credential is not in good standing, as defined in subsection 5(4) and 6(4) of the FPTP Rule, it can be excluded from the calculation. 

In the Notice, FSRA noted that it anticipates the implementation of the title protection framework will cost a combined annual average cost of approximately $22 per credential holder for the first five (5) years of the framework (ongoing regulatory cost of $14 and start-up cost of $8). 

Stakeholders submitted the following feedback for FSRA’s consideration:

• FSRA has a role in keeping annual fees in check and ensuring that the low estimated $22 annual cost per credential will not increase substantially over time.
• On average, the $22 does not include the costs of required courses, and how other variable and fixed costs to CBs will be divided among credential holders. Many CBs will need to incur significant costs to build oversight structures and collect payments as they take on new accountabilities.
• The annual cost recovery model hinges completely on the number of credential holders. If the annual costs (along with the recovery of start-up costs) become prohibitive, it is likely that some CBs may not apply. The cost per credential holder could increase to $80 - $100 annually, depending on how many CBs are approved.
• A capped fee structure would be appropriate to avoid unexpected increases in such fees as increasing fees will have to be borne by the credential holders and eventually the investors.
• The costs for CBs are significant and will result in higher costs for FPs and FAs in terms of tuition or membership dues. As a result, there is a significant risk that there may be an exclusionary impact, which could lead to fewer advisors than would otherwise be the case.

• FSRA expects that approved CBs would ensure that their credential holders understand the costs associated with the title protection framework. 
• However, FSRA is not contemplating prescribing a process that CBs must follow with respect to the amount of fees imposed on individual credential holders or how those fees will be recovered. 
• As part of its regulatory activities, FSRA will monitor the conduct of approved CBs under the framework with respect to fees associated with the title protection framework.

In the Notice, FSRA asked for comments on the potential for CBs to create a sub-designation within its membership, which could be used to calculate fees. 

This could allow CBs the flexibility to define credential holders based on their business or operational needs. For example, a CB could submit a sub-designation to FSRA as a FP/FA credential with the number of credential holders limited to only those who use the FP/FA title. 

Overall, stakeholders commented that they do not support the idea of CBs creating sub-designations. Commenters highlighted that sub-designations could potentially create additional consumer confusion and could ultimately undermine the efficacy of the framework.

• Two of the key principles of the proposed FP/FA fee structure are fairness and simplicity. 
• FSRA has designed the fee structure to ease administrative burden, to the best extent possible, for approved CBs. Creating a sub-designation could unnecessarily create additional processes and procedures for approved CBs in order to determine which credential holders should be calculated for fee assessment purposes.
• FSRA also designed the fee structure to allocate costs based on the benefit received by both the approved CB and credential holders. The benefit of the title protection framework can be applied equally, as it allows all individuals who hold an approved credential permission to use the FP or FA title.
• FSRA agrees with stakeholders that sub-designations could lead to additional confusion for consumers. 
• The title protection framework was introduced as a consumer protection measure and it is intended to provide confidence to consumers and investors that the individual with whom they are dealing is qualified to provide financial planning or advisory services.
• Creating a sub-designation could lead to an unnecessary divide between credential holders. It would be challenging for both FSRA and CBs to explain to consumers/investors that only some credential holders are permitted to use the title, despite all being equally qualified to provide the same financial planning/advisory services.
• With this in mind, FSRA does not intend to implement sub-designations into the proposed fee structure.

In the Notice, FSRA asked for feedback on the potential impact of the proposed fee structure, including with respect to the collection of data regarding residency, title use, or business conduct for credential holders. 

A couple of stakeholders noted that the required data could be collected from credential holders by their respective CBs using annual membership renewal applications / attestation processes. 

A stakeholder suggested that data regarding residency and the jurisdictions an individual operates in could be confirmed using existing licensing regimes. 

One stakeholder highlighted the need for FSRA to provide greater clarity on the parameters of what constitutes a credential holder. The stakeholder noted that this would help ensure that CBs can undertake the necessary data collection, oversight, and enforcement in accordance with FSRA’s expectations and that CBs will need sufficient lead time to gather the necessary data from credential holders accurately.

• FSRA considered the comments received and has determined that CBs generally have existing mechanisms and/or processes to collect relevant information from their credential holders without incurring additional administrative and/or monetary burden. 
• FSRA encourages approved CBs to share registration data with other approved CBs and/or regulatory bodies to minimize administrative and operational burden, where possible.
• FSRA has provided clarity with respect to what constitutes a credential holder in the “Credential Holder Variable” section of this summary report.
• FSRA acknowledges that some CBs may require additional time to implement the requirements for obtaining approval as a CB under the framework. 
• FSRA will work with applicant CBs leading up to implementation and during the application review process to set reasonable expectations for developing and implementing net new processes with compliance expectations.

In the Notice, FSRA noted that as a result of the proposed fee structure, there may be scenarios in which some credential holders may be subject to additional fees/cost. 

Some commenters noted that individuals holding multiple approved credentials could potentially end up paying multiple fees, and suggested that these individuals should only be charged once under FSRA’s proposed fee structure, regardless of how many credentials/designations they hold. 

Other commenters noted that SROs should not be levied a fee, nor should firms and individuals registered with the SROs be charged another fee to be permitted to hold themselves out as “financial advisors.”

On the other hand, some stakeholders supported FSRA’s proposed fee structure to not offer exemptions or reductions of fees to individuals based on holding multiple approved credentials or registration with an SRO.

A stakeholder commented that duplicative fees could incent an individual holding multiple approved credentials to surrender one or more of the credentials – and its associated continuing education requirements – which is not a positive outcome from the consumer’s perspective.

In contrast, a stakeholder noted that the proposed approach, albeit possible for future refinement, can be considered as the cost of doing business. Another commenter supported the proposed approach as the per credential fee is intended to convey confidence in the credential, and to support its ongoing oversight by FSRA. 

A stakeholder noted that in the event insurers apply for approval as CBs, FSRA should consider offsetting credentialing fees against fees that the insurers are already paying. The commenter highlighted that these insurers would be subject to paying fees for the same individual in order to be licensed as an insurance agent and to use the FP/FA title.

• FSRA’s proposed fee structure allows CBs the flexibility to recover costs associated with participating in the framework in a manner that best suits their business needs. This may include an additional fee on their credential holders. 
• The proposed fee structure does not contemplate fee exemptions for individuals who hold more than one approved credential. 
• This approach ensures that approved CBs have the means to recover administrative and operational costs associated with their requirements to participate under the framework.
• FSRA considered the potential for credential holders to designate a “primary” CB in order to mitigate the potential for duplication of fees. However, such a process could create additional administrative burden on CBs to track and keep record of the individuals that would be payable under the framework. It would also reduce the amount of funds that could be collected in order to fund a CBs participation under the framework. 
• It is unlikely that costs to individual credential holders will increase significantly as a result of the framework. 
• FSRA is also not considering fee exemptions for prospective CBs, who may also be subject to other fees as a result of regulatory oversight in a different financial services sector.
• FSRA cannot cross-subsidize across regulated sectors; such practice would also conflict with FSRA’s key design principle of ensuring fairness.
• The title protection framework is intended increase professionalism in the financial services sector and the value associated with approved credentials. The proposed fee structure seeks to balance the benefit offered by participation in the framework with FSRA’s requirements as a cost recovery regulator.

Several stakeholders noted that the absence of a harmonized approach could potentially lead to duplicative fees and strongly encourage FSRA to coordinate with the regulatory authorities of all other provinces that are considering creating similar title protection frameworks. 

To ensure the framework is affordable to CBs and credential holders in multiple jurisdictions, a stakeholder suggested a system in which provinces with title protection frameworks work together and appoint a lead provincial regulator. The other provincial regulators, as applicable, could in turn reciprocate the lead’s decisions regarding the fitness of a CB or credential.

• FSRA acknowledges that there could be additional costs associated with title protection frameworks implemented in other jurisdictions.
• FSRA will engage with other Canadian regulators to discuss how fees and processes could be harmonized to minimize any potential financial impact on credential holders.

A stakeholder suggested that individuals who have obtained an FP/FA credential under another province’s title protection framework should be exempt from the requirement to obtain the FP/FA credential under FSRA’s framework.

One stakeholder recommended that FSRA work closely with prospective CBs to ensure that they can transition into compliance with the final expectations contained in the oversight framework.

A stakeholder noted the importance of having a diverse community of FAs and FPs to ensure that all communities have access to financial advice and recommended that regulatory support be available for CBs to offer scholarships, financing arrangements, and other tools that would support accessibility.

• FSRA will continue to engage with other jurisdictions implementing title protection frameworks to ensure that the processes and requirements are harmonized to the best extent possible.
• FSRA will continue to work collaboratively with CBs before and after implementation to ensure a smooth transition into compliance with the title protection framework.
• The scope of the title protection framework is limited to title use. The FPTPA does not grant FSRA the authority to regulate or provide support for CBs to implement programs and initiatives with respect to diversity, accessibility or financial incentives.