DENVER, CO – 29 May 2012 – Financial Planning Standards Board Ltd. (FPSB), owner of the international Certified Financial Planner certification program, issued its response to a consultation report by the International Organization of Securities Commissions’ (IOSCO) Technical Committee Standing Committee 3 (TCSC3) on Regulation of Market Intermediaries. The IOSCO report, entitled Suitability Requirements with Respect to the Distribution of Complex Financial Products, proposed nine principles designed to promote robust investor protection in connection with the distribution of complex financial products.

In its response, FPSB commented that it may be impossible for regulators to draw a “bright line” between retail and non-retail clients when it comes to financial product suitability, particularly given that a client’s wealth level does not necessarily equate to financial sophistication. FPSB suggested that retail clients deserve to have the highest level of protections in place regarding the duty of care, required disclosures and management of conflicts by financial advisers. FPSB also recommended that financial advisers be required to document their support for how clients are classified, and that they disclose conflicts of interest to clients, including sources of remuneration and the adviser’s role (if any) in the design and distribution of the recommended product(s).

“Implementing a general, ‘one-size-fits-all’ classification for clients could inadvertently result in a client not being able to implement financial recommendations in the most effective manner,” said Noel Maye, FPSB CEO. “While FPSB acknowledges regulators’ desire for classification of financial services clients, we believe IOSCO should provide more guidance to national regulators to assist advisers in making meaningful distinctions for the services and level of care that should be provided to retail and non-retail customers.”

While the focus of the IOSCO consultation report centered on requirements for intermediaries, FPSB suggested that any discussion of suitability requirements for the distribution of complex financial products start at the manufacturer level, with an evaluation of the product’s ideal buyer, the product’s construction, and whether the product is “true to purpose.” FPSB recommended tighter control on how complex products are designed, branded and marketed to retail clients. FPSB also suggested that regulators require product manufacturers to provide sufficient information in an easy-to-understand format that enables financial advisers to develop their recommendations for clients.  

FPSB responded to the consultation paper through the rubric of financial planning – a client-centric, process-driven professional practice that can provide a context within which advisers can evaluate the suitability of a financial product or service for clients. “Our comments reflect the collective experience of FPSB in developing professional competency, ethics and practice standards for the global financial planning profession,” said Maye. “We welcome the opportunity to provide input to IOSCO on how to strengthen protections for financial services consumers around the world.”