CLS Education Series February 20, 2013 Rossana Di Lieto Marc Flynn John Morton

1. IIROC Use of Business Titles and Financial DesignationsBest Practices to Improve Transparency and Supervision CLS Education Series February 20, 2013 Rossana Di Lieto Marc Flynn John Morton Vice-President, Registration, Senior Director, Regulatory Managing Director, Retail Complaints & Inquiries Relations & Credentialing Compliance & CCO IIROC Canadian Securities Institute ScotiaMcLeod & Scotia iTrade

2. Use of Business Titles and Financial Designations • IIROC Rules Notice 13-0005 Request for Comments dated January 8, 2013 with comment period open until March 9, 2013. • “Identifies supervisory best practices that would improve transparency regarding the use of business titles and financial designations and associated services offered by registrants of IIROC-regulated firms.” • “Protecting investors is core to IIROC’s mandate and an important element of protection is helping to ensure that investors can make informed decisions.” • “With many titles in use, identifying best practices that are embraced and implemented by IIROC-regulated firms will provide investors with better descriptions and understanding of the services offered to retail clients.” • “IIROC is also preparing a glossary of common financial designations and certificates that will be made available on its website.”

3. Use of Business Titles and Financial Designations • Background. • Dealer Member Survey: • Multiplicity of business titles and financial designations in use. • Firm policies and procedures. • Firm review / approval process. • “Senior” related issues.

4. Use of Business Titles and Financial Designations • Investor research: • Investor focus groups. • Interviews with investor representatives. • How and why investors select an “advisor”. • Impressions and awareness about business titles and financial designations in use and about regulation. • Role of investor education.

5. Key IIROC Rules … • Rule 29.1: General obligations to: • Observe high standards of ethics and conduct in the transaction of business. • Not engage in any business conduct or practice which is unbecoming or detrimental to the public interest. • Be of such character and business repute and have such experience and training as is consistent with the [foregoing] standards. • Rule 29.7: Advertisements, Sales Literature and Correspondence must not: • Contain any untrue statement or omission of a material fact or otherwise be false or misleading (s.29.7(a)). • Contain an unjustified promise of specific results (s.29.7(b)). • Be detrimental to the interests of the public, IIROC or its member firms (s.29.7(f)). • Fail to comply with any applicable legislation or the guidelines, policies or directives of any regulatory authority having jurisdiction (s.29.7(g)). • Rules 29.7, 38 and 2500: Obligations to have appropriate policies and procedures, including supervision and approvals.

6. … and where things go wrong • Petrossian (IDA Bulletin #3469, October 17, 2005): Violation of IDA By-Law 29.7 re not obtaining firm approval for advertising. Amongst other things, the advisor informed his firm “he had completed an intensive three day course and as a result he had obtained his Certified Senior Advisor (CSA) designation” and requested permission to use the CSA logo and include his CSA designation in advertisements. The firm did not provide approval yet the advisor went ahead anyways. Penalty encompassing other violations included a fine, registration suspension, CPH rewrite and costs. • Midland Walwyn (IDA Bulletin #2371, May 6, 1997): Violation of IDA By-Law 29.7 re failings in advertising approvals which also contained an untrue statement and unjustified promise of specific results. Advisor placed local newspaper and radio ads which were reviewed and edited by the firm’s National Marketing but not by an officer, director, partner or branch manager. Ads claimed the advisor had 21 years of financial industry experience when he had 17 years experience. Ads also inferred investors would achieve “millionaire” status by following advisors recommendations. Fine of $2,500 and costs of $1,000.

7. The U.S. Perspective • FINRA Regulatory Notice 11-52 (November 2011) Senior Designations: FINRA Reminds Firms of Their Obligations Regarding the Supervision of Registered Persons Using Senior Designations: http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p125092.pdf • FINRA Regulatory Notice 07-43 (September 2007) Senior Investors: FINRA Reminds Firms of Their Obligations Relating to Senior Investors and Highlights Industry Practices to Serve these Customers: http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p036816.pdf • Massachusetts Securities Division Senior Designations Regulations and Reasons for, and Objectives of, New Regulations Regarding use of Senior Designations: https://www.sec.state.ma.us/sct/sctpropreg/adminrec.pdf • Observations: • Considerable regulatory focus on abusive sales practices when dealing with seniors. • Typically one-time, big-ticket sales for long-term, locked-in insurance variable annuities. • Questionable sales practices. • Long term client relationships and advisor and firm reputational impact?

8. What is Being Addressed? • Business Titles: • Effect on perceived seniority. • Effect on perceived expertise and specialist qualifications. • Financial Designations: • i.e. Third party conferred academic and professional qualifications. • Effect on perceived expertise and specialist qualifications. • Challenges re Designations: • Very large number available. • Well-known and respected professional designations and academic programs. • Specific topic knowledge and skill-builder courses. • Marketing focused courses. • Mail an application with a cheque and receive your degree one week later. • Self-conferred designations – I think therefore I am. • Can be difficult to distinguish. • No central source for “bona fide” designations.

9. How is a designation being used? • Business Title: e.g. “John Smith, Seniors Specialist”. • Letters with Name: e.g. “John Smith, SSI*, Investment Advisor”. • Emphasized Descriptive in Marketing Text: e.g. “John Smith, Investment Advisor, is highly qualified to advise seniors on their unique needs through having attained the prestigious Specialist in Seniors Issues (SSI) designation.” • Part of an Educational Biography: e.g. “John Smith, CA, LL.B., CFA, CFP, CLU, FCSI, CIM, SSI, Investment Advisor, has extensive experience in advising clients on investments and has attained numerous professional qualifications over the course of his 30 year career. Attainment of the Specialist in Seniors Issues (SSI) designation has provided him with a greater understanding of the unique investment needs and considerations when dealing with seniors.” * Hypothetically assumes a fictional organization that awards a designation called “Specialist in Seniors Issues” which confers the SSI designation.

10. CREDENTIALS • Accreditation (Mandatory): Government. • Granter / Certifier: Universities and Colleges. Academic Degrees License / Mandated Regulatory Requirement • Accreditation (Mandatory): Government or Delegated Regulatory Bodies. • Granter / Certifier : Regulatory Bodies (incl. SROs). • Accreditation (Voluntary): ISO, ICE (US). • Granter / Certifier: Professional Associations, Education Providers. Certifications

11. CERTIFICATIONS (CSI Framework) Certificates • Confirms specialized knowledge or skills at the time of program completion and does not allow for use of letters. • To earn: • Complete education program and complete certification exam. • To maintain: • No requirements. • Confirms competence and experience in a “profession” and allows use of letters. • To earn: • Complete extensive educational program and certification exam. • Relevant experience (2 - 4 years). • To maintain: • Annual code of ethics and CE requirements. Designations Fellowships • Confirms broad industry expertise and commitment to the industry. • To earn: • Hold relevant professional designation. • Complete educational program to expand breadth of knowledge. • Industry experience (7 years). • To maintain: • Annual code of ethics and industry contribution.

12. Use of Business Titles and Financial Designations • Implementing “best” practices: • Holding out to the public – basic principles. • Policies and procedures. • Rationalize where possible. • Promote greater transparency and understanding. • Consider role, function and license of individual. • Review and approval process. • Monitoring. • Financial designation criteria. • Consider vulnerable groups. • IIROC Designations data base.

13. Practically Speaking • Are core marketing and advertising policies and procedures defined and operating? • Do supervisors and others involved in oversight know what advisors are saying? • And are they aware of relevant standards and considerations? • Key risk areas: • Seniors: Advertising specialist knowledge and expertise. • Includes like terms, such as “retirement” and “elder”. • List of designations: • See the U.S.: http://apps.finra.org/DataDirectory/1/prodesignations.aspx • The law of unintended consequences. • Do you know what is contentious? • Google and Ivestopedia, amongst other resources.

14. Practically Speaking (cont’d) • Other control processes: • Centralized order and approval processes, e.g. business cards, stationary, marketing materials, etc.? • Standardized list of titles? • Process to confer titles? • List of approved designations? • Or list of non-prohibited designations? • Policy vs. process? • Assessment and adjudication processes. • Involvement of appropriate multi-disciplinary teams to assess. • Senior management, sales management, training, human resources, marketing, compliance, legal, etc. • Do teams understand the standards and considerations?

15. Thank You Questions?