Photo: Austen Distel/Unsplash
(This is the second of a two-part column dealing with responsibilities of financial planners. Part one appeared Sept. 23.)
In last week’s column, I talked about two key updated guidance pieces from FP Canada, the professional body for financial planners in Canada.
The first concerned a planner moving from one firm to another (covered in last week’s column) and the second which I will discuss today, is about providing referrals to clients.
This second guidance update provides clarification on the ethics of referring friends. Financial planners are often in a position to recommend professionals such as lawyers, accountants or other service providers to their clients and that can present a potential conflict of interest when the professional being referred is a friend of the financial planner.
FP Canada’s guidance stresses any referral must be made with the client’s best interest as the top priority, not the financial planner’s personal or professional relationships.
While always recommended as a best practice, the new guidelines now require financial planners to fully and clearly disclose their personal relationship with any professional they refer. This disclosure ensures transparency and allows clients to make fully informed decisions about whether or not to follow the recommendation.
Additionally, financial planners must ensure the professional they are recommending is competent, trustworthy and capable of meeting the client’s needs.
A planner should disclose this information to the clients at the time of making the referral in writing. If a referral relationship may also generate some type of referral fee to the planner or their firm, that also must be disclosed in writing and steps should be taken to ensure the client understands the disclosure being provided.
For consumers, receiving a referral from a financial planner is a moment to pause and evaluate whether the recommendation is the right fit for your situation. You should feel empowered to seek a second opinion or do your own research before committing to a new service provider. While the planner should disclose everything up front, you can, and should, still ask questions.
Questions to ask when receiving a referral:
• Do you have a personal or professional relationship with the person you’re referring?
• Why do you believe this person is the best choice for my needs?
• Can you provide alternative referrals for me to consider?
• Are you receiving any compensation for this referral?
These updates from FP Canada are designed to protect consumers, but they also underscore the importance of being proactive when working with a financial planner. A good financial planner should always be transparent about changes that affect your account and any relationships that could influence their advice.
As a consumer, you have the right to ask questions and demand clarity in these situations.
If you receive a referral, understanding the nature of the planner’s relationship with the person they are recommending will help you make an informed decision.
In today’s evolving financial landscape, Canadian consumers must remain vigilant and ask the right questions to ensure that their financial wellbeing is safeguarded.
These new guidelines from FP Canada are a step in the right direction but the onus is also on consumers to be active participants in their financial planning journey.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.
