Options Licensed Advisors Are Rare

How many financial advisors are in Canada?

To give you a rough idea as to the number of financial advisors in Canada as a whole, there are about 75,000 MFDA advisors (mutual fund sales reps), 125,000 Life-Licensed advisors (insurance agents) and 25,000 IIROC advisors (licensed to sell individual stocks). Those are rough numbers for a few reasons: I’m going by memory (which may be flawed) for the life-licensed advisor number, and there are many advisors who are dual-licensed (MFDA + Life License or IIROC + Life License). Further, not all life-licensed advisors sell investments (for them, this would be segregated funds and annuities for the most part).

So let’s call it about 125,000 to 150,000 financial advisors in Canada who are giving investment advice to investors.

How many advisors are licensed to use options?

In order to buy, sell or advise on options (puts and calls) you not only have to pass additional licensing exams, it is only available to IIROC advisors which we have seen is a pool of about 25,000 advisors. I don’t know the exact number of options licenses there are out there, but going from experience I would say that perhaps 1 in 5 IIROC advisors were options licensed and of those that were licensed maybe 1 in 4 actually engaged in any option related activity.

That leaves us at about 1,250 advisors (give or take, and based on unconfirmed estimates by yours truly) who are using any kind of option strategies with clients. That’s about 1% of the total advisor population.

Now, this post is not intended to persuade everyone to trade options, but I do believe that option strategies can play very important roles in portfolios. There were actually invented to reduce risk, but have become associated with risk taking for laypeople.

Portfolio Insurance as just one example

A simplistic strategy would be the purchase of put options to protect the value of a portfolio from black swan events such as the credit crisis. Purchasing a put option essentially means that you buy the option to force someone to buy your investments at a certain price for a certain period of time. Think of it as portfolio insurance (indeed some people promote the strategy as such). For a cost of a few percent of your total portfolio value per year you could limit the possible decline in value for that year. Again, this is a simple strategy being described here, but for people who were a few years from retirement and therefore in that “retirement risk zone” you could have selectively insured your portfolio for a few years, trading off the annual “premiums” for guarantees against catastrophic loss when you most needed that protection/assurance.

There are plenty of other option strategies, and again this isn’t meant to be an endorsement of this particular strategy for everyone but if more people had been asked or informed of these strategies I think that would’ve been a good thing (for clients and advisors).

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 13 comments
  • Mark Wolfinger

    It saddens me that so few advisors know how to use options. But I get it. It’s not in their best interests. It requires taking the time to understand options. It takes time to convince clients of the benefits.

    In short, there’s little monetary reward. When all advisors are forced to be fiduciaries, perhaps that will change.

    Preet, owning puts is indeed a way to protect a portfolio – but it’s very costly and that’s why most investors don’t choose that strategy. But there are alternatives. I specifically like the collar for those who want to get the same protection as put buyers – but who are willing to sacrifice a big upside profit in return for being able to buy those puts for essentially zero cost (They sell call options to pay for the puts).

    Limited profits, limited losses. A good trade-off for the conservative or frightened investor.

    • Preet

      @Mark – I agree with your comments about simply buying puts, it is costly and there are alternative option strategies to consider. The post was being written to those who have yet to discover pretty much anything to do with options and this was a very simple concept to introduce. Hopefully interested readers will invest some time to learn about options in more depth. For anyone reading the comments, I strongly recommend Mark’s webiste: Options for rookies

  • Sam

    As one of the 1% you estimate to be Options Licensed I find that most Non-Options Advisors find Options as counter-intuitive to their regular thinking of “Buy and Sell”. When the people providing the advice can't grasp the risk reduction qualities of options (Put buying, Covered Call and Collars are the simple ones) is there hope for them to educate clients? I'll happily be one of the few rather than one of the same old same old.

  • investornews

    Hi Preet –
    Can you please provide your source of info for advisor counts?
    Thank you!

    • Preet

      MFDA and IIROC counts can be found in their annual reports. Insurance licensee info can be found at CLHIA’s website.

      • investornews

        Thanks for the quick response. Great website!

    • Angry

      I think another reason so few bother to use options is because IIROC firms are complete idiots when it comes to compliance monitoring of options strategies. The cash covered, out of the money put write for income generation is considered “Level 4″ by IIROC. I had great difficulty getting permission to even use these strategies and when I did, the oversight was over the top by compliance officers who clearly did not understand the strategy making the process effectively unusable. Absolute idiocy.

      • Preet

        That makes sense, given how few people are licensed to trade options I can only assume the compliance officers trained (and who really understand it) are few and far between.

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