postal-letters

01 Industry reacts to CSI contract expiry

The Canadian Securities Institute (CSI) has exclusive rights as course and examination provider for the proficiency component of IIROC licencing. These rights expire in 2016, so IIROC wrote a consultation paper and requested comments on whether those rights should be exclusive. IIROC has received 14 comment letters, and here are the highlights.

Investment Industry Association of Canada (IIAC)

IIAC’s letter is critical.

Pricing

“Members expressed the view that the CSI is charging unnecessarily high rates, especially as it relates to the perceived value received. Further, the increase in prices since 2001 appears unjustified when one considers the minimal updates to most course materials and the quality of the examination questions and inadequate exam format.”

Read: 7 pre-audit tips

In response to Advisor’s Edge Report’s request for comment, a CSI spokesperson said, “CSI updates and revises all courses regularly, based on ongoing industry and customer dialogue and feedback. We facilitate proactive and timely changes to proficiency requirements and specific courses and exams to ensure that the proficiency requirements respond to the evolving needs of the industry and investors in an accessible and efficient manner.”

The IIAC letter points out that FINRA’s entry requirement, the Series 7 course and exam, costs US$725. The bill for non-IIROC members to get through the Canadian Securities Course (CSC) and Conduct and Practices Handbook course (CPH), according to IIROC’s consultation paper, is north of $1,600.

CSI notes “the compounded price increase for the CSC during the past eight years is 2.6%,” and compares the figure to inflation, as well as to the cost of an undergraduate business degree (see “Pricing information,” this page).

Exams

“IIAC members indicated […] the wording of the CSI examination questions can be unclear. Several members have stated that it is often the case of trying to choose the ‘best’ wrong answer. […] Comparisons were made to the FINRA exam question format where members do not generally have the same experience.”

Read: 10 reasons Canada needs a single regulator

Course material

“Members indicated that they have at times found the CSI course materials to be incorrect. Errors were noted in the Chief Compliance Officers course material in addition to issues involving the relevancy of certain content. The CPH also had incorrect information regarding U.S. registration. Other members stated that the material dealing with margin accounts in the CSC is not correct.”

CSI declined to comment on these claims.

IIAC says members suggested the FINRA model as an alternative. The U.S. body develops and administers exams itself. There are no specific course requirements; but, as IIROC notes in its consultation paper, the U.S. regulator “publishes content outlines to indicate what material and concepts will be tested.”

IIROC points out “the FINRA model benefits from an economy of scale not available to IIROC and its membership.” Acknowledging IIROC’s concerns, IIAC says if replicating the FINRA model proves unfeasible, IIROC should consider a modified version.

“This ‘hybrid’ model will maintain the practice whereby an IIROC-approved provider sets and administers the examinations. […] However, individuals need not complete the current CSI ‘sole provider’ courses that accompany these examinations. Candidates could select alternative course providers […] from a menu of unbundled courses.”

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RBC Dominion Securities & RBC Direct Investing

These firms wrote that they agreed with pricing concerns raised in the IIAC letter, specifically as it relates to the CSC and CPH, compared to those required for approval in the U.S.

RBC also says it has “concerns with the quality and relevancy of the CSI course offerings.”

IFSE Institute

The IFSE Institute, an IFIC-owned course provider catering to mutual fund reps, insurance reps and EMDs, agrees CSI’s monopoly should end. But it doesn’t want to copy FINRA. Instead, IFSE calls for “a modification to the existing model that narrowly expands competition.”

Specifically, it wants an arrangement “where CSI and IFSE are the only two providers of the exam.”

Advocis

Advocis argues that CSI’s monopoly “artificially raises prices and reduces choice. It harms innovation, such as in new course and exam delivery methods that would better reflect the needs of today’s students.”

Advocis wants to see IIROC’s proficiency model “fundamentally overhauled.” Instead of the FINRA model, Advocis says IIROC should emulate the insurance licensing process: the Life License Qualification Program.

“We recommend […] a strict separation between the education program and the exam, with the stipulation that an organization that is responsible for setting and administration of the exam is not eligible to also be a course provider.” The letter further suggests this approach “balances the need to foster a competitive environment for proficiency services while recognizing the limited scale available in a country of our size.”

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Casgrain & Company Ltd.

Montreal-based Casgrain & Company, which works mainly with institutional clients, says it has no objection to IIROC continuing with CSI as the exclusive provider. The firm acknowledges the long-standing partnership, and says “this is necessary to optimize the proficiency of license holders and to ensure that the highest level of professionalism is maintained in the industry.”

Casgrain’s unhappy, however, with the prospects for institutional-only courses. “We learned that IIROC has the intention to include institutional content within the existing courses rather than to develop, with CSI, courses or continuing education material dedicated exclusively to institutional firms. […] [W]e are disappointed with this decision.”

Table: Pricing information from the Canadian Securities Institute (Dec 2014)

Source: Canadian Securities Institute

Canadian Securities Course Business undergrad degree CPI
  Retail IIROC   Tuition  
2005 $750 $600 2.2%
2006 $800 $640 2006/2007 $4,195 2.0%
2007 $880 $704 2007/2008 $4,637 2.2%
2008 $880 $704 2008/2009 $4,978 2.3%
2009 $880 $704 2009/2010 $5,191 0.3%
2010 $915 $732 2010/2011 $5,386 1.8%
2011 $950 $732 2011/2012 $5,673 2.9%
2012 $950 $732 2012/2013 $6,097 1.5%
2013 $985 $775 2013/2014 $6,274 0.9%
2014 $985 $775 2014/2015 $6,525 2.0%
Notes:

  • The IIROC member firm discount has varied between 20% and 25% for the CSC.
  • Retail is price paid by individual learners, not sponsored by financial institutions.
  • Weighted tuition for full-time students undergrad (Canada) by the field of study: Business management and public adminstration (Statistics Canada Table 477-0021).
  • Source for Consumer Price Index (CPI) is Statistics Canada and a BMO forecast (2014).

02 Get the CRM2 conversation right

We’ve frequently used this space to get you up to speed on CRM2’s technical requirements. But the aim of CRM2 isn’t to get you to check more boxes; it’s to enhance your client communications.

George Aguiar, president and CEO of GP Wealth Management, says, “Start having deeper discussions with clients about fees, so when the new statements are issued, there’s not going to be sticker shock.”

The statements will put compensation in dollars-and-cents terms. So, “advisors need to be able to deliver a clear value proposition,” he says, “aside from a scheduled review meeting.”

Peter Intraligi, president and chief operating officer at Invesco Canada, says good advisors have nothing to fear from CRM2 because “they offer a suite of services that justifies the costs clients pay.”

But they need to articulate that added value—soon.

Rob Kochel, vice-president of Invesco Consulting, notes that research his firm conducted with Maslansky + Partners shows most clients don’t want their advisors to put off informing them of July 2016’s CRM2 requirements.

Read: 5 ways to make compliance an advantage

  • 67.7% said they wanted to know “as soon as possible”
  • 20.3% said “a few months before”
  • Less than 10% said July 2016

And most want a face-to-face meeting, not a phone call, adds Kochel. “We asked investors why, and they said, ‘I need to read his body language. Over the phone he could be reading a script.’ ”

Kochel’s research reveals what clients want:

  • 59.1% want an advisor to help them find retirement and/or investment income opportunities;
  • 50.6% want help developing a financial plan to fit their goals;
  • 45.9% would like their advisors to factor in taxes when making investment decisions;
  • 32.8% appreciate regular, tailored communication;
  • 28.8% say a good advisor “gives me online access to my account when I need it”;
  • 23.6% want will, estate and insurance planning; and
  • 22.3% prefer their advisors educate them about investing. AER

Are trailers so bad?

Peter Intraligi, president and chief operating officer of Invesco Canada, says embedded compensation benefits, and is even preferred by, some clients. Exhibit A: His mom and dad.

“My parents are both immigrants; they’re retired, they have mutual funds with an advisor and they pay trailing commissions,” he says, adding “they don’t have enough money put aside [to] qualify for most fee-based programs.”

But even if they did, they’d stick with embedded commissions. Intraligi showed them videos explaining both options and asked them which they liked better. “Both said they like the simplicity of embedded fees, but they said it’s key they know how much they’re paying.”

Originally published in Advisor's Edge Report

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