Portfolio manager, Brad Brain Financial Planning and Aligned Capital Partners
Fort St. John, B.C.
In the business:
Fee-for-service on larger accounts and transaction-based
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When it comes to compliance, Brad Brain describes his firm as being “in good shape, yet not bulletproof.” It’s impossible to attain compliance perfection, he says, so “there’s always that one extra little thing [firms] can do.”
For individual advisors, disclosure and documentation are key to being bulletproof. Whether you must answer to a file review or to regulators, “you want to be able to back up that you did a good job,” says Brain. “At the end of the day, your word probably won’t be good enough.”
He speaks from his experience serving on the Insurance Council of B.C. “If somebody has good notes, then they have a case,” he says, adding that those notes should include what was said to whom and when—during a discussion on the risks of an investment strategy, for example.
Even if you might deem your practice above reproach, his advice holds. “You don’t have to have done something wrong,” he says. “You just have to have somebody think you’ve done something wrong.”
For example, clients might forget what’s been discussed during meetings, or complaints could originate from clients’ family members, such as when the child of a deceased client questions why that client didn’t have life insurance. In such a case, an advisor would have to demonstrate that the insurance conversation occurred and the client declined.
With regulatory scrutiny making compensation seem like a four-letter word, Brain highlights compensation disclosure. Referring to embedded commissions, he says the structure of mutual funds to collect costs efficiently works well for many clients, including about half of his own. Further, “The populist sentiment that advisors are out there ripping people off” is ironic, he says, considering many advisors—including himself—choose to do pro bono work on small accounts instead of turning those clients away.
“There’s no credit given to the advisory community for helping out that guy” with the small account, he says, describing a twentysomething with a few thousand dollars that will stay invested for decades. On such accounts, the use of deferred-sales-charge products would likely be justified, he says, noting an advisor is likely losing money on the account. (Brain’s point is largely philosophical since he tends to use “front-end 0%” funds to avoid later administration hassles.)
Potential compliance problems occur when account actions aren’t easily justified, such as when an advisor needlessly replaces an account. Says Brain: “Charge for your time, but be wary of what appears to be compensation-motivated instead of in the client’s best interest.”