Regulators won’t stop at CRM2

November 12, 2014 | Last updated on November 12, 2014
5 min read

Advisors can’t fight regulatory change, especially since we’re deep into the implementation of CRM2, says Goshka Folda.

Folda, senior managing director at Investor Economics, says technology is also altering the advisory landscape, along with the growing popularity of so-called robo-advisors in the U.S.

Read: Can a robot replace you?

Folda was the keynote speaker at an Edward Jones seminar this morning, which also included a panel of regulatory experts: Wayne Bolton, chief compliance officer at Edward Jones in Canada and Marissa Cusi, assistant vice-president of compliance at Invesco Canada.

To kick off the event, Folda said she’s found many advisors are open to leveraging CRM2 to boost client service. And that’s a good thing, she adds, since it’s only the first step for regulators.

Going forward, she predicts regulators will look at how to unbundle fees and help investors understand more products, and at greater oversight of exempt markets.

Read: How to become an EMD

However, she notes, unbundling fees remains a challenge due to the impact it could have on smaller firms. As well, regulators are waiting for feedback on how advisors and clients deal with increased fee transparency.

“There’s a divide between those who are prepared to meet requirements and those who aren’t,” suggests Folda. “But there’s been improvement over last year.” In particular, more advisors are realizing they need to build discussions about fees and how they structure portfolios into their client processes.

Read: How to answer common fee questions

In the following panel discussion, Bolton and Cusi offered their top compliance tips. These include:

  • Explain to clients why and how disclosure documents are changing before 2015 and 2016. Tell them what to expect, and show them how to absorb the new information.
  • If a client asks you to make a trade that doesn’t fit his current objectives, assess suitability and alter those objectives before going any further. If you don’t do this prior to discussing and making the trade, regulators will notice. Read: Prove you know your clients
  • Seniors are the top priority for both regulators and Canada’s new financial literacy leader. But don’t forget about Millenials, given many will be receiving significant inheritances in coming years.

See below* for more tips from the panel, and for a recap of assistant editor Katie Keir’s live tweets. Also, read more from Katie Keir and Follow @katiekeir.

Greater scrutiny for firms, advisors

Following the panel, had a one-a-one chat with Bolton, who’s worked for both large and small firms, about current industry trends.

Question: Over the last two decades, how have regulatory concerns shifted?

Bolton: When I started [Bolton got an entry-level advisor job at Wood Gundy directly after university], regulators were focused on products and trade execution. Now, there’s a focus on how advisor-client relationships are built, and on making sure advisors are explaining the value of advice. From a supervision focus, there’s increased scrutiny on how closely compliance departments are monitoring advisors. As well, the speed at which mistakes are supposed to be fixed, and at which complaints are supposed to be addressed, has risen dramatically. That’s partly to do with technology, but more to do with regulatory priorities.

Read: How to deal with client complaints

Q: Do compliance departments differ at small firms versus banks?

B: Typically, both are governed by the same rules and regulations, either through IIROC or MFDA. So their approaches and philosophies are the same. Structurally, though, there are differences. For example, branch managers at small firms are often part of the compliance department, and they may also be advisors. At large banks and firms, branch managers are typically separate from compliance.

Read: Firms need help handling CRM2 reforms, says IIAC

Q: Will Canada get a national regulator?

B: There have been some developments lately, and the conversation about a national regulator isn’t going away. We’ve had some harmonization of national regulation due to NI 31-103 over the last few years, particularly regarding the standardization of registration categories across the country. And, with that, comes greater standardization of oversight.


Q: What could Canadian regulators be doing more effectively?

B: To date, regulators are doing a better job of consulting with industry stakeholders, such as investors and firms, when it comes to proposals. But what I’d like to see is less prescriptive rule-making. Firms have to be clear on industry regulations, best practices and philosophies, but they should be able to develop their own supplementary best practices—firms’ internal best practices would, of course, be tested and assessed by regulators. Also, firms need to be able to cater services to clients. For example, regulators say investors aged 60 and above are seniors, and so advisors must adhere to rules regarding seniors for these clients. But 60 years old is young these days.


Your clients aren’t old, but tell that to regulators

Regulators don’t understand diversification

Make compliance a sales tool

Live tweets from regulatory panel (* Return to rest of article)

Goshka Folda of Investor Economics says Canadian regulators look mainly to Australia and the U.K. for regulatory inspiration @advisorca

To get ahead, advisors need to build discussions about fees and about how they structure portfolios into their client processes @EdwardJones @advisorca

In 2008 and 2009, advisors also struggled to explain their value. So think back to how you handled that challenge @advisorca @EdwardJones

If investors have robo-advisors, what will happen when markets dip?, asks Folda. It’ll be Interesting to see what kind of support they’ll receive @advisorca

Financial planning is about more than planning for retirement, says @EdwardJones rep. It needs to be more involved @advisorca

Bolton: Regulators aiming to better position #investors, so that they understand products, advisors’ services and the industry @EdwardJones

Interesting fact: a recent survey found most clients enjoy household chores more than financial planning. Have you experienced this? @advisorca @EdwardJones

Clients’ questions are becoming more complex, says Folda, especially when it comes to #retirement and #estateplanning. So be ready to showcase your value and expertise @advisorca @EdwardJones

Firms have an obligation to help advisors educate clients, but are their documents readily available to advisors, and understandable for clients? @advisorca @EdwardJones