Ever-increasing regulation and its resulting compliance burden don’t make anyone happy, but most advisors and executives see them as necessary parts of doing business.
“The whole idea is to keep the advisor out of court,” says Gordon Gibson, senior vice president and managing director of Montreal-based National Bank Financial Ltd.
Naturally, some advisors are frustrated with the paper burden — and, in a number of cases, with the compliance officers.
However, far more advisors are positive. “Our advisors understand that our compliance is there to protect clients and advisors,” says Bruce Kagan, president of the wealth-management division at Toronto-based Blackmont Capital Inc.
As a result, the performance ratings that most advisors give to their relationship with compliance officers is high — as is the importance they assign to the activity.
The major exception is TD Waterhouse Private Investment Advice, which has a performance rating of 7.6 and an importance rating of 8.2.
“They try, but they don’t understand the products or the job,” says a TD Waterhouse advisor, in regard to the firm’s compliance officers.
“I don’t always get a straight answer,” says another TD Waterhouse advisor.
“There’s no flexibility,” adds yet another.
Mike Reilly, president and national sales manager for TD Waterhouse in Toronto, recognizes how much the quality of the compliance staff matters: “It really revolves around people and experience and knowledge of the business. You need to make sure you have people who understand the business and understand that we’re in a risk business. The answer cannot be just ‘No’ or ‘That’s the way we do it.’
“If the answer is ‘No,’ there has to be a specific reason why. And if there is something that can be done about it, we have to look into it.”
As a result, compliance works best when compliance officers are seen as partners. For instance, an advisor at Winnipeg-based Richardson Partners Financial Ltd. , which received the highest performance score with a 9.6, says: “The head of compliance is great to call on for direction. The entire department is devoted to communication.”
Says Bob Larose, executive vice president of private client services at Canaccord Capital Inc. in Vancouver: “Instead of just saying, ‘No, you can’t do it,’ our compliance staff will help advisors figure out how they can do it properly and within regulations. They help them through the problem rather than dictating the word ‘no’.” Canaccord had a performance rating of 9.2 in the category.
Gary Reamey, principal and head of Edward Jones‘s Canadian division in Mississauga, Ont., goes even further: “I think our advisors realize it’s a privilege, not a right, to do business in each province that we are in.” This means Edward Jones advisors look to the compliance department to make sure they’re always working in the best interest of clients.
Other firms take a practical approach to compliance: “Compliance keeps our legal fees down and keeps regulatory bodies from getting involved with the advisor, which can slow down their business,” says Hamish Angus, head of ScotiaMcLeod Inc. in Toronto.
One positive to the increasing need for and cost of compliance is that it will discourage a lot of new entrants, says Robert Harrison, president and CEO of Leede Financial Markets Inc. in Vancouver. He points out that putting in a backup system so that the firm can be up and running within 24 hours of any major disruption has cost $275,000.
Concerning the cost of compliance, TD Waterhouse isn’t negative about the increasing need or the additional costs it imposes. Reilly says it just has to keep growing the business to offset the rising costs.
Canaccord is more positive: rising compliance costs will “hopefully” be offset by declining costs in other areas as technology and economies of scale kick in, theorizes Larose, who notes that, despite increasing compliance costs, the firm is making more money.
The most negative comments about compliance came from Ross Sherwood, president and CEO of Odlum Brown Ltd. in Vancouver: “We think there is too much regulation in this country, too much over-regulation. And we believe we should have principles-based regulation as opposed to prescriptive rules.”
Sherwood believes the best way for companies to cope with compliance is to keep it simple and to communicate with advisors, noting, “At least two or three times a year, we sit down with everybody and talk about new compliance measures. You have to educate people; you have to tell them and then you have to remind them. No one comes into the office saying, ‘What am I going to do in compliance today?'”
@page_break@Winnipeg-based Wellington West Capital Inc. has a committee to deal with compliance issues. “We’re trying to introduce what we call ‘common-sense compliance’,” says Charlie Spiring, CEO and chairman. “We’ve brought in a committee to review the Investment Dealers Association of Canada‘s compliance practices and policies to make sure we understand and agree with them, and to see if there are ways to make them easier to handle.”
This approach seems to work for Wellington West’s advisors. “It’s a top-notch department and I never have any problems with it. It’s there to look out for us, and that’s exactly what it does,” says one advisor.
Adds another: “They’re the best I’ve ever had.” IE