As the brokerage industry tries to forget the mutual fund market-timing scandal that brought disrepute to some of its biggest players, advisors are giving their firms uniformly high marks for ethics and legal and compliance. But it is not that brokers are insensitive to the impact of industry scandals. When asked to rank the importance of qualities of and services offered by their firms, they rate ethics No. 1.
So did the scandal serve as a wake-up call?
Or has a culture of compliance finally
arrived?
TD Waterhouse Canada Inc. was one of three brokerages, along with BMO Nesbitt Burns Inc. and RBC Dominion Securities Inc., that negotiated settlements with the Investment Dealers Association of Canada
as a result of mutual fund market-timing.
The result was a total of $40 million in fines and disgorged revenue.
Despite any black marks left by the scandal, Dave Pickett, head of practice management at Toronto-based TD Waterhouse Private Investment Advice, maintains his firm has “one of the most prestigious names in the country.” He adds: “[TD Waterhouse wants] to make sure that our investment advisors understand that we have low tolerance for behaviour that would diminish that prestige.”
Pickett says the vast majority of investment advisors do a great job for their clients, and when the market-timing probe occurred, it didn’t mean anything to 99% of advisors.
Still, he adds, TD Waterhouse has added to its compliance team: “It’s a big part of the business.”
David Agnew, national director of
Toronto-based RBC DS, likewise feels his firm’s reputation — and its logo — remain strong, despite the scandal. “We had very few clients complain about it,” he says. “We are highly regulated; compliance is extremely important and we take it very seriously. We play by the rules essentially.
We watch compliance very carefully.”
Richard Mills, national sales manager, executive vice-president and managing director of Toronto-based BMO Nesbitt Burns Inc.‘s private client division did not wish to comment on the market-timing issue, beyond the prepared statement that his firm released several months ago.
Among the bank-owned firms, the only
dealer to show an actual decrease in ethics and compliance ratings was CIBC Wood Gundy, which was not implicated in the market-timing scandal. The rating for ethics among Woody Gundy advisors dropped to 6.5 this year from 7.0 last year. The rating for legal and compliance dropped to 6.5 this year from 7.6 last year. (The other firms received ratings from their advisors close to last year’s, and only Edward Jones advisors significantly increased those ratings for their firm.)
At Wood Gundy, advisors from Vancouver to Halifax complain about “bank culture” imposing a “bureaucracy” that has resulted in “too much compliance.” An Ontario advisor spoke about “the constant paranoia of the banks and their 50 million safeguards,” adding that the bank bureaucracy “slows everything down.”
Hamish Angus, managing director in Toronto for ScotiaMcLeod, is keenly aware of the impact of the market-timing scandal — even though his firm wasn’t implicated. “The reputation of a firm is hard-earned and can go very quickly,” says Angus. “We value our reputation for integrity and trust, and continue to focus on building it. Anytime there are headlines about the industry, it reflects negatively on all of us.
“The majority of advisors are doing the right thing,” he says, “but it’s important to continue to focus on very high levels of integrity.”
Vancouver-based Canaccord Capital Inc.‘s vice president of private client services, Bob Larose, is happy his firm’s name was left out of the debacle. “Obviously, our industry is in the press and that affects the clients. I don’t think it affects the brokers. The clients might come up to the brokers and say, ‘What’s your firm doing?’ But we’ve been spared that.” To Larose’s knowledge, Canaccord brokers haven’t had any trouble with shaken investor confidence. “If they have, it hasn’t reached me,” he says.
While advisors have ranked their firm’s high, they are not above commenting on what may sometimes feel like overzealous compliance.
“They’re overdoing it. They’re overjudicious,” says a Western advisor with RBC DS. Adds another: “There are too many documents!” A Nesbitt Burns advisor in Ontario spoke of the “compliance nightmare,” while another refers to it as “overwhelming.”
Reviews of compliance were mixed at Canaccord and Dundee Wealth Management Inc. While one advisor might call compliance one of the best aspects of working at their respective firms, another would call it the worst. One might call it “extra sticky but good” — as in the case of one Maritimer —while another charges the compliance is “overbearing, suspicious, accusatory.” Ratings seem to reflect the advisors’ most recent run-ins with their compliance departments.