Many financial advisors are already having longer, more detailed and potentially confrontational conversations with clients as a result of Phase 2 of the client relationship model (CRM2). Although those conversations can be difficult, at least advisors should be thankful they don’t have to produce and distribute the reams of new information that their clients will receive. Those duties fall to advisors’ firms, which must gather, crunch and deliver a mountain of data, from plain-language explanations of the mechanics of benchmarks to the purpose and amount of trailing commissions – in dollars and cents.
And the firms know it. William Donegan, chief compliance officer at Scotia Securities Inc. in Toronto, has called one of the central requirements of preparing for CRM2 reporting the “gap analysis” – the need to review closely all of a firm’s internal systems and departments that must deal with CRM2 to check that nothing has been missed. The efforts of multiple departments, Donegan says, including compliance, systems/technology, back-office support, marketing and communications, sales and advisor support (among others) must be co-ordinated to ensure that the requirements are met.
A methodical, organized approach will make this seemingly gargantuan task easier. “Co-ordinating the implementation of CRM2 is no different from implementing any other [major] initiative,” says Sandra Kegie, a compliance consultant and executive director of the Federation of Mutual Fund Dealers in Toronto. She advises that firms review what procedures are already in place, what needs to be added and which departments need to be involved in the process.
In order to meet CRM2 requirements successfully, says Vipool Desai, president of ARA Compliance Support in Toronto, firms typically need to follow four key steps:
– review the rules to determine the reporting requirements;
– analyze what data they currently have;
– ascertain whether there are any gaps in the information required;
– assess the systems requirements to generate any data that might be missing.
Once these steps are completed, Desai adds, “a project plan must be established.”
Bank of Nova Scotia, the parent of Scotia Securities, has an enterprisewide CRM2 steering committee comprising representatives from all of its divisions and subsidiaries affected by CRM2. These include all of the various channels for distributing investment products to clients, says Donegan, such as the mutual fund dealership and the securities arm.
Committee members are responsible for “tabling” all issues relating to the implementation of CRM2 and reporting on progress at periodic meetings. Donegan notes that, although there are differences inherent within each distribution channel, each is responsible for implementing the same regulations and for meeting varying reporting requirements based on the products they distribute.
Involving all stakeholders in a common forum that everyone can access makes it easier for Scotiabank to co-ordinate the implementation of CRM2, Donegan says, and reduces the potential for conflicts over who is responsible for what.
Another mechanism designed to ensure there are no gaps in the delivery of CRM2 requirements is the maintenance of what Donegan calls “integrated control” over the process through centralized reporting. At Scotiabank, he adds, all internal entities have a two-tiered compliance structure – at the branch level and at the compliance department level. Each entity, in turn, reports to the chief compliance officer at head office.
Although compliance plays the central role in CRM2 implementation, other departments are involved in the process. For example, says Kegie, front-line advisor support staff and the sales force must get the right messages to advisors at the right time.
This means, says Desai, that all departments “must be armed with responses” so client queries can be answered.
The look and content of documents delivered to clients is being reviewed by many firms to assess how they may be used to meet CRM2 requirements. For example, Kegie suggests, it might be necessary to change trade tickets to include deferred sales charges, commissions and trailers on the same ticket.
In a similar vein, Donegan says, design decisions must be made regarding where to insert and how to present the new information requirements on client statements.
Other issues include the substantial costs to firms due to all this change, as well as the need to save time and money by reducing unnecessary duplication. For example, Kegie notes, some dealers are preparing booklets that include summaries of certain disclosure requirements, such as an explanation of performance benchmarks, rather than producing separate explanations for individual products.
While getting ready for the full rollout of CRM2 over the next few years may bear much in common with other types of pan-organizational change, this initiative clearly has its own, significant challenges.
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