A better way to meet compliance disclosure requirements

Move to how

Recently, I started to think about the “how” — how we do things. In our industry, we are surrounded by regulation that’s complex, ever-increasing and seems to impact much of what we do. Whether it’s requirements around anti–money laundering, client-focused reforms, privacy, trusted contact persons, total cost reporting, needs analysis, fair treatment of customers or so many other regulations, keeping up with compliance is a challenge.

While all these requirements were designed by regulators to protect clients and help them understand their interactions with our industry, I’m sure all of us have experienced negative client reactions to the complicated disclosure they receive in response to the myriad requirements. To put it mildly, clients are overwhelmed. And that’s recognizing that product disclosure, in particular, has been streamlined over the years.

Frustratingly, all that disclosure has not resulted in clarity for clients; instead, it has had an impact that ranges from neutral to viscerally negative. Even when one piece of disclosure hits the mark, it’s drowned out by all the rest. Clients continue to express the view that insurance and investments are complicated, and that we speak a different language than they do.

Recent research by Bain & Company on customer behaviour and loyalty in the global insurance industry confirms our experience in Canada. According to the research, the industry delivers in several areas that customers value, including quality, risk reduction and anxiety reduction. However, there are other areas in which the industry does less well and that clients indicate influence their purchase decisions and their willingness to recommend insurers and advisors. These areas include simplifying, informing and providing access.

Not to be overlooked is the cost of compliance. Compliance teams have grown significantly. They are necessary, of course, but are they always focused on the right things? To be certain of our compliance, we overbuild processes and collect information through complex journeys. Because our systems don’t always talk to each other, we often collect duplicate information. Too often, we must rely on human intervention to make sense of the complex outcomes of our compliance processes. Finally, while we’re continuing to move away from paying for stamps to deliver paper documents to clients, the cost of delivery is not yet insignificant.

We can do much better on “how” we comply with regulations.

Seize the opportunity of how

As an industry, we used to expect and receive specific requirements from the regulators focused on the “what.” Tick that box, in exactly this way. More recently, the regulators have shifted to principles-based regulation, focusing more on the “why,” on the outcome they’re trying to achieve for clients. Regulators are increasingly, and within defined guideposts, leaving it to each firm to determine “how” to meet the requirements. This is a huge opportunity that for the most part we have only gingerly begun to leverage.

Here are a few tips for advisors and firms on taking advantage of this opportunity.

For advisors

• Understand your “why” (unrelated to disclosure).
  • Simon Sinek would tell you your “why” is not about building a successful business — that’s a happy outcome of a deeper purpose.
  • Once you understand the compelling deeper purpose that inspires you, be sure your clients understand it and that it resonates with them.
• Back to your conversations and communications with clients: Clients don’t want chapter and verse about anything in our industry. Remember, clients are overwhelmed.
• Focus on continuing to use plain language, not acronyms. But plain language on its own is not enough. Prioritize what you choose to discuss with clients, because everything is not equally important. Clients want a meaningful understanding of a few key things important to the decision you’re asking them to make or the message you’re delivering.

For firms

• Include your communications team in the development of all client-facing documents and communications, including (perhaps especially!) documents driven by regulatory requirements.
  • Remember that the regulators want clients to understand the information we give them.
  • Communications experts should challenge lawyers and compliance professionals for clearer, more succinct explanations, and should hold the pen when client-facing documents are created. That would be a fantastic way to move the needle.
  • With few exceptions, we do not have to use the defined terms from the regulations in our client-facing disclosures and conversations.
• Review your compliance processes and technology, and challenge the accountable teams to iteratively simplify them — to drive efficiency and cost-effectiveness, and to improve the client journey. Encourage those teams to think beyond systems that check only the “what”; instead, imagine systems that check whether the intent of the regulation is met. Increasingly, this is what regulators will assess.
• Compliance teams should continue to develop their skills in identifying better ways to meet the principles behind any regulatory initiative. While we can’t ignore the detail, principles-based regulation makes clear there is more than one acceptable way to meet the regulatory objectives.

Let’s be sure to take advantage of this “how” opportunity to support meaningful interactions with clients, without getting bogged down in detail, while also saving compliance dollars.

Susan Silma is a lawyer and former regulator with a deep understanding of the client perspective. She is passionate about simplifying and humanizing the client experience in financial services, while navigating the complex regulatory environment and promoting compliance.