Advisors and dealer firms focusing solely on the specific transaction requirements of the second phase of the client relationship model (CRM2) risk missing the point of the new regulations and the opportunity to improve their client relationships, according to panelists speaking at the 2014 Univeris Summit on Thursday.
“There’s the ideal of what [CRM2 is] supposed to do,” said Jamie List, co-founder, Mississauga, Ont.-based Bearing Capital Partners, who was a panelist at the Toronto event, “and then there’s the sort of practices realities [that are] good and bad.”
Ideally, CRM2 should encourage deep conversations with clients about the services offered and where their money is going, said List. However, the risk is that advisors will satisfy the information delivery requirements of the regulations through the distribution of the Fund Facts document and then will simply stop there.
Part of the problem, according to List, is the regulator’s own focus on the transaction portion of the business instead of the overall advisor-client relationship. List compares it to a doctor being judged solely on the amount of prescriptions he or she writes. “There’s evidence there and there’s a good correlation there – if a doctor is over prescribing you should be concerned – but at the same time it has no bearing on the quality of the advice,” he said.
Instead, advisors should be looking to start in depth conversations about their practices. The good thing about CRM2, said List, is that it encourages questions about choice and why an advisor is doing something or making certain recommendations. Furthermore, these deeper conversations should naturally turn towards the topic of compensation, said List, at which point advisors will have “taken the CRM2 concept to heart.”
Explaining more to a client will only help you and your business, added fellow panelist, Brendan Caldwell, president and CEO of Toronto-based Caldwell Investment Management Ltd. “There’s this fear that if clients know more they’re going to need us less,” said Caldwell. “Educated clients get the best results for everybody, for us as a business but mostly for them as investors.”
Furthermore, in addition to creating an opportunity for better conversations and strong client relationships, CRM2 encourages advisors to think about what is their ideal client profile.
“That’s the question CRM is asking us,” said Caldwell. “They’re doing it in a very didactic, rules-based, check-the-box kind of way…but at bottom, it’s asking advisors to really figure out who we are, and who we serve and how we’re going to best be able to do that.”