A discussion regarding the second phase of the client relationship model (CRM2) instigated debate at the Association of Canadian Compliance Professionals’ (ACCP) annual conference in Toronto on Monday.
There were opposing views on whether advisors who provide their clients with investment performance summaries should continue to do so once mandated firm performance reports come into effect in July 2016.
The concern of some panel members was that advisors’ summaries would be inconsistent with the reporting requirements mandated by CRM2.
“It is absolutely and fundamentally dangerous” for advisors to be providing those types of summaries, said Ellen Bessner, a partner at Babin Bessner Spry LLP in Toronto.
Richard Binnendyk, executive vice president of enterprise wealth management at Toronto-based Univeris Corp., disagreed.
Advisors may want to provide their clients with more information than is required by CRM2 legislation, he said. Dealers should ensure that the data advisors are providing to clients use the same type of methodology and source of data the firm is using.
If firms allow advisors to continue providing their own performance summaries, those documents should be treated the way marketing materials are treated, argued Stephanie McManus, a lawyer and president of Compliance Support Services, a compliance consulting firm in Burlington, Ont.
“It would have to be fully processed through the dealer because the data they’re using has to be absolutely consistent with whatever’s going into the performance reports so you’re not confusing clients,” she said.
The discussion also tackled the topic of a firm’s role in helping advisors face any negative consequences that may arise from the reporting of fees, when compensation reports become mandatory in July 2016.
“I think it behooves the dealer in this situation to help the advisor survive this,” said McManus. “It’s not a compliance issue but it is a business issue and I think it’s pretty critical.”
McManus believes that clients will experience “sticker shock” when investment fees become more apparent.
She told the audience of compliance professionals that they can help advisors develop a value proposition that will allow clients to understand the benefits they are receiving in exchange for those fees. Advisors who provide services such as tax planning or insurance or who conduct ongoing research to provide the best-possible advice need to play up those characteristics, said McManus. Compliance professionals can even be a part of that value proposition because they act as a client protection mechanism.
“You can help advisors convey that because they’re in a compliant environment, clients can sleep at night,” she explained.
The panel agreed that dealers should have rigorous training programs to help advisors explain CRM2 requirements to their clients. One example is the reporting of securities’ costs that will be included in enhanced account statements in December 2015.
The scripts that some firms are providing to advisors to guide those client conversations are insufficient, according to Bessner.
“The challenge with the script and providing it to advisors is that advisors actually sometimes don’t understand the script themselves,” she said.
Brief question and answer sessions or one-off meetings with advisors to explain CRM2 requirements are also not enough, according to McManus.
“There has to be a very thorough and very well-documented training process that highlights everything you’ve done, how you’ve explained these things to your advisors and how you’re tasking them with conveying those to the client,” she told the audience.