Advisors and dealers alike may feel the financial and regulatory burden of a stricter compliance regime, but no one doubts its importance to the long-term well-being of the industry.
“When you have good controls in place, you don’t have client complaints; you don’t have cases against you,” says Scott Sinclair, president and CEO of Money Concepts Canada and AEGON Dealer Services Canada Inc. in Toronto. “In the long range, it protects the advisor and the company and, obviously, the client.”
But in the short term, it’s a different story. Dealers agree: “It squeezes profitability,” as Sinclair says.
According to Greg Gray, president and CEO of Waterloo, Ont.-based Manulife Securities International Ltd., compliance costs are not only affecting his firm’s profitability but also that of the advisor, whose costs of compliance are “increasing dramatically.”
However, he says, “It certainly shouldn’t be anything that would stop someone from coming into this business. It’s just a little more costly to do now.”
Some executives approach it philosophically. One is Kevin Regan, executive vice president, financial services, at Winnipeg-based Investors Group Inc.
“Clearly, it increases costs. But I think the cost of non-compliance is a lot higher,” he says. “It’s an appropriate and necessary investment.”
That jibes with the opinion of Chris Reynolds, president of sister company Investment Planning Counsel in Mississauga, Ont. He, too, sees compliance as an investment. “We continue to hire more compliance officers. One of the big focuses has been on risk-management education — educating our advisors and their clients on what a good risk-management program is and why it is important when you are dealing with people’s wealth.”
Robert Frances, president and CEO of Montreal-based Peak Investment Services Inc., says it’s a case of short-term pain that won’t affect a company’s profitability in the long run. “Once the new system is set up and running, and people are educated, it will be fine,” he says.
But that doesn’t mean advisors aren’t facing challenges. Jan Sampson, COO of Winnipeg-based IQON Financial Inc., expresses sympathy for the plight of advisors. “I think advisors are very frustrated right now with the extent of changes and the fact that the landscape is continuing to evolve,” she says. “And I think it’s impacting their ability to do business. We often hear that they’re so caught up in paperwork that they can’t focus on serving their clients.
We’re often asked to help streamline and simplify the process. Both at IQON and overall, they’d like to see the regulators start to streamline things.”
Another issue, she adds, is multiple provincial regulators for securities and insurance: “The patchwork of regulators makes it very difficult to understand expectations.”
The firms have their own challenges when it comes to meeting expectations. The Mutual Fund Dealers Association began its compliance audits in the past year; only two firms surveyed, Laurentian Financial Services and Peak, have yet to undergo an audit. Manulife Securities and IQON were recently reviewed and are awaiting reports.
(The MFDA has initiated a separate investigation of Portus Alternative Asset Management Inc., with which Manulife is co-operating by providing any information requested.)
For the most part, advisors seem accepting of the role compliance has assumed in their business lives. There were few negative comments from the advisors surveyed. And the average rating in the category in this year’s Planners’ Report Card is 8.3, down slightly from 8.7 in 2004. Advisors at PFSL Investments Canada Ltd. scored their firm a 9.9.
“To our credit, we ran way in front of the MFDA regulations,” says Jeff Dumanski, PSFL’s executive vice president of marketing. “As we grow, we have a compliance department that grows with us.
The more reps we have, the more staff we need. We have a government relations specialist who helps us understand the regulations so that we can model our system to be compliant.”
Even firms that receive lower marks remain committed to compliance. “From the day I got here, we’ve had a very serious and significant commitment to governance and to working very, very well with all regulatory authorities,” says Joe Canavan, chairman and CEO of Assante Corp. in Toronto.
“That’s just good business.” IE