Even though most planners and company executives interviewed for this year’s Planners’ Report Card say increased compliance is cutting into their profitability, some say strong compliance departments can actually help advisors and their firms make money.
When asked to rate the strength of their compliance departments, almost all advisors gave their firms top marks. PFSL Investments Canada Ltd. was at the head of the pack with an average rating of 9.9, followed by Investors Group Inc. , which raised its score to 9.5 from 9.1 in 2005. Even the lowest mark was very respectable, as Investment Planning Counsel maintained its score of 8.4 from last year’s Report Card.
Although advisors rated their firms highly in this area, they had plenty to say about the workload that such attention to compliance issues has created. “It is strong to the point of being crippling,” says an Assante Corp. advisor in Ontario about his firm’s increased regulatory workload. “If there is a fine line, they’ve crossed it.”
“There’s too much time spent covering asses,” adds a Berkshire Investment Group Inc. advisor in Ontario. “And we can’t sell products that are perfectly good. They’re running scared because of Portus.”
Scandals such as those arising from Portus Alternative Asset Management Inc. and market-timing have forced regulators to change their policies and, thus, increase workloads for planning firms. Compliance procedures that used to take minutes now take hours — hours that planners say could be better spent earning money for clients.
There’s no real end in sight. As Paul Bourque, senior vice president of member regulation at the Investment Dealers Association of Canada, said in this year’s Brokerage Report Card: “The history of the regulatory burden is that it only increases.”
Individual advisors aren’t the only ones feeling overburdened by compliance. Their firms as a whole have to deal with higher operating costs as a result of the current regulatory environment. “There seems to be so many jurisdictions doing different things,” says Jeff Dumanski, PFSL’s president and chief marketing officer. “There’s a B.C. model. And you have Quebec doing its thing. We want to make sure there is consumer protection out there. But when you have 10 provinces with different consumer protections, it makes it difficult.”
Montreal-based Peak Investment Services Inc. president and CEO Robert Frances would also like to see regulators address this issue: “There’s a lot of duplication across provinces and across platforms.” As a result, keeping his compliance department up to speed requires spending more money to hire more people. Without this added burden, that money could be going toward marketing or business development, he says.
Regina-based Partners in Planning Financial Services Ltd. CEO Michael Wolfond has also watched his firm’s compliance department explode in size and scope. He says his firm’s costs are slightly less than $2 million a year, $140,000 per month: “Five years ago it would have been $30,000.” However, it appears that the investment in compliance has paid off with advisors, as the firm scored a 9.0 on this year’s survey, up from 8.8 last year.
Advisors will be glad to hear that none of the firms contacted for this year’s Report Card plan to offset these costs by downloading them onto advisors. Nevertheless, these rising costs do have an impact: they drive smaller and independent dealerships that can’t afford such high costs toward the larger firms. “In the past four to five years, a handful of shops have moved over to us,” Wolfond says.
Some firms are even using their increased compliance initiatives as a recruiting tool. Toronto-based Laurentian Financial Services is touting its compliance department as “second to none,” according to its regional vice president of sales and recruiting, Steve Cole. The firm’s advisors agree, rating it at 8.7.
“I absolutely endorse the level of compliance that we’re currently asked to maintain,” Cole says. “It’s the only way we can make sure that we keep our reputation as planners as clean as we can in an industry that’s had an enormous amount of poor publicity brought on by agents of dubious character.”
Cole uses this attitude to attract smaller dealers that are, perhaps, overwhelmed by the prospect of covering such large expenditures themselves, offering it like a safety blanket.
“I’m of the belief that there are a number of advisors who are having to leave our industry, possibly through no fault of their own,” he says. “They were performing non-compliant sales activities, but they weren’t being told they were non-compliant. Smaller dealers just don’t have the ability to supervise their people enough.”
@page_break@Although bigger companies may enjoy an unexpected recruitment boom as a result, advisors still feel that their productivity is being reduced. But Cole says it’s all a matter of perspective.
He referred to former Ontario Securities Commissioner Glorianne Stromberg’s landmark 1995 and 1998 reports on regulation and investor protection. Cole says these reports were important because Stromberg recommended that advisors view increased regulation as an aid to productivity instead of a hindrance. IE