Whether they’re planning-oriented or securities-focused, the firms surveyed in Investment Executive’s Regional Dealers’ Report Card have a common gripe: compliance is a pain.

But even though the small dealers in this survey are among those hit hardest by compliance costs, some believe their size grants them the advantage of knowing their advisors better, thereby mitigating the risk of recruiting an unethical advisor.

“We like to hire good people and trust them. That is probably our best control,” says Tim Price, president and CEO of Montreal-based MacDougall MacDougall & MacTier Inc. One 3Macs advisor echoes the sentiment: “Integrity is at the top of the list here.”

It’s a similar story at Vancouver-based Leede Financial Markets Inc. Says one advisor: “They are very particular about whom they hire. They have turned a ton of brokers away that don’t fit in with the company. We have a very good history.”

Leede president and CEO Robert Harrison has a background in compliance and recognizes this is a growing area. His firm started with one compliance officer and now employs three. “We make sure the brokers don’t have any credit risks, compliance-wise,” he says, “and that they understand the way things are these days.”

For Toronto-based GP Capital Corp. , the solution in dealing with the compliance bur-den lies in ensuring its advisors are informed and familiar with all the rules, regulations and costs associated with compliance, says president and CEO George Aguiar. “We don’t see compliance as an issue,” he adds.

As a member of the board of both the Mutual Fund Dealers Association and Investment Funds Institute of Canada, Aguiar has the advantage of knowing what’s coming down the pipeline for his advisors. “I try to stay a step ahead so, as a firm, we can implement good policies and procedures,” he says.

At least one GP Capital advisor agrees: “The firm is very fastidious. Everything is done properly, almost to the point at which you say, ‘You have to be kidding!’”

At Calgary-based Portfolio Strategies Corp. , technology plays a big role in catching any inconsistencies and unusual activities, as well as in meeting compliance requirements.

“Our software will screen a trade that doesn’t follow the guidelines; it will flag a trade that doesn’t look right and boot it back to the branch manager to have another look,” says Portfolio Strategies president Mark Kent.

Some regional dealers would like a compliance system that has the flexibility to recognize the distinctiveness of the small regional firms when implementing compliance directives.

“So much of it is unnecessary and, in the end, it’s the client who pays,” says Ross Sherwood, president and CEO of Odlum Brown Ltd. in Vancouver. Adds an Odlum Brown advisor: “We are all paying for the 2% of the crooks in the industry.”

Tight budgets and a limited number of staff dedicated to compliance put an added strain on small regional firms. “I’m the president and compliance officer of this firm,” says Merlin Chouinard of Saskatoon-based Sentinel Financial Management Corp. Although he finds it difficult to justify the expenditure for another compliance officer, Chouinard realizes it will become inevitable.

Executives in this Report Card were asked what they would like to see happen from a regulatory perspective.

Aguiar wants to see a move toward principles-based regulation instead of rules-based.

Sherwood says common sense should dictate how you operate your business. “We all know right from wrong, and we know if we’re serving the clients that their interests are first,” he says.

Ken Parker, president of Calgary-based Generation Financial Corp. and a former regulator, doesn’t believe that a principles-based regulatory system is a practical single solution: “You can’t wait until you’re in a hearing, facing losing your livelihood, for the regulator to finally say what it means or wants.”

Others say a national regulator would make life easier. “At this point, the MFDA should have enough structure, enough experience, to send knowledgeable people out to try to make the industry better. But that’s not what’s happening,” says Kent. Regulation is so expensive and time-consuming, he adds, that he has considered shifting the firm to the Investment Dealers Association of Canada platform.

In an ideal world, “I’d like to see fewer auditors,” says Harrison, who adds that having five sets of auditors in the course of one year is frustrating. “Sometimes when one is ending, another one is starting.”

@page_break@And even though dealers have differing opinions on how to address the compliance burden, Chouinard speaks for them all when he says: “In my mind, we’ve become ensnarled in an industry in which regulation has gone amuck. It’s out of control. Dealers are being destroyed.” IE