Whether they\u2019re planning-oriented or securities-focused, the firms surveyed in Investment Executive\u2019s Regional Dealers\u2019 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.
\u201cWe like to hire good people and trust them. That is probably our best control,\u201d says Tim Price, president and CEO of Montreal-based MacDougall MacDougall & MacTier Inc. <\/b> One 3Macs advisor echoes the sentiment: \u201cIntegrity is at the top of the list here.\u201d
It\u2019s a similar story at Vancouver-based Leede Financial Markets Inc. <\/b> Says one advisor: \u201cThey are very particular about whom they hire. They have turned a ton of brokers away that don\u2019t fit in with the company. We have a very good history.\u201d
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. \u201cWe make sure the brokers don\u2019t have any credit risks, compliance-wise,\u201d he says, \u201cand that they understand the way things are these days.\u201d
For Toronto-based GP Capital Corp. <\/b>, 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. \u201cWe don\u2019t see compliance as an issue,\u201d he adds.
As a member of the board of both the Mutual Fund Dealers Association<\/b> and Investment Funds Institute of Canada<\/b>, Aguiar has the advantage of knowing what\u2019s coming down the pipeline for his advisors. \u201cI try to stay a step ahead so, as a firm, we can implement good policies and procedures,\u201d he says.
At least one GP Capital advisor agrees: \u201cThe firm is very fastidious. Everything is done properly, almost to the point at which you say, \u2018You have to be kidding!\u2019\u201d
At Calgary-based Portfolio Strategies Corp. <\/b>, technology plays a big role in catching any inconsistencies and unusual activities, as well as in meeting compliance requirements.
\u201cOur software will screen a trade that doesn\u2019t follow the guidelines; it will flag a trade that doesn\u2019t look right and boot it back to the branch manager to have another look,\u201d 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.
\u201cSo much of it is unnecessary and, in the end, it\u2019s the client who pays,\u201d says Ross Sherwood, president and CEO of Odlum Brown Ltd.<\/b> in Vancouver. Adds an Odlum Brown advisor: \u201cWe are all paying for the 2% of the crooks in the industry.\u201d
Tight budgets and a limited number of staff dedicated to compliance put an added strain on small regional firms. \u201cI\u2019m the president and compliance officer of this firm,\u201d says Merlin Chouinard of Saskatoon-based Sentinel Financial Management Corp. <\/b> 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. \u201cWe all know right from wrong, and we know if we\u2019re serving the clients that their interests are first,\u201d he says.
Ken Parker, president of Calgary-based Generation Financial Corp. <\/b> and a former regulator, doesn\u2019t believe that a principles-based regulatory system is a practical single solution: \u201cYou can\u2019t wait until you\u2019re in a hearing, facing losing your livelihood, for the regulator to finally say what it means or wants.\u201d
Others say a national regulator would make life easier. \u201cAt this point, the MFDA should have enough structure, enough experience, to send knowledgeable people out to try to make the industry better. But that\u2019s not what\u2019s happening,\u201d 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<\/b> platform.
In an ideal world, \u201cI\u2019d like to see fewer auditors,\u201d says Harrison, who adds that having five sets of auditors in the course of one year is frustrating. \u201cSometimes when one is ending, another one is starting.\u201d
@page_break@And even though dealers have differing opinions on how to address the compliance burden, Chouinard speaks for them all when he says: \u201cIn my mind, we\u2019ve become ensnarled in an industry in which regulation has gone amuck. It\u2019s out of control. Dealers are being destroyed.\u201d \tIE<\/b>
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