Special Feature

Advisors’ Report Card 2015

Although advisors are continuing to see significant growth in their books of business, their practices are undergoing a seismic transformation as a result of CRM2. All the insight, the ratings and the candid comments from the September 2015 issue of Investment Executive.

Most advisors say they already have transformed their businesses in anticipation of CRM2, but others say the new regulatory regime is bound to be disruptive

By Rudy Mezzetta | September 2015

Much has been made of the anticipated significant impact that the implementation of the second phase of the client relationship model (a.k.a. CRM2) will have on the financial advisory industry. However, the majority of financial advisors surveyed for Investment Executive's (IE) 2015 Report Card series don't share those concerns, as they believe CRM2 will have little to no impact on their business.

"CRM2 will be more of an opportunity than a problem," says an advisor in Ontario with Toronto-based TD Wealth Private Investment Advice (TD Wealth PIA), echoing a sentiment shared by many advisors who believe they could pick up new business because advisors who aren't offering value for clients' money will lose clients once the new reporting regime is fully implemented.

At the same time, a sizable minority of advisors were less sanguine regarding the new regime. In particular, these advisors said that investor reaction to the increased disclosure associated with CRM2 will inevitably cause at least some degree of a shakeup in their business and the financial advisory industry overall - and not necessarily a positive one.

"The industry is unprepared for the changes," says an advisor in Ontario with Toronto-based Assante Wealth Management (Canada) Ltd. "[CRM2] will be quite disruptive and difficult for investors to understand what's happening."

How investors will react to new reporting figures and information is impossible to know for sure, says Karim Manaa, partner with Deloitte Touche Tohmatsu Ltd. in Toronto. But the financial advisory industry has put in the work to prepare for the new regulatory regime - at least, from an operational standpoint.

"In the beginning, there were concerns about the operational aspects, the logistics [of generating the data]," Manaa says. "Now, [the industry] has found out that its systems can generate the information. There's sort of a relief now."

Many advisors said that they have taken steps to prepare their clients, educating them about CRM2. Some advisors praised their firms for providing support tools and materials to communicate with clients. Some advisors said they have transformed their businesses in anticipation of CRM2, making the transition to a fee-based model from a commissions-based one. And other advisors said they have long believed in full disclosure and that the new reporting rules simply align with the way those advisors have been running their business all along.

"I'm all fee-based anyway," says a TD Wealth PIA advisor in Ontario. "The biggest [aspect] of CRM2 is transparency - and I've always been transparent with my clients."

Chris Reynolds, president and CEO of Mississauga, Ont.-based Investment Planning Counsel Inc., believes that good advisors have reason to be optimistic about the impending changes.

"[CRM2] is not going to be as a big an event as everyone thinks it's going to be," Reynolds says. "It's not like these are new fees that we are establishing. The only thing that is changing, from a disclosure point of view, is that instead of clients receiving a percentage figure, it's in dollars. I think that most clients are aware, for the most part, what they're paying."

That being said, clients still may be confused by the new reporting figures or experience sticker shock when they see the dollar figures, he acknowledges.

"If you have $100,000 and you're paying your advisor $1,000 [in fees], that may be a discussion. But, for the most part, that's the price of an annual gym membership," Reynolds says. "If you have a million-dollar account and you're paying your advisor $10,000 a year, that's a trip to Paris for you and your family for three weeks. That's where you're going to have a discussion."

At the same time, some advisors are concerned that as they place greater focus on showing the value they provide to high net-worth clients, the industry will continue to move toward business models that exclude clients who have modest assets.

"Regulators are creating a situation in which people with smaller portfolios can't get any advice or the right advice," says an advisor on the Prairies with Toronto-based CIBC Wood Gundy. "They'll be left on their own because firms like ours can't afford to take them on."

As a result, the industry is being challenged to adjust to the realities of the marketplace in a post-CRM2 world, says Raj Kothari, managing partner for the Greater Toronto Area and leader of the national asset management practice with PricewaterhouseCoopers LLP in Toronto: "Canadians want advice, they like advice, but are they willing to pay for advice? This will come to bear as CRM2 gets more transparent information out to investors."

Still, many advisors have been proactive in making adjustments to their businesses or communicating the benefits of their services to clients well in advance of CRM2, says Thomas Raidl, senior vice president of the private client group and national director of independent financial services with Toronto-based Raymond James Ltd.

"The advisors who are best prepared [for CRM2] are the ones who are articulating their service platform, because it's not just about executing trades," he says. "It's about making sure clients have a financial plan and a will, and that those types of considerations are put in place. Those are the clients who will be less inclined to experience sticker shock."

Editor's note: Click here for a slideshow explaining how dramatically advisors expect their businesses to be impacted by the implementation of CRM2 reforms.

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