There are some troubling signs that financial advisors in Canada are unaware of some of the major regulatory changes taking place that will affect their businesses. Worse still, it appears that fewer are taking any measures or employing the necessary technology to deal with them.
Case in point: In May, one of the largest fund companies in Canada was presenting at an annual mutual fund dealer’s sales conference, and a representative from the firm asked an audience of advisors how many of them knew about point-of-sale (POS) Fund Facts and the then pending disclosure changes taking place on June 13. Fewer than half of the advisors raised their hands. The presenter then asked if they were aware of the pre-trade fee disclosure regulations that would start affecting their client dealings as part of the multi-year rollout of the second phase of the client relationship model (CRM2) as of July 15. Fewer hands still.
The presenter suggested that the industry is about to be hit by a tsunami of regulatory and disclosure change unlike anything we’ve ever seen and that advisors need to be prepared, otherwise they will see clients’ “money in motion.” Handled poorly, and the advisor runs the risk that clients move their business; managed proactively, and the advisor may strengthen his or her relationship with the client and reinforce the value he or she brings.
Far from being a “tired” subject, these regulatory changes are potentially game-changing events that many advisors are still grappling with and some dealers have not fully acknowledged. Many well-intentioned dealers and advisors hope to satisfy the new regulations through largely manual and traditional means. This includes locating the appropriate Fund Facts disclosure documents (the challenge is that there are 35,000 of them and they are updated periodically throughout the year) and emailing/handing them to clients or meeting and discussing all pertinent items face-to-face or by phone. Given the sheer volume of regulatory change affecting dealers, advisors and every single client they serve, this approach is fraught with risk and the potential for non-compliance.
Many advisors and their dealers were focused in June on meeting the POS Stage 2 requirement to deliver the Fund Facts document to the client in lieu of the prospectus after the client’s mutual fund purchase. Stage 3 of the regulation, which requires the delivery of the document before the trading instructions are received, has not been imposed yet by regulators, as they evaluate industry’s feedback to the Stage 3 proposal. Today, advisors and dealers that are compliant with the POS regulation are sending out Fund Facts in every case, many in an automated manner and some through a web-based platform.
The advantage of using an online solution is that the universe of documents is available anywhere and at any time, so it’s easier to remain compliant and not run the risk of not having the right disclosure document. A web-based system also allows you to manage multiple delivery events simultaneously, maintain an audit trail in case of any compliance and/or suitability concerns and otherwise focus on the more “personal” aspects of your client interactions without some of the administration that hampers your productivity.
Whether you happen to agree with the new regulations or not, about the only way an advisor can hope to stay onside of the looming regulatory storm is to leverage technology to ensure the appropriate disclosure event occurs with each client transaction — every time. For advisors who sell mutual funds, the good news is that the delivery of a Fund Facts document prior to executing the actual purchase for the client can satisfy both the POS regulation as well as the CRM2 pre-trade fee disclosure requirement. A little known fact is that advisors and dealers are permitted to send Fund Facts to clients on a pre-trade basis right now, and do not have to wait until Stage 3 of the POS regulation is actually imposed.
If both POS and CRM2 regulations are about improving transparency, clarity and informing an investor’s purchase decision by providing information in a timelier manner, then, clearly, advisors will need to adopt technology tools to facilitate the dissemination of this information. Doing this manually runs the risk of disclosing information inconsistently to investors or missing important regulatory steps altogether.
In the essence of full disclosure — and a thinly-veiled sales effort — InvestorPOS.com offers a hosted, Software-as-a-Service (SaaS) platform for dealers and their advisors to deliver Fund Facts and other disclosure documents to their clients.