Most financial advisors suffer from “paper fatigue.” When clients are required to sign off on something, documents must be taken to a face-to-face meeting or sent, via courier, and then retrieved by the same process. The documents then must be managed internally, in a cumbersome physical process that takes up valuable storage space and time. Wouldn’t it be easier if documents could be signed electronically?

Paper-based signatures are not the most secure way to approve documents or to witness actions. Signatures can be forged or tampered with easily. Paper-based signatures may still be admissible in court but, in 2014, what amounts to scrawling on a dead tree is an antiquated process.

Conversely, electronic signatures carry many benefits when executed properly. The signature’s provenance can be proven with more certainty, and documents sent and signed online can be audited. It is far easier to establish a paper trail when there is no paper involved.

Regulators don’t have an immediate problem with signing digitally. The Canadian Securities Administrators’ (CSA) National Policy 11-201, which deals with the delivery of documents, explicitly allows for electronic signatures – as long as they provide a reliable means of identifying a person, prove that a specific person attached the signature to the document in question and prove that the signature is unique to that person.

The Investment Industry Regulatory Organization of Canada (IIROC) has no problem with digital signatures, either. And although IIROC has no specific constraints, there are legal requirements that must be met for a digital signature to be considered a valid signature.

Those legal requirements may not be as problematic as you might think.

“The general law is that the person relying on a signature takes the risk that it’s forged or invalid,” says John Gregory, general counsel in the Justice Policy Development Branch of the Ministry of the Attorney General of Ontario. “That rule works for e-signatures, too – subject to statutory prescription of methods.”

Digital signatures have been defined in Canadian law for years. The Personal Information Protection and Electronic Documents Act (PIPEDA) defines two types: an “electronic signature,” and a “secure electronic signature.”

The first involves simply attaching a sequence of characters or other symbols digitally to an electronic document.

A secure electronic signature, as described by PIPEDA, more closely fits what the CSA requires. This method has some additional features.

The secure electronic signature is one that can be proven to be unique to the signer, according to PIPEDA. It must be linked to a document in a way that makes it tamper-proof, which means that once someone digitally signs a document, any attempts to alter that signature will be visible. This requirement is what separates a secure digital signature from an insecure one that you could simply paste into a PDF document.

Fortunately, there are several user-friendly technologies to support secure electronic signatures. One of them is a mathematical process called the “hashing” function.

Hashing a signed document produces a unique code that can be generated only by that exact document, with the digital signature attached. Anyone can check the document later by running it through the same hashing function. Even the slightest change results in a completely different code.

Digital signatures are in use by some “early adopter” advisors. Aaron Keogh, president of Greendoor Financial Inc. in Windsor, Ont., for example, says digital signatures can offer significant benefits for advisors: “Several life insurance companies utilize electronic signatures and also allow for the scanning and emailing of real signatures obtained on documents. Not all companies are there yet; but, for those that are, this can make it more convenient for my clients, especially the ones for whom meeting in person is not always an option.”

Keogh has clients who sign digitally for insurance applications. “It is very convenient,” he says. “Doing electronic applications can speed up the underwriting process and, in some cases, they can be approved instantly.”

One option for obtaining secure electronic signatures is Santa Barbara, Calif.-based RightSignature LLC‘s RightSignature (www.rightsignature.com) system. This method allows you to send documents to your clients via the Internet. A link, which arrives by email, takes the client to a secure web page that displays the document in question. The client then fills in predefined text fields and checks off certain boxes. Then, your client signs, using his or her real signature, by “drawing” it using a mouse. Forms can be customized with boxes for initials and drop-down menus, too.

Another option is San Francisco-based Docusign Inc.‘s (www.docusign.com) system, which also provides forms with predefined text fields. A big difference, however, is that in addition to a manually drawn signature, users may sign their documents using a faux signature, displayed in handwritten style, simply by clicking on a document. The company uses a mathematical algorithm to “hash” that document, producing a digital code to prove that it hasn’t been tampered with.

Then, there is a solution from San Jose, Calif.-based Adobe Systems Inc., which developed the PDF standard used for many documents. This system, called EchoSign (www.echosign.adobe.com), works along similar lines, providing a signable document on a website accessed via an email link. Adobe prides itself on document tracking, which enables issuers to tell who has opened and signed a document – and when.

Australia-based SecuredSigning (www.securedsigning.com), a division of TME Consulting Ltd., offers yet another option, in addition to “canned” fonts and manual signing. Users can print out a special, bar-coded form, then sign it in a specific space. That paper document then is faxed to SecuredSigning, which will scan and upload the signature. However, this option introduces more complexity on the user’s part.

The lack of secure digital signature technology within the financial services sector has more to do with inertia than legal barriers these days. But as companies recognize the benefits, that may change.

© 2014 Investment Executive. All rights reserved.