Client account statements are about to get a makeover as firms redesign their statements and reports to meet new regulatory requirements under the second phase of the client relationship model (CRM2).
Beyond simply meeting the prescribed new disclosure requirements, some firms are using the exercise as an opportunity to connect more fully with their clients.
“I think firms are really looking at this touchpoint with the clients, and wanting to make sure that they provide the best, enhanced investor experience that they can,” says Patti Best, senior vice president of client experience at Toronto-based Mackenzie Financial Corp. and chairwoman of the Investment Funds Institute of Canada’s (IFIC) CRM2 task force. “They’re going to look at it to see, first and foremost, are all the requirements met? But, second, how do we incorporate the plain language to make it a clear, concise document for the client?”
The first batch of changes to client account statements must be made by Dec. 31. These changes require client statements to include the book cost or original cost of each security held; the market value of each of those securities based on particular criteria; and an opening account balance, among other requirements.
Although these changes will bring various new definitions and disclosures to client account statements, the new requirements aren’t expected to alter the appearance of statements drastically.
“For 2015, the impact on statement design is really not that significant,” says Richard Binnendyk, executive vice president, enterprise wealth management, with Toronto-based Univeris Corp., which helps financial services firms produce client account statements. “The challenge is ensuring that you have the right information to present on a statement.”
Some financial services firms’ client statements already include most of the disclosure that is required by the end of 2015, whereas other firms still are in the process of making adjustments to meet the requirements. As a result, the extent to which client statements will change at the end of 2015 varies considerably among firms.
“There are some companies and firms today that are already reporting a good part of this information,” says Best. The differences, she adds, really vary from firm to firm.
Windsor, Ont.-based mutual fund dealer Sterling Mutuals Inc., for one, has already adjusted its client statements to meet most of the requirements that kick in at the end of the year, according to Nelson Cheng, Sterling’s CEO: “We’ve made changes. We’ve been a little earlier on some things.”
A second, more significant set of new reporting requirements comes into force in July 2016. That’s when financial services firms must begin the reporting period for two new annual reports: one detailing all fees and compensation that the dealer was paid for products and services provided to the client throughout the year; the other outlining how the client’s investments have performed, in both dollar and percentage terms.
Dealers can choose to incorporate the new cost and performance reports into existing client account statements, or establish them as stand-alone documents. Regardless of which approach firms choose to take, developing the new reports will be a big undertaking for firms, according to Binnendyk.
“You can incorporate [the required information] into your existing statement, but it’s still a significant change,” he says. “From a dealer perspective, it’s almost a total redesign of your statement.”
Many dealers are likely to consolidate the new reporting requirements into client statements – or, at least, send the information to clients as part of the same package – to avoid incurring the costs associated with sending separate documents.
“We’ll probably combine them into one,” Cheng says, “because, that way, we’ll just have to do one set of mailings rather than two.”
Given the array of new information that firms will be required to provide, however, mailing costs are likely to increase even for firms that combine the documents because statements will become considerably longer.
“I think the days of getting a one-page statement or a two-page statement are gone,” says Cheng. “[Statements] are just going to mushroom.”
Cheng also suspects that the costs associated with producing longer statements will lead to a greater push toward electronic client statements.
“The more pages you mail out, the more it’s going to cost you in postage and paper,” he says, “and the more you’re going to want to try to get clients onto electronic statements.”
Since the new annual compensation and investment performance reports don’t need to be sent to clients until early 2017, most firms are still in the process of planning how those reports will look, and whether or not the new reports will be consolidated into existing client statements.
IFIC has developed model reports that dealers can use for guidance as they begin designing their new annual reports. Best is hopeful that firms will use those model reports, and particularly the plain-language definitions that IFIC has developed within them, so there is consistency within the investment industry.
“I think that [uniformity] will lead to an improved understanding,” she says, “and enable clients to compare, whether it’s investment to investment or firm to firm.”
However, client statements could end up looking considerably different from firm to firm. Many firms view their statements as a vehicle for conveying their brand, Binnendyk says. He notes that although Univeris and other vendors provide client account statement templates that firms can use, many dealers choose to design customized statements.
“Corporate statements are very much a reflection of a dealer’s brand. Most dealers take a lot of pride in what they produce and how they produce it, and what it represents to the individual investor,” says Binnendyk. “[Customized statements] are a way [for firms to] differentiate themselves.”
Some firms also may choose to include cost and performance information for products that are not covered by CRM2, although regulators may consider extending the requirements of the new regime to these products in the future in a subsequent wave of regulations. These types of assets include segregated funds (classed as insurance products), guaranteed investment certificates and principal-protected notes.
According to Adrian Walrath, assistant director of policy with the Investment Industry Association of Canada (IIAC) in Toronto, many IIAC member firms have indicated that they intend to provide full reporting on some of these products. If they are important to a client’s portfolio, she notes, advisors should be prepared to explain to their clients why these assets are or are not included in the cost and performance reports.
As firms struggle to decide on the best way to present all of the new information, some may forgo their customized statements and switch to a template as an easier way to ensure they’re meeting all of the requirements.
“Given the amount of change required for the end of 2016, it remains to be seen whether dealers will continue to want to support that custom design or whether they will rely on just a standard template,” Binnendyk says. “I think most dealers will probably still want to maintain their own statements, but there may be some that find it’s not worth it anymore.”
Once client statements have been changed to meet all of the new requirements, it could take some time for clients to comprehend all of the new information.
“With any change, we have to anticipate that there is going to be some misunderstanding and some confusion,” says Best.
Financial services firms say the onus will be on advisors to spend time on walking clients through the new statements and helping them understand what the numbers mean, as well as highlighting the value that clients are receiving for the fees they’re paying. Many advisors are ahead of the game and have started having those conversations with clients. Best says that foresight will make client comprehension easier when clients receive their revamped statements for the first time.
Once the information is explained, Best anticipates that the new statements and reports will improve clients’ understanding of both how their investments are performing and of the fees they’re paying for the advice they’re receiving.
“It’s going to be laid out in a different way and it’s going to be highlighted,” Best says. “It’s really going to enhance the investor experience, with the information that they’re going to be getting.”
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