In some ways, dealing with the advent of the client relationship model is like sending members of the financial advisory industry back to school.
To meet the educational demand, firms are rolling out a wide range of training methods, including seminars, conferences, workshops, webinars, videos and courses via both print and electronic media to train their staff, from client-facing financial advisors to the executive suite, about the long list of new requirements under Phase 2 of the client relationship model (CRM2).
They are also preparing plain-language written materials for external use with non-industry members, including clients and clients’ other advisors, such as lawyers and accountants. The overall goal is to prepare everyone – on all sides of the equation – to survive and thrive in the new world of transparency in the investment industry.
As might be expected, the extent and style of training varies among firms. “Each firm is different,” says Scott McLean, senior vice president and head of distribution with Invesco Canada Ltd. in Toronto. “Some are more involved than others; some are more proactive; some are ahead of the curve.” McLean adds that his firm will be holding coast-to-coast road shows for its advisors, educating them about what questions to expect from clients, and how and when the relevant information should be communicated.
Invesco Canada also has a comprehensive resource centre for its advisors about getting up to speed on CRM2 on the firm’s website. The centre offers videos, presentations, online tools and a comment section, as well as an unbranded letter that advisors can send to their clients to explain various aspects of the new disclosure regime.
For example, says McLean, advisors need to explain how they are compensated and why, with emphasis on the value of financial planning and ongoing advice. “Investors are not opposed to advisor compensation,” says McLean. “They just want to understand it.”
Sandra Kegie, a compliance consultant and executive director of the Federation of Mutual Fund Dealers in Toronto, says that advisors know exactly what should be disclosed to clients but have to expand their communications with them in accordance with the details of CRM2. That part of the client/advisor dialogue, she says, can “prove to be a harder conversation.”
Indeed, when it comes to training and CRM2, much of the challenge is likely to be in dealing with emotions. As Vipool Desai, president of ARA Compliance Support in Toronto, notes: “Disclosure can be embarrassing to certain registrants when it comes to explaining hidden fees.”
The stress is not likely to be confined to embarrassment. There may be considerable feeling on the other the side of the table as well; surprise is likely to be a common response from many clients – and, in some cases, anger.
So, advisors dealing directly with clients should try to ensure that their CRM2 training involves both the content of the requirements and proven strategies for dealing with a charged emotional atmosphere. It is important not to avoid such situations, Desai adds, but to use them to clear up misunderstandings and answer clients’ questions.
What seems unlikely to work in terms of defusing a negative client/advisor dialogue, notes McLean, are “canned” communications that do not properly cover all of the disclosure requirements mandated by CRM2. “Some firms,” he says, “do not necessarily want to talk about cost and prefer to talk only about performance.”
However, regulators are not expecting perfection, especially in the early stages of CRM2 implementation, notes Desai: “The general issue [for regulators] is that management has to be reasonable, not perfect.”
The Ontario Securities Commission has stated that it plans to conduct spot audits to monitor CRM2 compliance. And while perfection may not be required, most firms can expect to receive reports with some deficiencies.
Being prepared is the best way to reduce the number of items in that column.
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