Telling your clients how much their investments are going to cost, and what they can expect in return, is likely to involve a steep learning curve for all involved when it comes to the second phase of the client relationship model (CRM2). The good news is that many firms are developing guidelines and forms for their advisors and staff, as well as setting up new electronic client relationship management systems designed specifically for this purpose. (See story on page 12.)

Industry groups have also assembled committees of experts selected from among their members to develop tools and guidelines, usually after extensive consultation. The Investment Industry Association of Canada (IIAC), for example, has developed a model that uses a ready-made source for much of the basic information that clients now must be informed about when they open an account or buy or sell an investment fund – the Fund Facts document. These two-page, plain-language summaries of a fund’s features were a long time in development by securities regulators and now must be available on the website of firms that sell investment funds. “This document,” says Michael Stanley, president and CEO with London, Ont.-based Quadrus Investment Services Ltd., “is really the best tool for advisors to use when talking about the aspects of pre-trade disclosure.” (See story on page 18.)

However, the Fund Facts document provides only rates and other general information. Advisors will have to take the information provided there to the next level by calculating the specific charges that relate to a trade. Some firms are likely to have software designed for this purpose.

Estimates for future charges, such as trailing commissions and deferred sales charges (DSC), if any, can be communicated using the percentage values provided in Fund Facts.

This information must be communicated, regardless of how the advisor receives trading instructions from a client (e.g., by phone or in person). For clients who are less familiar with fees, speaking to them in person will probably be easier, notes Barbara Amsden, managing director of the IIAC.

Advisors will also need to prove that this communication about precise costs of a trade has taken place, so proper documentation is essential. How this is accomplished will vary from firm to firm, says Amsden. One advisor might use a checklist while another might ask the client to sign a document stating that the conversation occurred.

Montreal-based National Bank Financial Ltd. (NBF), for one, has laid out guidelines for conducting these new conversations in the compliance reports the firm sends to its advisors. Proper documentation will include the conversation’s date, the nature of the discussion and a basic statement indicating that the advisor did inform the client of the costs of the transaction, says Dennis Stewner, senior vice president and national manager with NBF in Winnipeg.

Whether advisors complete this documentation task manually or electronically through their electronic client relationship management system may be up to them, depending on their firm’s policies. Firms should have their own internal auditing procedures to assess the adequacy of their advisors’ documentation, adds Stewner.

Even before the implementation of CRM2, Mississauga, Ont.-based Edward Jones had a practice of disclosing its precise fees to clients; its method of documenting these conversations is built into its order-entry system. “We have invested in a system that will not allow an order to go through,” says David Lane, principal and head of Canadian operations with Edward Jones, “unless [the advisor] can attest that he or she has had that conversation.”

All this will take more time, including more time with clients, and advisors will have to build this time into their schedules. Defining the various fees during conversations with clients inevitably will lengthen meetings that already can last an hour. One way to tackle this issue is to try to break the habit of many retail clients who see their advisors at tax time or just prior to deadlines for RRSP contributions. “It’s going to add a lot to the time that the advisor will spend with the client,” says Amsden, “so [advisors] may want to start doing that earlier than they normally would.”

The upside is that, as investors’ knowledge of the process grows, these conversations should get shorter. In the meantime, advisors should start with their compliance department for answers to questions and advice, says Amsden: “[Compliance] wants to be the first stop. They understand how complex this is and they understand that insuring that advisors are able to do this well is what’s going to keep their business going.”

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