Investment advisors have long expressed hope that the enhanced performance and fee disclosure reports required as part of the second phase of the client relationship model (CRM2) would bring clarity and other improvements to client account statements. However, the results of this year’s Brokerage Report Card suggest that this development remains a work in progress.
When advisors were being surveyed for this year’s Report Card in January and early February, they were still getting familiar with the new client account statements their firms had begun to send out.
Nevertheless, many advisors were quick to comment on how their firm handled the process of incorporating the new requirements, which include the performance and fee reports, into the account statements.
For example, advisors with Mississauga, Ont.-based Edward Jones praised their firm’s management for its proactive approach in adding the new elements into the account statements in advance of the requirements. Notably, these advisors gave their firm the highest rating (8.8) in the “client account statements” category.
“We were six months ahead of the curve in terms of compensation [disclosure] and other [important information added to] the statements,” says an Edward Jones advisor in Atlantic Canada.
Adds a colleague in Ontario: “Rates of return have been added on the statements. Being able to talk to clients about this is very good because they want to be able to see how they’re doing on a quarterly basis.”
In fact, Edward Jones first included a performance report in the client account statements sent out in March 2016, says Patrick French, principal in Edward Jones’ client depth department for Canada. Specifically, he explains, the firm was already in the process of developing these enhancements long before being required to do so as part of CRM2.
“We began working on that report ahead of the regulation because clients have been asking for [that information],” French says. “We think it’s a tremendous positive from an industry and a relationship standpoint.”
Advisors with RBC Dominion Securities Inc. (DS) and Raymond James Ltd., both based in Toronto, also appreciated the fact their firms were early movers in providing enhanced disclosure in account statements. In turn, both firms saw their ratings rise by half a point or more year-over-year to 8.3 and 8.6, respectively.
“[The statements] have been upfront about this matter for over a year now,” says a DS advisor in Ontario. “The new statements are easier to read and clients get a concise report about what they’re paying for exactly.”
Adds a Raymond James advisor in the same province: “The statements are easy to understand. Clients can see their annual rate of return year after year, and the statements also define the fees clients are being charged clearly.”
Meanwhile, advisors with Toronto-based Richardson GMP Ltd. were split on the fact their account statements could be difficult for clients to understand and that advisors have to spend time explaining them.
“Considering clients can barely read them and I’m the one who has to walk clients through the statements, they could give more detailed information,” says a Richardson GMP advisor in Ontario.
However, a colleague on the Prairies says the statements are “way better than they used to be. I don’t have any trouble with explaining statements to clients, which used to take up a third of my day. [The statements] give people their bottom line; they open the envelope and [the information] is there.”
When Richardson GMP developed its client account statements, the firm consulted its advisors during the process, says Paul Adair, director, products and services, and a portfolio manager. In the case of including the information required as part of CRM2, the firm wanted to avoid the excess information that clients often consider “noise,” he says.
“In our experience with clients, they want to see summary-level information [in their statements],” Adair explains. “Then, they want to be able to drill down during a conversation with their advisors.”
In many ways, being open to client feedback when designing their account statements makes sense for firms. For example, such client feedback led Toronto-based TD Wealth Private Investment Advice (TD Wealth PIA) to issue monthly performance reports instead of quarterly, says Dave Kelly, senior vice president with TD Wealth Private Wealth Management.
“A commitment to transparency is an expectation that clients have, or certainly will have, and we wanted to make sure that we were supporting our advisors for clients with those expectations,” he says.
However, the fact some firms implemented changes in response to clients’ desire to see their information more frequently didn’t sit well with some advisors. In fact, even though TD Wealth PIA’s rating in this category rose to 6.9 from 6.1 year-over-year, that still was the lowest rating in the survey.
“[The firm] has decided to be overly righteous with this new [client account statement],” says a TD Wealth PIA advisor in Ontario. “If you want to be competitive, then be average like everyone. Don’t go above and beyond and provide monthly statements instead of quarterly statements.”
Toronto-based BMO Nesbitt Burns Inc. also opted for more frequent reporting, something that firm’s advisors are not thrilled about.
“They’re focusing on the wrong thing with CRM2,” says a Nesbitt advisor in Ontario. “Monthly performance is not the way to go. I’m not happy with it.”
© 2017 Investment Executive. All rights reserved.