handshaking and exchanging contract documents

All the requirements under the client-focused reforms (CFRs) are now fully in effect. The intention of the reforms is to better align your interests as an advisor with the interests of clients, and to improve client outcomes.

Head office teams have been working diligently the last two years to implement the necessary tools, policies and processes to support implementation of the CFRs within their firms. Advisors, however, are at different stages of understanding what various elements of the CFRs mean to them and how to most effectively apply them in their client relationships and practices.

As a wrap-up to my six-part series on the CFRs, this article sums up how you can leverage these new regulations to deepen client relationships and reinforce the value of your advice.

Expand on relationship disclosure

Under the CFRs, firms had to update their client brochures to include key elements of the CFRs. Some advisors aren’t sure how much detail they need to cover to satisfy the relationship disclosure requirements on the updated brochures.

  • For new clients, or at your next meeting with existing clients, take them through key elements of your relationship including, but not only, those outlined in the brochure:
    • Help clients understand the scope of products and services you offer.
    • Be transparent about the fees they’ll pay, both directly and indirectly.
    • Let them know you’ll put their interests first in making recommendations to help them achieve their goals.
  • Although it’s not in the brochure, set out what clients can expect from you in terms of the frequency and types of meetings and communications.
  • Tell them how they should reach out to you if they have questions.

Avoid misleading communications

The new regulations prohibit you from “holding yourself out” in a way that may mislead, confuse or even deceive clients. This includes limits on the titles, designations and awards you can include on your business cards, marketing material, websites and social media.

  • Check your firm’s policies for the specifics of how to comply.

More KYC means meaningful client interactions

To comply with the CFRs, many firms added to their know-your-client (KYC) processes and tools, to help advisors assess a client’s risk profile. This may include the collection of new information from clients. While this may increase the time to complete or update a KYC form, it will result in a greater understanding of the client.

  • Position the process with clients as an opportunity for you to better understand their goals and ability to take risk, and to make even better recommendations that will help them meet those goals.
  • Make the conversation a meaningful interaction that builds rapport and truly adds value, rather than a required process to complete some regulatory forms.

A TCP is not just for the elderly

As of Jan. 1, advisors must ask clients to name a trusted contact person (TCP) as part of the KYC process.

  • Keep in mind that any clients could become vulnerable.
  • By properly positioning the benefits of naming a TCP, clients of all ages should see the value and appreciate that you took this step.

KYP: Rightsize your personal product shelf

The CFRs put a spotlight on advisor product knowledge, and the new know-your-product (KYP) requirements have raised the bar.

  • Consider rightsizing your personal product shelf. Meeting the enhanced product knowledge requirements will be difficult if your client portfolios include a significant number of different securities.
  • Leverage any tools your firm provides.
  • Continue to improve your product knowledge, awareness of product changes and understanding of the impact of product costs on returns.

Meet the new suitability standard to put the client’s interest first

The CFRs introduced a new suitability standard that is narrower than the old one for which there would have been a range of possible suitable recommendations. Now, advisors must put client interest ahead of all other competing considerations, and some recommendations that met the old standard may not meet the new one.

  • This new standard puts a focus on exercising your professional judgment when making a recommendation.
  • Be sure to document the basis for your recommendation and that you considered “a reasonable range of alternatives.”

Document, document, document

The regulators expect advisors to demonstrate that they met the enhanced KYC and KYP expectations, and put the client’s interest first when making a suitability determination.

  • There will be a big focus on documentation and note-taking to demonstrate that.

Adopt radical transparency

Through the CFRs and more generally, Canadian securities regulators prioritized the importance of clear and transparent communication with clients. Greater transparency helps clients better understand and engage in the advisory relationship. It will lead to a more open and honest relationship, and clients will appreciate the time you take to educate them and the value you deliver.

  • Don’t just be more transparent — be radically transparent. Educate clients about key elements of your relationship, the fees they pay and their impact on returns, conflicts of interest and how you address them, and how you make recommendations that put their interests first.
  • In client conversations, use plain language and avoid acronyms. When discussing an issue, take the time to explain and provide some context.

Susan Silma is head, regulatory business practices, at Sun Life Financial Investment Services. She is a lawyer and former regulator, and is passionate about integrating compliant practices into a positive advisor-client relationship.