This article appears in the Mid-October 2022 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
Financial advisors are finding that implementing the client-focused reforms (CFRs) into their practices is somewhat laborious, but advisors generally are managing the transition well.
One of the intentions of the reforms, for which the final implementation date was Dec. 31, 2021, was to align advisors’ practices and interests with those of their clients.
Across all segments included in Investment Executive’s 2022 Report Card series research — the brokerage, dealer, retail bank and insurance channels — advisors rated the difficulty of adhering to the CFRs, on average, as only 3.3 out of 10, with 10 being the most difficult. (For insurance advisors, only those who managed investment books were asked about the CFRs.)
“I don’t find [the CFRs] difficult at all,” said a retail bank advisor in Ontario. “It’s all things we were already doing anyway.”
An advisor in British Columbia with a brokerage firm said that following the new requirements “[isn’t] something that changed the way I do things. I was already doing most of [the new processes]. Now it just comes with paperwork.”
The majority of advisors in all four segments also said they agreed with the intent of the CFRs to put clients first.
“Putting clients first shouldn’t be hard,” said an insurance advisor in Alberta, who also said that they welcomed better fee disclosure.
“If you think of your client first, then it won’t affect you really,” said an advisor in Ontario with a dealer firm: “The CFRs are another attempt to get the bad people out of the industry.” The advisor also warned, however, that “you can’t legislate integrity.”
For advisors who weren’t already deeply aware of their clients’ financial situations and documenting all conversations, the reforms have been more onerous.
“It’s tough with existing clients,” said an insurance advisor in the Prairies. “There was enough work to begin with, [so] adding this to our repertoire is not easy.”
A dealer advisor in Quebec said, “It’s a challenge [because] you need to change your way of doing things and it’s time-consuming. It will be costly, too, because you need to hire people to tackle [the CFR processes].”
The segment of advisors that reported the highest level of difficulty for adhering to the CFRs was insurance advisors who were securities-or mutual fund-registered: 4.0.
“Change is never easy. Some of it is positive; there are certain clients we have to spend more time on. But other clients it’s standard operating procedure,” said an insurance advisor in the Prairies.
But another insurance advisor, in Alberta, appreciated the CFRs: “The CFR changes that have come into place are things I thought needed to be done, so I welcome [them].”
Other advisors had less difficulty with the CFRs than insurance advisors: brokerage advisors rated the difficulty as 3.3, dealer advisors said 3.4, and retail bank advisors said 3.0.
“My clients are confused and scared when they see the amount of paperwork involved now,” said a dealer advisor in Ontario.
“The paperwork is tough,” said another dealer advisor in Ontario. “I’m neglecting my duties to my clients because I’m filling out paperwork.”
And some brokerage advisors said the regulators have gone “too far.”
“It’s a pain in the ass to be constantly asked to prove that I am making decisions in my clients’ best interests,” said an advisor at a securities brokerage in Quebec. “[The CFRs are] onerous and create time friction that could better be spent serving clients and improving my career.”
Despite this frustration among some respondents, many advisors in all segments were largely satisfied with the support they received from their firms leading up to the final implementation of the new rules.
For “support for dealing with regulatory changes,” the advisors polled in 2022 collectively gave their firms a solid 8.7 for performance, although that rating was down from 8.9
in 2021. The regulatory support category was rated 9.2 for importance, unchanged from a year ago.
“[My] bank has been at the forefront of this, so there has been no difficulty [in adjusting to the CFRs],” said a retail bank advisor in B.C. (The retail bank channel was rated 8.5 for performance in the regulatory support category, compared with an importance rating of 9.2; both ratings fell from their 2021 figures of 8.8 and 9.4, respectively.)
“[My] firm has been proactive in helping [advisors]. There are a lot of support staff meetings and a lot of information on how we can deal with [CFR] changes,” said a brokerage advisor in Atlantic Canada. “The [firm] has been very open and has gotten ahead of this, for sure.” (The brokerage and dealer segments were both rated 8.9 for regulatory change support, about the same as in 2021.)
Similarly, a dealer advisor in Ontario said, “We have been educated [on] the changes and they have provided us with the tools and resources. The firm has been a huge help to us in adapting to the new rules.”