This article appears in the May 2022 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
Financial advisors are finding implementation of the client-focused reforms (CFRs) challenging, but are generally managing the transition well.
Respondents across the 14 brokerage firms included in Investment Executive’s 2022 Brokerage Report Card gave an average rating of 3.29 when asked “How difficult are you finding the reforms, on a scale of zero to 10, with 10 being the most difficult?” Generally, advisors said they agreed with the CFR’s intent to put clients first, but said that new client-and product-focused rules have increased their regulatory burden.
Advisors with Odlum Brown Ltd. and RBC Dominion Securities Inc. reported the least difficulty with the CFRs, and they also praised their firms’ support. Odlum Brown advisors’ average rating was 1.47 and RBC DS advisors’ was 1.52.
“Odlum has a good reputation in putting the client first and it’s always been like this,” said one Odlum Brown advisor. Another said the firm had long encouraged the types of processes and reporting that are now required.
Mark Srdanovic, vice-president and chief compliance officer with Odlum Brown, said the firm has been proactive. It already followed the essence of the reforms, he said, but the firm still focused on communicating the new rules to advisors. “We are trying to develop easier ways for people to provide that sort of evidence of what they’re doing,” he said.
For example, a new client account application addresses some of the new KYC requirements, Srdanovic said, and the firm provided training on the form.
As for RBC DS, most advisors said the reforms have resulted in more work. “It makes meetings with clients go longer and that’s annoying for them and me,” said one RBC DS advisor in Alberta.
Yet, many of the bank-owned brokerage’s advisors said RBC DS was ahead in tailoring compliance processes. “The industry is just catching up to what has been going on here for a while,” said one RBC DS advisor in Ontario.
David Agnew, CEO of RBC Wealth Management Canada, acknowledged the “huge amount of strain and stress” caused by the CFRs. The firm is making digital investments to help streamline internal control and approval processes, he added.
CIBC Wood Gundy advisors reported the highest difficulty with the CFRs: 5.55. The second-highest average rating, 4.71, was reported by Edward Jones advisors.
Both firms exceeded the average performance rating in the “support for dealing with regulatory changes” and “advisor’s relationship with compliance department” categories.
So, the difficulty ratings seemed to stem from advisors’ frustration about their increased workload and the new red tape, rather than any firm deficiencies.
One Wood Gundy advisor in Ontario called the reforms “a necessary evil” that just require advisors to adapt. But another Wood Gundy advisor in Atlantic Canada took a dimmer view.
“I think [the CFRs will] drive advisors out of the industry,” the advisor said. “I do understand the importance, but the time spent doing CFRs is time away from client-focused things and product research.”
Another Ontario-based advisor with Wood Gundy said client onboarding pre-CFRs took three to five hours. “With CFRs, it now takes about six to 12 hours.”
Ed Dodig, executive vice-president and head of CIBC Private Wealth Management Canada and CIBC Wood Gundy, said determining where advisors would need help before the reforms took effect was difficult, but the firm has improved its processes.
“The first few weeks, we said to the team, ‘Just give us your feedback. Let us know where the pain points are and we’ll be sure to address it’,” Dodig said. In response to that feedback, Wood Gundy added staff to the risk supervision team and adjusted its technology to address the CFRs, he said.
“We’ll continue to approach it the same way,” Dodig added, through dialogue and working with branch managers.
The approach at Edward Jones is similar. “We have a whole support area for the CFRs, and we’ll continue throughout 2022,” said David Gunn, president of Edward Jones Canada. He noted that some advisors have incorporated the CFRs into their practices more easily since January, while others are leaning on the firm for guidance.
Edward Jones’s branch support teams have been working directly with advisors. In addition, Gunn said, “we continue to have what we call ‘CFR chats’” covering administrative processes.
Several Edward Jones advisors noted the high volume of back-end process changes. But as one advisor in B.C. said, “If you’re doing your job, it shouldn’t be difficult. We’re just all wrapping our heads around new systems.”
Compliance ratings still high
The average importance rating for the “Advisor’s relationship with compliance department” category (9.2, down from 9.3 in 2021) remained among the 10 highest in the 2022 Brokerage Report Card.
At the same time, both the relationship category and “support for dealing with regulatory changes” were among those with the 10 highest performance averages (9.1 and 8.9, respectively, with the first unchanged and the second down from 9.0 a year ago).