This article appears in the May 2020 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
For this year’s Brokerage Report Card, Investment Executive asked advisors whether they support the Canadian Securities Administrators’ (CSA) client-focused reforms, and for their thoughts on how the reforms might impact and be received by industry professionals and their clients.
The reforms came into force on Dec. 31, 2019. While they will be phased in over the next couple of years, they have already pushed firms and advisors to review the way they approach product suitability, know-your client requirements, conflict of interest requirements and disclosure rules.
The majority of survey respondents (86.4%) supported the changes, with some advisors saying that clients would rather be over-informed than underinformed. After all, an informed client will make smarter decisions and that makes my job easier, says an advisor in Ontario with Toronto-based CIBC Wood Gundy.
An advisor in Ontario with Toronto-based Richardson Wealth says the client-focused reforms have been a long time coming: “Our industry has had lax rules and reporting standards for a while and I think it’s time we caught up with the rest of the world.”
The remaining 13.6%, who didn’t agree with the CSA’s approach, were mainly concerned about the complexity of information they have to deliver to clients.
“I think it’s gone too far. It’s a part of our job to look out for the client’s best interest and now they are layering regulations that will create litigation loopholes,” says an advisor with Calgary-based Leede Jones Gable Inc.
Other respondents fell somewhere in the middle, saying they agree that reforms are necessary to uphold the integrity of the industry, but that regulators may be implementing these changes inefficiently.
For example, an advisor with Vancouver-based Odlum Brown Ltd. who does support the reforms says, “I think there’s a regulatory overburden. [The CSA is] trying to weed out bad guys but that burden is put on advisors and clients.”
Commenting on regulation in general, several advisors with firms across the country said they wanted the industry to tighten entry criteria.
“I think [regulators are] too focused on putting things like risk tolerances and objectives [on] paper when they should be more focused on ensuring advisors are of higher quality,” says an advisor in Quebec with Quebec City-based Industrial Alliance Securities (iA Securities).
The purpose of the CSA’s reforms is to raise the standard of conduct for financial advisors, with added proficiency and title amendments still to come. For now, though, firms can enhance client disclosure.
The good news? It appears many firms have recently improved their client statements, with some advisors indicating that they may have rated client account statements poorly had they been asked the same question a year or more ago.
Says an advisor in Atlantic Canada with Montreal-based National Bank Financial Inc.: “If you’d asked two years ago, I would have said a five [but] they’ve overhauled the whole platform.” (The firm’s ratings for “client account statements” and “online account access for clients” did not change significantly year-over-year.)
“If you’d asked me last year, it wouldn’t be the same [rating] because we’ve rolled out new accounts [statements], bringing [them] up to snuff,” says an advisor in Ontario with Mississauga, Ont.-based Edward Jones. Another Edward Jones advisor in B.C. says the transition led to “some complaints from clients” but that they were short-lived — and the firm saw slight upticks compared with last year in both client account categories.
Still, several advisors across the country pointed to issues with their firms’ documents.
“[Statements] aren’t easy to work with. What clients see isn’t well organized,” says an advisor in Ontario with Wood Gundy. The firm’s rating for “client account statements” improved significantly (by 0.5 or more) to 7.3 from 6.8 a year ago, but Wood Gundy remained one of the bottom three firms in that category.
“[Account statements] changed back in February. [They are] better than they were a year ago, [but I still] get some clients coming in saying, ‘I can’t understand this,'” says an advisor in B.C. with iA Securities. The firm improved significantly in both client account categories, with the account statements rating in particular rising a full point year-over-year to 6.9, but it still came in last in both areas.
Comments from firm executives also provided insight into how firms are preparing to embrace the CSA’s reforms.
Andrew Marsh, president and CEO of Richardson Wealth, says there’s “an underestimation of how significant these reforms are.” Even so, Marsh says, advisors who have adapted to clients’ changing demands will continue to do well under the reforms, and his firm is having “open dialogue” with advisors.
Wayne Bolton, chief compliance officer at Edward Jones, says his firm began preparing “well before the reforms were finalized.” He adds, “What will be impacted is the relationship disclosure document, which clients receive at account opening. There’s going to be amendments that really are going to provide great clarity.”
At Toronto-based RBC Dominion Securities Inc., chief compliance officer Nick Cardinale says the brokerage will be holding training sessions for branch managers and investment advisors on the reforms.