Special Report on Technology 2020

The Canadian Securities Administrators’ (CSA) revised client-focused reforms (CFRs), published last November, could give financial advisory firms a kick in the pants when it comes to implementing new technology.

That’s because the CFRs, which will be fully implemented by the end of 2021, have introduced new know-your-product (KYP) requirements that mean financial advisors must “take reasonable steps to understand the securities that they purchase, sell or recommend to a client,” according to the CSA.

This requirement may prove especially challenging for firms that have large product shelves, says David Reeve, CEO of Toronto-based InvestorCOM Inc., a firm that provides fintech solutions to investment dealers and asset managers. KYP is one area in which technology tools can help firms and advisors remain compliant.

“One of our clients has 50,000 products on their shelf,” Reeve says. “With the new client-focused reforms, if you have 50,000 products on your shelf, the regulators are going to expect you to keep track of any changes to those products.”

InvestorCOM’s research found that there was an average of 2,000 changes per week to the 50,000 products in question during the first month of 2019. Keeping up with that many changes on a weekly basis is “simply not a human task,” Reeve says.

“As products get more complex and change more rapidly, no human brain can process all of that, so it becomes a necessity to arm yourself with the right technology to support your clients,” Reeve adds.

To that end, InvestorCOM offers a subscription service that allows firms to separate material product changes from non-material ones. “You might not care about a 20-basis-point [management expense ratio (MER)] change,” Reeve says, “but you do care about a change from a medium to a medium-to-high risk rating.”

Other fintech providers offer tools designed to help you comply with new KYP requirements. Toronto-based Pascal Financial is launching a wealth- management platform in March that will alert you when it detects product changes.

“Our engine automatically evaluates portfolios and triggers an alert to advisors when product conditions change, such as a risk rating or MER,” Yves Rebetez, chief investment officer of Pascal Financial, stated in an email to Investment Executive.

New compliance obligations are only one of the factors that will drive tech adoption in 2020. Technology also can enhance the ways you interact with your clients.

For example, Reeve says, as millennials begin to control more wealth, using technology to onboard them as clients becomes increasingly important.

“If you’re not leveraging technology to onboard clients, you’re going to miss out on a large segment of the population,” Reeve says. “Why would you use paper, a courier and ‘wet’ signatures?” (Regulators are on board with e-signatures: in March 2019, the Investment Industry Regulatory Organization of Canada provided updated guidance about electronic signature use.)

Firms also can use technology to make client reporting “more engaging and interactive,” Reeve says. For example, rather than simply giving a client an account statement as a PDF, an interactive dashboard can let them see how their portfolio could grow if they were to adjust their saving habits.

“I’m not interested in a printed statement, even though that’s what I get from my provider,” Reeve says. “Does the data have to live somewhere on a PDF? Yes, it does – the regulators require that. But why wouldn’t you create a much more interactive reporting experience, which is what a lot of our clients are busy doing right now?”

However, implementing new technology can be a challenge for firms.

“It’s not just cost; it’s complexity,” says Kendra Thompson, a consulting partner with Deloitte Canada in Toronto and leader of the firm’s wealth transformation initiative. “It isn’t as simple as just plugging something in or adding a new capability.”

Firms have already been implementing simple technological changes, says Thompson, such as adding forms that clients can fill out electronically. More robust changes, however, pose greater challenges.

“The more complex change requires actually changing the core, changing the data models, changing the enterprise architecture, changing the way in which the integration with your existing legacy tools plays out,” Thompson says.

There is a plethora of tech tools that firms can deploy to improve service to clients, including software designed for portfolio management, financial planning and assessing risk tolerance.

But having a computer desktop cluttered with numerous icons for various applications can make your job more challenging, says Craig Iskowitz, founder and CEO of Ezra Group LLC, an investment advisory firm based in New Jersey.

“There’s been an explosion of single- purpose applications,” Iskowitz says. “There could be dozens of apps that do different parts of [an advisor’s] workflow, and [the advisor is] constantly clicking and switching back and forth between apps.”

Iskowitz refers to this problem as “appification.” A report published in December by New York-based Xtiva Financial Systems Inc. includes a column by Iskowitz in which he predicts that “the deployment of consolidated advisor dashboards” would be the “wealthtech” trend that has the greatest impact in 2020.

“One of my core principles is that [an] all-in-one [advisor dashboard] is almost always better,” Iskowitz says. “When everything is separate, you may get the best of breed, but you’re moving data back and forth between these applications – and something is going to fail.”

Iskowitz adds that advisory firms often deploy new technology with the client experience in mind, but the advisor experience is just as important.

“What’s [the advisors’] experience?” Iskowitz asks. “How much time are they spending on their day-to-day work? How can they scale and how can they deliver better experiences to their clients? How can they support more customers? How can they grow their practices? All those things need to be considered.”

Thompson uses the term “digitizing dysfunction” to describe the practice of deploying a variety of tech tools that seek to replicate traditional advisor workflows. Implementing new technology should not be “done piecemeal or in silos,” she says.

“We’re still at the point where we’re thinking about discrete tools that we integrate,” Thompson says. “But three or five years from now, you won’t have advisors being able to name individual tools. Done well, everything should become more intuitive and more simple.”

A complete tech overhaul can be daunting for traditional advisory firms encumbered by legacy systems, Reeve notes.

“When you see an upstart [such as Toronto-based] Wealthsimple [Inc.] come into the market, their advantage is they don’t have legacy,” Reeve says. “When you look at any of the banks or these large, traditional brokers, they have a lot of legacy platforms. Integrating and managing that legacy while they’re moving to digital is a major challenge for them.”

Despite the challenges, Thompson says, advisory practices are well on their way into a digital revolution. She says she’s seen “unprecedented spending” on tech solutions for advisors by the biggest firms in Canada.

“I’m seeing way fewer executives pushing back on doing things in new and integrated ways,” Thompson says. “In early 2018, we were still seeing the ‘new guard’ vs the ‘old guard.’ Going into 2020, those in leadership positions across the C-suite in all Canadian firms are really looking to build for the future.”