Advisors surveyed for Investment Executive’s 2007 Planners’ Report Card gave generous scores to their relationships with their compliance departments — but company executives shouldn’t pat themselves on the back just yet.
The overall 8.6 performance rating reflects advisors’ belief that their firms’ compliance departments are keeping them out of trouble. But the “overbearing” and “ridiculous” ways in which they are doing it is rubbing many advisors the wrong way.
“They are too strict. I believe they have to be, but sometimes they go overboard. Some may say they’re anal,” says a Western advisor with Burlington, Ont.-based Berkshire-TWC Financial Group Inc. , which received a score of 8.6 for compliance.
“They are very strict, almost overbearing. I find it very difficult to do business,” says a West Coast advisor with Winnipeg-based Investors Group Inc. , which received a slightly below-average 8.3 score in the category. “I understand it’s coming from the Mutual Fund Dealers Association of Canada, but, boy, they are strict.”
Chief among advisors’ complaints is the amount of paperwork that flows through their offices. Advisors are required to fill out “know your client” forms, photocopy both sides of a driver’s licence for new client accounts, and get the requisite signatures and initials on dozens of pages to complete a transaction — all of which could be returned to the advisor if not properly completed.
“This is pure stupidity. They never give valid reasons. When they ask for things, I just tell them I won’t supply that and they can come and take my licence,” says a British Columbia advisor with Markham, Ont.-based Worldsource Financial Management Inc. , which scored an 8.4 in compliance. “They seem to back off when I say that.”
A B.C. advisor with Mississauga, Ont.-based Investment Planning Counsel needs 42 signatures to open a new account. “Spending our lives getting people to sign off on things is ludicrous,” he says.
Adds an Assante Corp. advisor from the Prairies: “There’s no flexibility at all. It’s ridiculous — you miss one initial on a page of 25 initials and they reject the whole trade. And that isn’t great when the client is from out of town.”
This is not to say advisors don’t appreciate the intentions of their compliance departments. Many advisors stress the need for tight regulations in today’s environment.
“It’s easy to get upset with compliance, but they are doing what is best for the advisors and the industry,” says an advisor in Ontario with Markham, Ont.-based Professional Investment Services (Canada) Inc. , which received a score of 8.8 in compliance.
“They are tough and cause a lot of headaches, but I appreciate it,” says an Ontario advisor with Toronto-based Dundee Wealth Management Inc. , which scored an 8.5. “If not for them, you’d have a lot of people doing what they want and slipping between the cracks.”
Adds an advisor in Quebec with Montreal-based Peak Financial Group, which scored a 9.0 in compliance: “It’s a necessary evil.”
Meanwhile, firms are scrambling to come up with a regulatory regime that doesn’t stifle business. Executives at several firms insist they have increased communication with advisors concerning compliance requirements to ensure fewer cost-eating administrative mistakes occur. Still, advisors are ultimately responsible for their errors.
“If the advisor says the firm’s compliance department is nitpicky, that would be a disappointment for me to hear,” says Mark Kent, president of Portfolio Strategies Corp. in Calgary. “But on the other hand, we recognize that it’s a bit of an embarrassment if an advisor forgets to fill in a field on a form. We can’t fudge the answers for them.”
Some firms have strategies designed to make compliance less burdensome for advisors, including technology upgrades and new software, limiting advisors’ workloads, and discussions with regulators and other firms in order to meet the intended goals of the laws, says Robert Frances, president and CEO of Peak.
But despite all the money being funnelled into compliance, offending advisors are still breaking the law and getting away with it, says Merlin Chouinard, president and chief compliance officer of Saskatoon-based Sentinel Financial Management Corp. , citing a recent incident in which an advisor defrauded clients of almost $2 million.
“We’re not serving the client; we’re serving regulators — and trying to protect ourselves from the lawyers,” Chouinard adds.
With a compliance score of 9.3, Sentinel was second only to Mississauga-based PFSL In-vestments Canada Ltd. ‘s 9.6.
@page_break@The one issue on which both advisors and firm executives agree is that stringent compliance regulations are here to stay — and the industry will have to cope with them.
“Compliance should not be something that should surprise you at the end of the day. It’s something that is part of your normal routine,” says Ken Rousselle, president and CEO of PIS.
“We will continue to see more and more emphasis on us running compliant activities, and I’m totally in favour of this,” says Steve Cole, regional vice president in Toronto for Lévis, Que.-based Desjardins Financial Security Independent Network. IE