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Mark Kent, president and CEO of Portfolio Strategies Corp. in Calgary, says the firm will only need to make minor changes as a result of the client-focused reforms, mostly around advisor training and updating documentation. Photo by Todd Korol/Globe & MailTodd Korol/The Globe and Mail

This article is the third in an ongoing series on the client-focused reforms, which will place investors’ interests first in their dealings with financial advisors and dealer firms and have a consequential impact on advisors and the investment industry.

The pandemic-driven shift to remote work has been both a help and a hindrance to investment industry firms working on updating their client relationship policies and procedures to meet new investor-protection rules that come into effect fully by the end of this year.

For many firms, the acceleration of technology adoption amid the pandemic has been the push needed to update client relationship management (CRM) technology in line with the new client-focused reforms (CFRs). However, the changes also come at a time when firms have been challenged to adapt to the work-from-home environment while also updating their policies and procedures to meet the new requirements alongside other regulatory changes.

“There’s a lot coming at wealth managers this year,” says Chris Farkas, partner and national asset management leader in management consulting at KPMG LLP (Canada) in Toronto.

For most firms, Mr. Farkas says the new reforms won’t mean an overhaul of their business models but will require them to update, better define and document their products, policies and procedures.

“The requirements are much more explicit,” says Mr. Farkas, whose organization is helping some firms design their programs and put the proper tools and technologies in place.

Firms across Canada have until June 30 to comply with the new conflict-of-interest provisions and until Dec. 31 to meet other changes as part of the next phase of the CFRs brought in by the Canadian Securities Administrators (CSA). Firms have been forced to review and update their policies and procedures on everything from client-facing documentation and record-keeping to training and disclosure. The CFRs also increase the amount of information compiled for the know-your-client (KYC) and know-your-product (KYP) documents.

Many firms were already doing this type of work with clients, but the new reforms formalize the process and ensure it’s well documented, says Élise Renaud, partner and member of the investment management group at Fasken Martineau DuMoulin LLP in Montreal.

“The challenge for firms is to apply these broad concepts the CSA has developed – ensuring that firms [and advisors] will act in the best interests of their clients when it comes to addressing material conflicts of interest – to their own business models,” she says. “The CSA is providing guidance to the firms, but many are still finding it difficult to implement the proper processes considering the specificities of each firm’s business model.”

Ms. Renaud says she’s getting a lot of questions from clients about ensuring their employee and advisor training, books, records, other documentation, and internal procedures and protocols are aligned with the changes by the deadlines.

Sara Gilbert, a business strategist and certified coach with Strategist Business Development in Montreal, says many firms are also updating their technology to comply with the rules.

“For a lot of firms, they say it’s painful, but once the process is done, they’re looking forward to it because it’s going to be easier from a client-management and a remote-work perspective,” she says. “So, while it might be chaos for a lot for the firms now – and a lot of technology change at once – they really see it as a good thing … that will make their lives a lot easier in future.”

She likes that many companies are using CRM software and customizing it to their operations and client needs. “What makes the advisors stand out isn’t the product; it’s the experience.”

Jamie Murray, portfolio manager and head of research at Murray Wealth Group Inc. in Toronto, says the firm – a portfolio manager, exempt-market dealer and investment fund manager – isn’t affected greatly by the changes. Nevertheless, Murray Wealth is updating its technology to meet client communication and documentation as well as KYC and KYP requirements better.

“As a product-led firm, we’ve always had to find clients who are suitable for our products,” he says. “The upcoming changes deepen the requirements to ensure the suitability of the products and proactive monitoring of that suitability as clients go through changes to their life circumstances.”

For example, the firm plans to put a new CRM system in place to collect and keep track of clients’ information, including changes that may affect their investment profiles and product suitability.

Mr. Murray says the firm was already looking at implementing this type of software, but the CFRs sped up the timeline. “It will be better for the client,” he says, making it easier for them to access information and stay on top of their investments.

“It will also open up other client-service possibilities,” for the firm, Mr. Murray adds.

Wayne Bolton, general partner and chief compliance officer at Edward Jones in Mississauga, says his firm has been planning and preparing for the new reforms steadily, taking the client and branch experience, and regulatory requirements, into consideration. He says the firm is beginning to execute on the plans to have the changes implemented fully within the regulatory timeframes.

“While the changes may seem subtle, they can be significant and will make a big difference in terms of the client experience,” he says.

For example, he says the firm plans to refresh its disclosure documents for clients, adding that “it’s an opportunity to look at our disclosure documents from a blank perspective. We are looking at the documents with a fresh set of eyes to make them more impactful and meaningful to clients.”

Edward Jones is also coming up with an additional disclosure document regarding conflicts of interest to supplement the relationship disclosure document, which also discloses potential conflicts of interest.

“It will give clients an even better understanding of their accounts and their relationship [with advisors],” he says. “It brings even greater alignment and transparency between firms and clients ... and how the investment action puts clients first.”

Mr. Bolton says the changes should reinforce client-advisor relationships at his firm and across the industry.

“It’s not just about how your client is doing from an investment perspective, it’s about how your client is doing, overall. [Financial advice is] more holistic today,” he says.

Mark Kent, president and chief executive officer at Portfolio Strategies Corp., a Calgary-based mutual fund and exempt-market dealer, says his firm will only need to make minor changes as a result of the CFRs, mostly around advisor training and updating documentation.

Namely, he says the company’s relationship disclosure information documents will be reviewed and updated, as needed, to encompass additional information required to determine product suitability, including risk profile and risk capacity for individual clients.

Portfolio Strategies also plans to update its advisor training and will look to providers such as Learnedly, a digital training platform for Canada’s financial services industry, to be ready for the end-of-year deadline.

“As a large independent dealer, these will be minor changes, overall, for us, compared to firms selling proprietary funds,” Mr. Kent says.

Mr. Farkas of KPMG says the updates that firms are doing now will help them meet and in many cases exceed the requirements for the new reforms. The changes will also have the potential to position firms better for future changes that are inevitable as client relationships evolve.

“It’s enabling advisors to better understand their clients and actually collect more data points and, from there, do better data analytics and better predict what clients may want in order to serve them better,” he says.

“It’s around digitizing the experience but also improving the human advice channel. That’s where we’re looking for [firms] wanting to exceed by automating the process and controls around it so they can spend more time speaking to clients and less time complying with regulations in a manual way,” he adds.

Clients should also notice a difference, Mr. Farkas says, including more engagement with their advisors and more questions about their financial and personal circumstances.

“It’s going to make the process of advice much more transparent to clients,” he says. “Over time, people are going to learn a lot more about their portfolios and the products that are being recommended to them just because the rules are forcing more transparency around risk, performance, and costs of those types of products. The information is there now, but this is really institutionalizing the communication of that and documenting and evidencing of that communication to clients.”

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