In the first of a series of articles that will run over the next few weeks, WP provides advisors with some quick tips how to profitably work through the regulatory changes expected over the next 14 months and beyond. More specifically how to get ahead of any client backlash.
National Instrument 31-103, the backbone of CRM2, lays out the obligations of financial market participants in a relatively complex manner. The amendments proposed and being implemented industry-wide by the Canadian Securities Administrators lay out the rules industry players must live by in this new and improved ‘client relationship model’ that’s intended to provide clients with greater knowledge and understanding of their investments.
There are four basic ideas that all advisors need to pay attention to when it comes to pre- and post-CRM2 implementation.
1) You will need to be prepared to answer client questions. Sure, some of the information provided to clients under the new rules will be sent to them directly, but its key that advisors have answers ready for when the inevitable cavalcade of questions comes their way. Communication is critical to surviving the inevitable onslaught.
2) While benchmarks themselves aren’t a requirement of CRM2, advisors should be ready to discuss with clients how benchmarks can be used to assess performance
. So, if your client’s invested in a Canadian equity mutual fund, you won’t be comparing that fund’s performance with the FTSE TMX Canada Universe Bond Index but rather something like the S&P/TSX Composite Index. Also, it’s important to remember that the client will receive money-weighted returns, which include additions and withdrawals, whereas indexes use time-weighted returns.
3) Remember when having the discussion about client costs, it’s essential to make that discussion a positive focused on the advisor’s value. IFIC has gone to great lengths to prepare model reports
for advisors looking to bone up ahead of that difficult talk. But be warned: If you simply talk about cost and performance without bringing context to the discussion, your clients are naturally going to question the value they receive. Be proactively reminding them of the value you add.
4) Continually update your understanding of CRM2. It’s not enough to read information WP is publishing on the subject. You’ve got to dig deeper looking for every advantage possible in using you as opposed to another advisor. Continuing education includes staying abreast of CRM2. You want to be on the right side of the knowledge debate.