Last week’s report, Mystery Shopping for Investment Advice,
revealed a lot about financial advisors and their state of preparedness for CRM2. The report was a joint initiative of the OSC, IIROC and MFDA and while it suggested there’s a lot of work required between now and July 2016 when the new rules take effect, a closer examination suggests it’s flawed.
The most important point from the report’s findings, which were compiled by an independent market research firm hired by the trio of regulators, is that investors aren’t getting the kind of customer experience they deserve from advisors.
"The quality and value of advice are key considerations in achieving positive investor outcomes. Investors need to be confident that the advice they receive before purchasing financial products and services is of high quality and appropriate for their circumstances,” the report said. “We are all committed to improving the advisory process and the overall experience investors have when seeking investment advice.”
The OSC, IIROC and the MFDA have all laid out what they will do next to ensure investors receive a better client experience when meeting with financial advisors for the first time.
While well and good the 96-page report does have some obvious flaws that can’t be ignored.
Here are the top five.
1. Just one meeting
. Out of the 88 shops where there was enough information to assess the client experience, on only one occasion was there more than one meeting. It might be okay to base an entire report on one interaction if you’re mystery shopping for jeans but financial advice would seem to be best evaluated on more frequent interaction.
2. Number of advisors.
The four platforms – EMD, investment dealer, mutual fund dealer, and portfolio manager – had a total universe of 47,172 advisors. From that the report hoped to sample 150 advisors but only managed to get sufficient data from 88 advisors or less than 1%. The sample size given only one meeting would seem to be far too few.
3. No advisor scenarios.
While eight scenarios were developed to reflect typical investor situations, no steps were taken to identify advisors better suited to a particular client scenario. It’s possible that certain shoppers approached advisors who might have been poor choices to begin with.
4. No discussion of compensation.
The report found that there wasn’t a discussion of compensation 64% of the time. What it doesn’t say is why. Furthermore, where compensation was discussed (25% of the shops) the advisors were upfront about how they were paid.
5. No comparison shopping.
The first of nine conclusions from the report found it was difficult for investors to comparison shop for financial advice, especially on important aspects such as fees and costs. Given no second meetings took place and the report fails to indicate the reasons why fees and costs weren’t discussed, it seems quite a leap to make this the number one conclusion of the mystery shop.