Client Relationship Management Roundtable

Client Relationship Management Roundtable

Client Relationship Management Roundtable

WP: What are the major challenges for your firm keeping in line with CRM2?

Ardrey: The greatest challenge will be in administration and reporting. Change is never easy. Entire reporting structures will have to be shifted. This is a massive change in the industry and a cost that many advisors and firms will have to bear. With changes in the reports advisors will need to explain to their clients how to read and understand the new information. This can lead to confusion on behalf of the client, especially in the area of explaining money-weighted returns.

William Britton: Implementation in long-running practices may be a challenge. Although CRM2 represents new requirements, the need to disclose this information in the best interest of the client is nothing new at all. It may be very difficult to start discussing fees and benchmarks in the later stages of a relationship if these topics have not been broached before. Furthermore, introducing them in such a new and blatant format—even if they have been reviewed in a different manner in the past—may result in confusion or an unintended emotional response in the consumer that could have a negative impact on an otherwise healthy and productive client/advisor relationship. It is also worth considering that, given the fragmentation of regulatory requirements from one channel to another, and from one product to another, consumers may be unintentionally attracted to what they see as simpler solutions—not because they are better suited to the needs, but rather because they appear more straightforward simply because they do not have the same requirement.

WP: What do you feel will be the greatest benefit to the industry, the advisor and the consumer with CRM2?

Salzer: For the industry it will be empowered consumers who will demand lower-cost investment products and services. Increased cost transparency may see clients shift passive investments in mutual funds toward more tailored portfolio management solutions for part of the market, benefiting advisors, while driving fund managers to lower their costs, benefiting consumers.

Ardrey: The greatest benefit is transparency. The average investor does not understand the costs they are paying and what benefit they are receiving for these payments. For our industry, this will help clean up a lot of the negative press surrounding fees. This will increase the professionalism of the industry. Many advisors may see this as a challenge, but I for one believe that the consumer is OK paying for something they feel they are receiving value for in return. Too many times the financial planning component of the job is devalued, as it is given away for free. This will help those advisors who are really giving their clients value for the fees they pay, as it will differentiate them from those who may not be.

Britton: Always put yourself in the shoes of the client. What sorts of things do you want to know when you are the customer—and how much more confident are you in your decisions and relationships when you trust that you have been given all of the relevant information? Your clients are no different, and deserve no less. The majority will appreciate it and reward your open and honest communication. I would also hazard a guess that those who do not appreciate the value you provide in exchange for the fees that you earn are not likely your ideal clients anyway.

Thompson: The considerable investment required by firms as a result of these changes, combined with increasing administrative demands on an advisor’s time, are challenging. Coupled with demands from increasingly sophisticated clients, this means that the wealth management industry as a whole has never been under greater pressure to adapt to client needs and prove its value … while investing to ensure full compliance with regulatory requirements.

WP: What do you feel are the greatest challenges to the industry, the advisor and the consumer with CRM2?

Britton: Approached properly, the client relationship should improve. Greater transparency and rapport should be a benefit to all stakeholders. However, any compliance regime will prove ineffective if those involved go through the motions simply because they’re told they have to, or worse still, if they choose not to follow the new rules. Should an advisor choose to ignore regulations, no amount of regulatory reform will impact their practices.

Salzer: The greatest challenge for the industry will be dealing with the operational system challenges of preparing for the different reporting requirements. Building and testing new reporting processes will be challenging for firms of all sizes. The greatest challenge for the advisor will be explaining the change in performance reporting to the client. Correspondingly, the greatest challenge for the client will be in understanding the new information on their client statements and understanding the new performance measurement into something that is meaningful to them.

WP: What is the number one piece of advice you would offer to an advisor struggling to transition?

Ardrey: Try to keep your focus on the end result for yourself and your client. CRM2 is an improvement in the client experience. Having provided my clients the kind of information CRM2 for years now, I can tell you that they appreciate the upfront clarity and transparency of the information. This opens up further conversations and questions. It also helps me understand my clients concerns better and in turn I can respond to those concerns.

Salzer: Engage your portfolio management system service provider early on how to prepare your historical data for the new MWRR performance calculation and make sure to test accuracy of security position market values at account opening. Thompson: As with anything new, clients will undoubtedly have many questions, including inquiries about the fees they are paying and what that covers. Advisors need to ensure they are fully educated about the new requirements and are equipped to answer all client inquiries. This is a great opportunity to underscore the value of the comprehensive wealth management experience that my clients receive.

WP: Do you feel CRM2 will prove to be as fruitful as it’s intended to be?

Thompson: While it’s still early days, we’re confident that clients will benefit from the new rules and that the integrity and trust in the industry will be strengthened. I truly believe the client-advisor relationship will only strengthen because of this. Salzer: Eventually, once clients begin to see long-term historical performance and cost data in their client statements and annual disclosures. But this will take several years.

Ardrey: I certainly hope it will be. CRM2 provides a lot of new information for investors. Much of its success will be based on advisors clearly communicating this information to their clients. For too long the average investor has not been provided the information to evaluate his or her portfolio. Armed with this new information, they will finally be able to make more informed choices about their investments.

WP: What’s the missing link, in your opinion? Where does CRM2 lag behind?

Britton: First, if the ultimate intent is to provide the client with an exact notion of the amount their advisor is being compensated, it doesn’t seem to make a lot of sense to bundle the firm fees with those received by the dealer. At best, it demands further clarification on how those commissions trickle down to the individual advisor—which appears to be the only breakdown that is not required. In the end, it still leaves questions unanswered, and there is not true transparency. Second, as CRM2 applies to many investment products, but not all, the ability to compare apples to apples remains unavailable. Unfortunately, this is a function of the regulatory framework of the financial services industry as a whole and cannot be resolved at this level. That said, it does highlight the inconsistencies that the industry, the advisor and the consumer have to face. So long as we continue to regulate products instead of advice, questions and concerns will likely remain.

Thompson: As mentioned earlier, the industry brought all stakeholders together on this initiative and there has been ample opportunity to share views, provide comments to regulators and participate in roundtable discussions leading up to implementation. We need to allow some time before determining if any changes are required, but we believe we’re starting from a good spot.

Salzer: The major problem with CRM2 is that there is no consumer awareness program being conducted by the securities administrators to inform investors of the coming changes. There is no effective investor outreach program from the regulators to help consumers understand the changes that will occur and explain why advisors are moving to a MWRR.

Ardrey: I would like to see this implemented immediately rather than over a number of years. The longer they wait to implement, the longer it is going to take to see the benefits of these new regulations.

This feature is from Wealth Professional Canada's Issue #2.3. To read more, please download the issue.


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