Long before advisors open the conversation with clients on the new CRM2 rules set to come into effect next summer, one company is prepping those same advisors on what that conversation should be.
“We spent time with advisors to let them know the details of what CRM2 will entail, and we talked about some suggestions that we have for conversations with their clients,” says Atul Tiwari, the managing director of Vanguard Investments Canada. “We advise the advisors to start those conversations early – because what we don’t want to have happen is for any of the disclosure that will be coming in next July to be a surprise to clients.”
Those conversations include a wealth of experience gleaned from global markets by Vanguard.
“We’ve done a lot of work and relied a lot on our experiences in markets that we do business in that have gone through either increased fee transparency or complete rapport in respect to commissions,” says Jason McIntyre, head of distribution for Vanguard. “What we’ve done is build out some tools and concepts for advisors in respect to the changes that are coming with CRM2, and how they should best handle that.”
It is the perspective gathered from experience in other markets that Vanguard is bringing to advisors to help them in the transition to the new CRM2 rules.
“We spent a lot of time presenting to advisors changes in advice models globally,” says McIntyre, “and how they should be viewing their own practices, given that CRM2 is following behind – but very consistent with – a number of the changes like SOPA (Stop Online Piracy Act) in Australia and RDR (Retail Distribution Review) in the U.K., and the increased transparency we’ve seen in the U.S. over the last decade or so.”
The path to that conversation is a concept that Vanguard has been actively promoting: Advisors Alpha.
“That is giving advisors a framework for discussions with their clients to define their value,” says Tiwari. “It used to be the case that advisors would define their value by trying to beat the market – picking stocks or picking the hottest mutual fund manager. But what we say is that is really a bit of a mug’s game.”
Instead, advisors should showcase the added value they bring to the client – expert advice and market knowledge.
“What we say is rather than focus on that, advisors should be talking about the value they provide through asset allocation, disciplined rebalancing, tax efficiencies in the portfolio, and more importantly, behavioural coaching – helping their clients adhere to an investment plan,” he says.
In the case of CRM2, it should be ensuring that there aren’t any “gotcha” moments that could catch the client offguard.
“We step back and talk about what CRM2 really means,” says Tiwari. “Advisors need to know the disclosures that clients will be getting, and to be positioned so that the new regulations aren’t a surprise to the client.
“We want advisors to be ahead of the disclosure.”