'If it ain't broke, why fix it?'

As the CRM2 deadline quickly encroaches upon you, the advisor - prompting commentary from IIAC's president in his latest letter - one financial planner suggests there's nothing to fix in a mostly-compliant industry.

'If it ain't broke, why fix it?'
If it ain’t broke, don’t fix it, suggests one Ontario advisor.

“Why are we trying to fix a system that simply isn’t broken?” asks Brian Shumak, an advisor based in Concord, Ont. “I think if you looked at the percentage of problems (in this industry) compared to other industries, our percentage of problems is probably much lower.”

His question comes just as IIAC releases its most recent president’s letter – Taking on the Challenge of Implementing CRM2.

IIAC’s President Ian Russell warns that small firms risk being left in the dust, identifying the adherence to tight deadlines and consistency of rules as the major challenges to overcome as July 15, 2014 - the first CRM2 deadline – creeps up. Other CRM2 requirements including rules on portfolio performance, reporting, and compensation and fee disclosure will be phased in over the next two years, in 2015 and 2016.

“It will be a challenge for the industry to complete the CRM2 rule implementation process within the defined timeframe,” Russell writes. “The individual firms, in turn, will invest substantial resources to ensure compliance with the complex rule requirements. It will be more difficult for the smaller firms to keep pace with the workload.”

Russell speaks specifically to changes that need to be made to core systems and various client-facing documents – such as trade confirmations, new monthly and quarterly clients statements and revamped annual reports – required to comply with mandated performance reporting and disclosure rules.  

Shumak believes that these new rules and regulations only apply to a few bad apples giving an industry, filled mainly with abiding professionals, a bad rap. (continued)

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“The majority of individuals abide by the rules and regulations and what’s in the client’s best interest,” he says. “All additional regulation means is greater paper work and ultimately that has a negative impact on the consumer as a whole.”

From a regulatory perspective, Russell points out that although the CSA has finalized its rules, IIROC has yet to release its stance on CRM2. Though both sets of rules will be similar, exempting IIROC dealers from some CSA sections, Russell writes that the risk of regulatory overlap may add to costs, inhibit uniformity and leave room for non-compliance by non-regulated registrants.

“The encroachment of the provincial securities commissions into the self-regulatory world has meant the industry has in effect become subject to two separate rule-making exercises…,” he writes. “This rule-making effort, presumably aimed at achieving uniformity among the registrants, sets an unwelcome precedent for the investment dealer community. And to be worthwhile the CSA must ensure that registrants not regulated by an SRO actually meet the requirements.”
 
Overall, Russell believes, once implemented, that CRM2 will provide the investor with a clearer understanding of their portfolio’s financial performance, and the fees and charges paid to advisors and their firms, while allowing investment dealer firms to showcase and differentiate themselves in the marketplace.

“These results will enhance confidence among investors and encourage more active market participation,” he wrote. “Further, the rules will bring uniformity in the same standard across investment dealer firms.”

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