CFRs in 2025: KYP and Demonstrating Suitability 

In today’s evolving regulatory environment, Know-Your-Product (KYP) obligations are among the most complex compliance requirements for Canadian advisors. With an expanding product shelf and heightened scrutiny from regulators, advisors must not only understand the products they recommend but also clearly show how those products align with client goals and risk profiles. The Client Focused Reforms (CFRs) have raised the bar—making strong, documented KYP practices essential. 

Watch Ian Tam, Head of Investment Research at Morningstar Canada and industry experts, for a practical webinar that breaks down the latest guidance from the Canadian Investment Regulatory Organization (CIRO). Learn how to meet KYP expectations while strengthening client conversations and improving compliance. 

From this on-demand recording, you’ll gain:

  • Actionable strategies for staying current with product changes to ensure investment suitability 
  • Client-first approaches to enhancing KYP conversations and documentation 
  • Clarity on what “good” KYP compliance looks like in 2025 and beyond 
  • Insights into Morningstar’s Risk Tools for Advisors and their ability to simplify KYP obligations 
  • A competitive edge in navigating the modern regulatory landscape with confidence 

Don’t miss this opportunity to stay informed and confident in 2025.

Tune in to gain valuable insights, strategies, and tools to navigate the evolving KYP landscape with ease.

To view full transcript, please click here

David Kitai

Hello to all of our attendees. My name is David Kitai. I am the Senior Editor at Wealth Professional, and I will be your host for today's webinar. Just as folks are filtering into the webinar, I would like to welcome you all and go over just a few quick technical details. We will be hosting a Q&A session at the end of our webinar, so any questions you may have, please enter them into the Q&A tab, which you can find in the bottom bar of your screens. You may have to navigate over to the three dots that say more to open up that Q&A tab, but please make sure that all questions are entered into the Q&A tab. With that, let's get to the webinar. Know your product, or KYP, has become one of the most crucial subsets of an advisor's compliance responsibilities. Evolving KYP practices have kicked off a cascade of new regulations and protections impacting advisors and their clients. To take us on that journey, we are joined by Ian Tam, Director of Investment Research at Morningstar Canada. Ian, I will now pass this webinar over to you to lead the way.

Ian Tam:

Awesome. Thanks very much, David. And thanks to everybody at Wealth Professional for partnering with us on this webinar. Welcome, everybody, and thank you for joining us. Like David said, I'm Ian. I'm the Director of Investment Research here at Morningstar Canada, and I'm absolutely pleased to welcome you to this session. Like David said, over the past few years, the regulatory landscape for Canadian advisors has really undergone a significant transformation. The introduction of client-focused reforms in 2021 marked a major shift in how suitability, product due diligence, and conflicts of interest management are approached across our whole industry here in Canada. More recently, the CIRO's KYP compliance sweeps have brought these expectations into much more focus. These reviews have underscored the importance of not only understanding the products that we recommend but also documenting that we understand them in a way that's very consistent, defensible, and certainly aligned with client outcomes. And this is part of a broader global movement towards a suitability first standard where product knowledge, risk assessment and transparency should be, or hopefully are, central to the advisor-client relationship. For advisors, this means adapting to a more rigorous compliance environment while continuing to deliver high-quality, but at the same time personalized advice. To help explore these developments, we're joined today by a panel of esteemed professionals. I'll start off with France Kingsbury, who is the Vice President and Chief Compliance Officer at IA Private Wealth. She also spent some years at Ciro, so we're happy to welcome her and look forward to hearing your insights. Also, I want to welcome Kuno Tucker, Chief Compliance Officer at Manulife Wealth and Manulife Private Council, also Adjunct Professor of Corporate Governance at York University. And he'll offer some regulatory and hopefully some academic insights into the evolving compliance landscape as well. And finally, joining us from Australia through a pre-recorded video is Nikki Potts, our Director of Financial Profiling and Planning at Morningstar Australia, who will give us her take on the global regulatory landscape. Given the jam-packed agenda today, we won't read the full bio of each panelist, but we encourage you to do so on the platform through where you're watching this. Over the next hour, we're covering a lot of different topics. Number one, the biggest lessons learned since CFRs came into effect. Number two, what KYP compliance documentation should look like for managed investments. So, things like mutual funds and ETS, very common recommendations. Number three, how advisors can navigate product conflicts, especially if you are recommending proprietary products. And number four, the growing complexity of portfolios that potentially can include alternative asset classes, for example, private capital, cryptocurrencies. How do you deal with that? And finally, how advisors can use the client focused reform framework to not just comply, but to differentiate your practice and scale effectively. I will also dabble in looking ahead to what's going to come into the future, what we think is going to come in the years ahead. As always, we welcome your questions, so please do type them in. We may not get to all of them today, but we will ensure the questions get to everyone on the panel, and we will follow with you afterwards in an email. With that, let's begin.

(Recorded Video) Ian Tam:

Thank you. Well, I'm absolutely thrilled today to be joined by our very own Director of Planning and Profiling all the way from Morningstar, Australia. And through the magic of some pre-recording, we're thrilled to welcome Nikki Potts to our webinar today. Nikki, welcome. We're going to start today's session off with a couple of questions to do

[00:04:05] Ian Tam: The first thing is around trends in regulation. And there seems to be this kind of pattern where regulators are moving towards a higher standard of care. And we've seen this in the US through regulation best interest. We've seen it in the UK through consumer duty. And of course, here in Canada, through client focused reform. So there seems like this shift is moving towards a higher standard of care. What commonalities have you noticed across these global jurisdictions around this regulatory shift? [Go to 00:04:05 in video]

Nikki Potts:

Well, Ian, these regulations are really about suitable advice and delivering good outcomes for retail investors. Suitable advice or suitability is often viewed as the gold standard for best practice financial planning. And what we're seeing is regulations really playing catch up as the industry evolves from what is traditionally product focus to more goal focus or holistic in nature. So, in your opinion, how would you define suitability as a term? Well, suitability is about matching investors with advice that's appropriate for their circumstances, personality, and goals. It's no longer sufficient to base recommendation on risk tolerance alone. There needs to be a match between the investor's risk profile and the product profile where the investor's risk profile is really a balance of many factors including risk tolerance, risk capacity and risk required. And on the other hand, product profile is about the product's risk and return, its features and benefits, you look at its target audience, and also any limitations of the product. If you can show or demonstrate a match between these two profiles, then you'll likely meet the highest standard of care. Thanks, Nikki. And all those terms you mentioned seem to be codified almost verbatim in our own client-focused forms here in Canada. So, I guess further to that, in your opinion, what are some of the processes or steps that would be required for an advisor to meet that higher standard of care? [Go to 00:04:28 in video]

Nikki Potts:

There are three essential ingredients for delivering good outcomes. There's robust tools, advisory skills and sound processes. I think of it as a blend between art and science. Now, the science lies in the robustness of the tools you use. You want to have the right tool for the job you are performing. For example, using a validated risk tool so you have accurate results you can rely on, or using modelling software based on robust algorithm and assumptions to help illustrate potential outcomes and capacity limitations. I do encourage advisors to make use of our due diligence checklist. This will help them assess... their risk tolerance tools, how robust it is, and where they would stand up to scrutiny. Thanks Nikki. We'll certainly make that due diligence checklist available for download for all the people in the audience today. Moving on slightly and maybe shifting topics a little bit, Morningstar talks quite frequently about this whole public-private convergence. We're seeing IPOs dry up a little bit here in Canada and really around the world. So, with the advent of newer asset classes, for example, private capital funds and semi-liquid options like interval funds largely in the US. The UK's got their own long-term asset fund, and I think Ontario here in Canada was contemplating something similar. So, they're different redemption periods than your traditional mutual fund or ETF. So, I guess my question to you is, do you think advisors today are equipped to recommend or even analyze these types of products? It's natural for everyone to get excited and distracted, really, by new trendy investments

Nikki Potts:

We've recently looked at how investors are thinking about them and not surprisingly there's a big knowledge gap. Investors reported only a very basic understanding of these investments and that overconfidence and a focus on short-term benefits are driving them to engage with these investments. When we look at the advisors in our voice of the advisor survey, they've reported product complexity, a lack of demand, and limited familiarity as the reasons why they're not engaging with these newer assets. And again, this points to a knowledge gap, and it's likely driven by lack of or limited research and data. And so how can we as an industry help address that knowledge gap, especially as these products get more complex? Well, research like the one we've conducted are a great start to better understand the landscape we're in. Another way is to make data and research more accessible to both investors and advisors. And Morningstar recently introduced a... comprehensive private investment universe to our platforms and receiver system. This will support advisor in their private investment analytics, research, and comparison to more traditional investments. Thanks, Nikki. From the advisor perspective, how can advisors help investors engage with newer asset classes or newer types of investments? Clients play a vital role in firstly bridging the knowledge gap that we're seeing and also keeping clients focused on the long-term strategy. The key is having a robust framework to work from and not get swept up in the hype. So trendy investments will come and go and they should be assessed like any other investment. That is, is the product profile aligned to the client's profile? And then be their behavioural coach. Address why they want to engage with these investments. Is it overconfidence or other behavioral biases like fear of missing out?

Ian Tam:

Yeah, the classic BOMO. We appreciate those comments, Nikki. I'm going to switch topics one more time before we let you go. And this is really around the shift in the demographic and the expectations of the retail investor today. When you go to Starbucks, you can customize your order a thousand different ways. It is delivered to you within minutes often. And so, this is really the expectation of the retail consumer today, not just in Canada, but in most developed countries. So, the shift in this landscape demands... personalized advice, just like you can personalize a drink order, which is a tall order, while the economies of our business as advisors demands a very scalable process. So, can advisors achieve both? Can they give personalized advice, but at scale? Is that possible?

Nikki Potts:

I think it is possible. And I think scalable, personalized advice is achievable with the help of using great tools and, again, sound processes. Great tools can help deepen client engagement and drive efficiency at the same time. If you look at the Morningstar Risk Profiler tool, it's designed to be easily understood and answered by clients without the aid of an advisor. So, the whole process can be administered by, say, a support staff, leaving more time for advisors to have discussions with clients. Another great tool you can use is generative AI and I know it's a buzz word at the moment, however be mindful in how you're going to use it and why you're using it. Our research shows that using gen AI to help with you know low level general tasks like drafting marketing email is likely not to have an impact on your relationship, but if you're going to use it for more personalized tasks like setting goals then there's likely going to have a negative impact on the relationship. And as one respond, put it nicely, advisors should work smarter and outsource the dumb stuff to the robots really.

Ian Tam:

Yeah, and in a way that might even shine a brighter light on the value that the advisor provides through advice and planning. Appreciate those comments. So, Just going back to the question, Processes. What about processes? How can a sound process help in addressing the shift?

Nikki Potts:

Well, sound processes help keep the client and advisor relationship on track. Take the trendy investment scenario. A client may approach you and ask to add cryptocurrency to their portfolio. Now, having a suitability framework will allow you to assess it. on its merits without the hype. Similarly clients may want to take on more risk when sentiments are up and less when sentiments are down. So build a framework that's resistant to market condition so that changing risk perception won't lead clients astray. If you set the right expectations at the beginning of the engagement, then you won't need to spend a lot of time keeping clients on track when market changes. Thanks, Nikki, really appreciate that. And for the audience watching today, we will make our GenAI as well as our TrendyAsset research available for download after the fact. Nikki, thanks so much for joining us. We're going to go back to Kuno and France here to carry on of our live discussion. But thanks for joining us all the way from Australia. It's a pleasure. Lovely to meet everyone. That's great. Wow, the magic of pre-recording does wonders.

Ian Tam:

France and Kuno, we're going to kind of kick it back over to you, starting with really our second topic, which is the biggest lessons from the last four years. And the first question is going to go to you, France. Coming into the Client Focusing Forum back in 2021, which seems like eons ago, what did you perceive to be the biggest lesson from the last four years? be the biggest challenge to implementing the rules at the firm and the added advisor responsibility? And did those challenges kind of materialize the way you thought they would? Were there any surprises along the way?

France Kingsbury:

 Well, thank you, Ian, for having me today on this panel. But maybe I might start with where I was in 2021, which I was not at a dealer. I was at Ciro back in the days it was IROC. Where I did follow for multiple years all the consultation on CFRs, right? Because there were a lot of iterations of these rules, which started very strict. But then they kind of following the comments of the dealers, they kind of changed a little bit. But the concept always remained the same, which is the best interest of your client. So all the requirements that were put in front from what I was understanding when I was at IROC is It was already there in the practice. It's just somehow, well, with some, yeah, I see you nodding, but with somewhat of a, you know, a little twist. But for me, I think that when I was at Ciro, what we really wanted to know from the dealers is these are the rules, but how can you implement it? And I think this is where, I don't know if my colleague Kuno will, will be on the same page as me, but it's how to implement it, right? Like it devils in the detail, we say. So for me, if you ask me what has been very challenging on my CCO seat is to implement all of this. And again, it depends on your model. At IA Private Wealth, we have really an open shelf, open model. Advisors are entrepreneurial advisors. Meaning that we don't have necessarily centralized, all the centralized data. And I think this is where it gets complicated. Because for a firm, what we need to do is to prove that that conversation with the client happened, that the update got done, that the KYP was conducted. So it's not necessarily going into, has it been done? Because we know that it's done because we have conversation with our advisors. But again, is it in their CRM? So as a firm, we did have to think about tools. And I think Nikki was mentioning that, but tools and procedures. And it gets sometimes frustrating because... We add, we pile and we say that compliance is burdensome and I understand that, but I think we need to be better also to remind our advisors, it's not that we think that the requirement is not met, it's just it's for us to be able to defend. If, let's say we have an audit and we know that CIRO has been conducting sweeps on CFRs, they've started with conflict of interest. Now they're more on the KYC, KYP. We do have a back channel as CCOs where we do exchange on best practices. But at the end of the day, you know, if I have a word of wisdom is take notes, even though it's not centralized somewhere, at least there's a proof. And again, it could be done in various ways. We've talked about, like Nikki mentioned, artificial intelligence. We're still looking into this as well. to make it easier for these types of more clerical but at the end of the day um you know our advisors do have a relationship with their client they do have their best interests they do uh manifest and have an exchange with them because otherwise you don't have a relationship with your client and the client will go to somewhere somewhere else right so it's really to find that balance where we request from advisors some some additional work versus, you know, being able to confirm to the regulator that, you know, everybody did their job. So I would say that would be probably the biggest challenge more on the operation of compliance for client-focused reforms.

Ian Tam:

Thanks, France. And what I'm hearing from you is, you know, the philosophy of the CFRs was not new. I mean, every advisor that makes a recommendation clearly does research on that. Well, hopefully most advisors do research on this. And it's just, I guess, codifying that and keeping a record of it. And that's really the burden on you to implement those. those systems to make sure, you know, in the event of a sweep, you know, you're ready to go. Kuno, over to you. Biggest challenge, similar questions, you know, coming in, did you have expectations and were those met or did you have any surprises along the way?

Kuno Tucker:

Yeah, thank you very much, Ian. And France, I completely agree with you. In fact, I've been in the industry for 30 years. My first job was at a mutual fund company where I was introduced to the whole concept of a deferred sales charge. And that's... one of the first things that had to fall when you look at the conflicts of how deferred sales charge works. And I think that was a bit of a mind shift for advisors to get over. And I think that was a positive net benefit to the industry. And I think one of the other things is, as France mentioned, that sometimes compliance gets tagged as the sales stoppage unit or whatever you want to call it. But what. compliance really does and regulations do is to ensure that clients are getting a fair deal. That was actually the original name way, way back when Richard Corner, back at the old IDA, was putting this forward from policy perspective. It was a fair deal model, right? A fair dealing model rather. That morphed into client-focused reform. We've had literally decades to sort of digest that this was coming. The iteration, of course, morphed and changed, but by the time it came out in 2021, I think the industry was well prepared for it. In terms of, I completely agree with France, what we had to do to prepare for it and launch it and execute on it was obviously to modify our policies and procedures, obviously deliver the training, obviously put controls and testing in place, and all that fun stuff. Has it been absolutely perfect across the whole industry? No. We are still finding as an industry. probably instances where we can do better. But I think what it really has provided is more transparency for customers. And I think that, well, yes, clients can be seen as a burden because it slows things down. Sometimes it provides more trust. Now the customers can truly trust the firm and the advisor that they're being takuno care of properly. And at the end, that is really critical to ensure that you have a positive relationship. And then you can move forward all the other good stuff that Nikki was talking about. financial planning, et cetera, which is really something that's happening in Canada as well, similar to Australia. But you start with building that trust with the advisor of the firm.

Ian Tam:

Thanks, Kuno. I appreciate those comments. And I would also argue that maybe not every advisor in Canada is created equal. In my experience, there's a wide range of different types of advisors. And I think codifying these rules, even though they're kind of inherent in doing business as an advisor, kind of raises the bar in a way for, like it raises the minimum bar, I should say. and what needs to be done before making a recommendation. Those are my two cents. But let's bring this maybe down to the much more pragmatic level. We have a large audience of advisors likely watching us right now. And I guess my question back to you, Kuno, just for a second, is due to these enhanced suitability determinations, we clearly have to have additional documentation for KYP. So using a base case, maybe a mutual fund or an ETF, In your eyes, sitting in that compliance seat, what does... complete KYP documentation look like to you for that asset type, a mutual fund or an ETF?

Kuno Tucker:

Yeah, and thank you for the question. And again, go back to what you and Nikki were talking about in the recorded session, which is with more complex products out there, it really is incumbent upon the advisor to, before you even have the conversation with the client, to understand the products on their product shelf. If you look at the a number of ETFs, just as one example. There are more ETFs now than actual underlying securities. The ETF fixed income market is now, according to the Financial Times, larger than the actual fixed income market in terms of liquidity, for good reason, right? Not just retail, also on the institutional side, it's just a lot easier to get in and out of those positions. But you still have to understand what's the underlying product. What's the risk level to answer your question now? How does the product function? What is the mechanism? What are all the assets? You go back to 2008 and the financial crisis, the asset-backed commercial paper, there were people buying paper that they thought were AAA rated, but underneath it all were very illiquid jet leases and all sorts of nonsense. So it's incumbent upon the advisor and the firm to ensure they truly understand the product and make sure that they can demonstrate it. They understand the product, right? So that's part of the whole KYP, right? They also have to present to, and have evidence of this, present to the client that they've looked at a reasonable range of alternatives. Not just, you know, this ETF is the best product for you because your risk score is this coming out of our risk profile questionnaire, or out of my notes that determine your risk profile, because you can use either. And I think it's suitable because it's good for your long-term vision, your time horizon, and so on. You also have to say, we've also looked at these other two products or three products or what have you. And so the client can see what's being chosen and why and understand the whole rationale. So what is the product? How does it work? What is the liquidity of the product? What's the risk profile of the product? And then going back to what Nikki was saying, matching that up with the client's profile and needs and time horizon, etc. And is it suitable based on all of that? And at the end of the day, I think what's important is. Not every advisor is going to get it right. What do I mean by that? Is nobody has a crystal ball. So we don't know the future, right? But if you have a very good process whereby you knock off all those things, if you line everything up properly and you have great contemporaneous notes, detailed notes, right? You should be okay. And not just from an examination perspective, I'll also take it to my liability if the client wants to sue you, right? And that does happen, right? I don't know if anyone is familiar with Ellen Bessner, but she has said that a lot of times advisors get very surprised because their best clients all of a sudden get very litigious when they have losses, right? So to mitigate that, having those detailed notes around the QIP and suitability are super critical.


Ian Tam:

Thanks, Kuno. Appreciate that. And then maybe just to add, perhaps, you know, your mention of comparing to alternatives. That might be even seen as a value add to a retail investor that the advisor did that work. So appreciate those comments there. France, do you have anything to add on what KYP documentation should look like?

France Kingsbury:

Yeah, well, maybe. So I agree fully with what Kuno mentioned. I think we all know what we need to have to present a KYP. There is also a question of how you present those alternatives to your clients, too. Like we try to train as much as possible the advisors to use a language that, you know, all the clients can really understand. And also understanding why are they doing that, right? Why the advisor is actually spending time presenting various options and saying, well, I picked this one. So, again, it's how we have that conversation with the client. making the client feel like it's in their interest, which it is, rather than why all of a sudden I'm presented with all of this. And the other thing, too, that we've worked a lot here at IEA is that there was a misconception also for unsolicited trades, where the advisors felt like they didn't have really much power in there. But again, the client focus reforms kind of twisted that in a bit where it says now that if you. have a client coming in, well, you do have to present alternatives, even if it's unsolicited. So that too, it's shifting how we do the conversation. And I would say the other piece based on the asset, the ETFs, let's say, for example, is also the update, right? Like, because we all know that there is a fun fact, we give the fun fact, we kind of have the presentation of the risk of the product, the evaluation is there. But then what happens if something changes within a year, right? The updates and so it kind of forced the firms to have, again, tools to provide this information. So. In order for the advisor to do proper KYP, it's yes to do the assessment at the get-go, but also to continue with following up on various securities. And I think that the goal also from a regulator perspective was that at some point, there's a lot of products, right? We all know that. And it's impossible for an advisor to know 1,000, 1,200 products, right? I think also the goal is to really focus on your offer, what is your service, and then try to really nail it and really understand what you're doing. Whereas as the firm level, the requirement is a little bit lighter. But again, if we introduce any products, let's say, for example, that are maybe novel or something, we do have a requirement to do a KYP and give training to the advisor. There's a lot of sources to help the advisor, but I would probably resume what Kuno said. Take good notes. I think that any compliance officer is always saying this, but it does make a difference. And we've seen a lot of litigation where notes did change the face of the litigation. So that would be my advice.

Ian Tam:

Thanks. I think that's sound advice for really anything in our industry. Speaking of new products and kind of where we get information, and this has kind of been a gripe for, my personal gripe for a long time in the company, I guess, in this world. You know, fund wholesalers play a very integral role in introducing new products to the market and providing very important information to an advisor. But this question to you, maybe first, Kuno, is pragmatically, what should an advice giver do to ensure that they are not overly relying on info from a wholesaler?

Kuno Tucker:

It's a great question Ian, thank you. And I would say two things of note. So one is last week the OSC and Ciro published the results of a sweep they did of the bank-owned dealers and noted that, I don't think it was terribly surprising to the industry, that there was quite a lot of use of proprietary products. And I think that it really demonstrates the need for better transparency and having an open product shelf. So, you know, as France mentioned near the top, similarly, Manulife has a very open product shelf. And we also do not provide any added incentive for advisors to use any proprietary products. So we remove those conflicts of interest. Of course, we also disclose, make sure we disclose to clients, if they are buying a Manulife product, you know, that this is a product from an affiliate firm, etc. So we make sure the clients are well treated. But in terms of making sure that advisors are getting good independent research, on the investment management side of the house, from a regulatory perspective, a lot of the past events, I think that everyone's probably familiar with, has forced that side of the industry and the securities commissions to change how fund managers market their funds. So to put it bluntly, No more taking people to F1 or, you know, fancy golf tournaments and then expecting them to 100% buy their mutual funds. So I think that has gone away, those, you know, quasi boondoggles. But in terms of getting the actual independent research, and this is not meant to be a plug for Morningstar, but using a good third party independent research provider, I think is critical. and having that really does go a long way because you're able to not just do the research, but you can also provide evidence that you've done that independent research and you looked at the reasonable range of alternatives yourself. And you truly understand, like I said earlier, how those products work. Appreciate that, Kuno, and then certainly appreciate the non-plug. France, over to you. Similar question that Kuno did touch on proprietary products and both of your firms offer both, but maybe moving more towards the wholesaler conversation, any best practices to avoid? relying too much on wholesaler information.

France Kingsbury:

Well, yeah. So on private wealth, so we've seen that a few years ago where we were really trying to frame that practice, right? And regulation did. help right because now there are some restrictions so that help but also we kind of forced us to provide as a firm and kind of an independent uh research not research as capital market research but at least a department where we do see all the shelf and then if there are any questions or anything or new products and we've seen that also because same thing as kuno we do have mutual fund, we have Clarington as our sister company, you know, and they do have wholesalers and they do come in and attack our advisor, which is fairly normal. So how did we do that? So we kind of put that department together where we have sources where they can go, the advisors, and validate their perception. And then on the compliance side, obviously, um We do have some controls that we put in place because now we're talking if it's Clarington, we can get the info quite easily. But if it's another fund company, it's a bit harder. But I think that client focus reforms also help the thinking because now what we see in compliance is that people come to us right away and say, OK, am I allowed to do this? Am I allowed to do that? Can I rely only on the information that this fund manager provided to me? So we see that people are getting more proactive, which is a very good thing. And but it's like anything else, right? Your KYP or your suitability, your conflict of interest, really, you know, right, what you're doing. And, you know, when you look at a product and you do comparables, if it's within, you know, what's the best interest of the client. and for prop... products, I must say that I understand the bank and Kuno mentioned that, but on the independent side, even though we have a fund manager, the penetration of our fund manager within our platform is very low because to provide comparable products, it's very hard because now we see a lot of products and the pricing is very competitive. So it forces the advisors to go and... and look at everything that is being offered. So yes, the wholesaler, but they also know that there's a lot of offer in this industry. So they do their work of looking at various options for their clients.

Ian Tam:

Thanks, France. And thanks, Kuno, as well for the comments. Just to level set, and again, I hate to even do this, maybe a quick head nod or a shake. Under no circumstances should an advisor be using wholesaler material as their KYP. Oh. No. Perfect. Just wanted to make sure that level set was there for everyone watching. We confirm. No. I mean, we appreciate you both. And maybe moving on, kind of related, I think both your firms have duly registered reps. So both selling or recommending seg funds, segregated funds with their insurance products, and then your more traditional mutual fund and ETS space. And Franceel, I'll start with you on that topic. What have been some of the challenges when an advisor has that dual license? one part of the house, I guess, is subject to client-focused reforms and the other is not. How do you kind of account for that?

France Kingsbury:

Quite honestly, it's challenging because we don't necessarily have the full view. So we're really dependent on what the advisor is providing to the firm, right? And again, there's a framework and there's a sandbox in which we operate where we can ask for information, but we cannot have the full picture. but also What has been a bit difficult on the compliance side, and I don't know if my colleague Kuno had a bit of the same, but it's also with all the privacy legislation that came in. Now it's getting a bit more complicated if you're not within your organization to have data and information. So I think that what we've seen and what we focus also is on remuneration, right? trying to get that portion a little bit more where, you know, it needs to make sense for the client. And again, with not having the full view of what's going outside the dealer on the insurance side, on the SEC fund side, this is still something that needs to be worked on. But what I'm understanding also is that the regulatory bodies on the insurance side, they're picking up, right? They're picking up the pace and they understand the issue. So hopefully they'll come up with similar regulation where it's going to... solve the issue. Right. And we're already starting to see some commonalities with total cost reporting come up in a couple of years. So echoing your point there. If you don't mind, we're going to move on to maybe section three, I guess, of our webinar today, which is really the challenge around expanded asset classes and more complex portfolios. I'll throw a stat out to the audience. Morningstar's data shows that actually one third of retail balanced funds, so very common holdings, they all owns or one third of them hold some sleeve. of alternative assets that might be a private equity fund, private debt fund, some of them directly, some of them through partnerships, infrastructure. These are all sort of less common or maybe perhaps more esoteric asset classes that show up in a regular balanced portfolio. And Kuno, I'm going to ask this first question to you is on this topic. Do these extra or these more esoteric asset classes, alternative assets affect the KYP process for the typical advisor? And do you think there'll be more of a concern in the future?

Kuno Tucker:

So thank you again for the question. And absolutely, yes, it creates a level of complexity, but it's not impossible. And it goes back to my earlier comment, which is regardless of what product you're offering, you still need to understand that product. So if your new age, I'll call it balance fund, now holds some infrastructure or what have you in there, you have to understand that. not just you know is it holding you know a company that has airports and bridges uh but what's the liquidity profile that's different uh than having just pure liquid assets underneath the the product that be it a mutual fund or etf so you have to understand what that really means there's also the concept of a mismatched liquidity within let's say an etf or mutual fund i think you see it more in etfs which have these private assets so private credit and private equity has exploded in the last five to 10 years. The amount is the multi trillions. There's probably a lot of good reason for that. Having said that, there is some concern that it is, as you know, was said earlier by Nikki Potts, a bit of a fad. You know, it's probably longer lasting than just a temporary fad, but the interest in it is sort of fad-like. So the concern would be that advisors sort of cotton on to, oh, this is an exciting new trend. I have to get this into my clients' portfolios because they'll want it. Well, understand what that product actually is and how does it function. And if you have an older client and they have a RIF, putting them into a product which has low liquidity and difficult redemption rights or what have you is probably not the best thing to do. In fact, it's not a good thing to do. So you have to understand the product and liquidity risk behind all of that. I think that's extremely important. But I said earlier, there's a lot of great independent third-party research will allow you to unpack all of that. And it starts at the dealer, just to be clear. And similar to IA, you know, Manglex has a product team that looks at all the products that we put on our shelf. One quick thing I think I should mention, just going back to what we were talking about earlier, from time to time, a client may bring a product in from another dealer. And so the question is, what is the responsibility of the advisor? If that's a complex product, the advisor wouldn't have sold to the client. They should demonstrate with good notes that they've talked to the client about it, that they do not recommend that product. However, if the client insists that they showed the client other alternatives that they could buy, but if the client's saying, no, no, I insist on holding onto it. I don't want the capital gains or whatever the reason, you know, just make note of that and continue on

Ian Tam:

Can I dig just a slightly more detailed, just going back to the stat that I mentioned, that the allocation to alternatives in the stat I said, it's very small. So it's on average 3% allocation to an alternative type investment in the balanced fund landscape in Canada. Is there an expectation of, I guess, more or less due diligence depending on the amount that an investor invests? or is allocated in a balanced fund or are you expecting the same across the board whether it's one percent or fifty percent i i think you have to look at even if it's one percent or ten percent you have to apply the equal amount of due diligence to that because what's one percent today could become ten percent tomorrow right so the portfolio manager might have a mandate where i can hold between zero and twenty percent and then say on today july 16th i'm going to hold one percent and maybe in 60 days they go hey i'm really excited about some other infrastructure products or alternative assets and they ratchet it up to 20 if you didn't do your full diligence you're now accountable for that full 20 so regardless of the percentage holding you should fully understand that product Thanks, Kuno. Appreciate that. France, over to you on this topic around alternative investments. So maybe it's also like a control that the firms are putting in, right? Because again, as Kuno mentioned, yes, you need to know your, I call it the buckets. We don't like saying that, but we do allow for some plain money, right? Like we have to be realistic also, like the clients, some of them, they do want to, but then again, we compare this to, okay, so the age of the client, the profile. So compliance do play a significant role there to at least show the advisor when it's offside and then have explanation. I think for IEA, private wealth, and I don't know for manual life, but our challenge lately was on crypto, right? Because depending on our client base, crypto was not necessarily something that was popular within. our client base, but some advisors really believed in it. But also some advisors, they didn't want necessarily to offer them. But again, when you look at a household and you have different generations, then we figured that some generation wanted to have those products. And if we were not to offer it, then they would go to a discount broker, for example, they would get this elsewhere and they would fail. No advice, right? No advice, exactly. So we kind of restructured that and we've looked at it in a in a bigger picture and trying to be more agile in in in those alternatives and assets so what we do instead of prohibiting any of these or giving you know we  do training but we also have controls and thresholds somehow right and then we need once you reach a certain threshold then we question you and we were like, okay, why did you put this there? And then there might be valid reason. But again, because these assets are sometimes very volatile, then it always throw off the portfolio, right? So we needed to kind of adjust. And it's kind of KYP could have been done really properly at the get-go, but then it fluctuates so much that you're always offside. So we've introduced also a bit of risk adjustment, right? to the calculation of the profile which allow us to kind of have a bit of fluctuation we don't allow for big fluctuation but just a little bit so that's kind of how an alternative assets in general the also the question on kyp what's a bit difficult is that sometimes there's no really comparable right we're trying to compare but there's nothing really specific or We see more and more clients who want some alternatives specifically because of a certain specific reason. It could be environmental, it could be crypto, it could be... So again, it becomes a different discussion. So we're really tackling it, not in prohibiting, but really making sure, and again, back to Kuno's point, making sure that the advisor really understands the product. If they don't, or if it's a novel product, we... provide training. And sometimes we do require specific training in order for the advisor to provide advice on certain type of products. So we kind of do it this way, right?

Ian Tam:

Thanks, Pras. Appreciate that. Yeah, it sounds like a more nuanced way to, or not a way, but it's a nuanced topic. But what I'm hearing is a bit tactical in terms of the risk range, I guess, that's allowable. And then from some very specific training and how you deal with those asset classes. Maybe a fun thing to do at this point is just I'm going to rattle off a few of the assets that we see commonly in portfolios. And I'd love to hear maybe from Kuno first and then France, which is the toughest when you're going through an audit of a KYP process? What's the hardest to kind of gauge? And I'll fire off a few things here. Private equity, whether it's fund or direct investment, private. debt, real estate, crypto, or a long short strategy? So I kind of named five-ish type things there. Maybe Kuno, over to you first. Of the things I listed, what's the toughest to audit when you're going through someone's KYP?

Kuno Tucker:

Well, if you're talking about real estate in terms of private real estate holdings, I would say that's probably one of the more difficult ones. And unfortunately I don't know if you know this or not, but the largest portion of Canada's GDP is stemmed from direct or indirectly real estate. Usually people think it's resources, but it's actually real estate. And there's such a fascination across the board in Canada with real estate. And so a lot of people get tempted to buying into real estate privately. and without the right controls in place. And I think that's a huge concern. It's hard because we have zero visibility into those holdings. And so it's really difficult for the advisor to gauge. And what could be seen as somewhat conservative real estate investments by one is not the same by the other. And there's no risk profile questionnaire or what have you that covers that. So I'd say that's a little bit more difficult. I'd say private equity and private debt, even though, like I said before, it's really mushroomed in size. I think... If you're going through an ETF or other vehicle with reputable firms behind it, I think that's a little easier to gauge. I think it was harder five years ago. However, having said that, there's so many players out there. So I think it's incumbent upon the firm and the advisor, again, to do proper due diligence on who's offering it. You know, what are the terms? What are the mechanisms? What are the redemption rights? What's the liquidity? What's the risk? What are the assets, et cetera? That's why I think it's gotten a little less risky, but it's still risky. And so crypto, I think that is a very challenging. I did work for a year at a crypto firm, and I'll tell you the number of crypto assets out there is incredible. I don't want to give a percentage, but I think a large part of them are, I'll just say, made up for the benefit of those people who create these coins and what have you. but there are some legitimate i mean i think that bitcoin and ethereum not to suggest your good things to buy or what have you uh but i think these are seen as more credible and a little bit easier for one to get your arms around and again we've got etfs that provide proper exposure so you don't have to worry about your wallet getting hacked or what have you so i think that if you want that exposure and if it's suitable for you that's probably one of the best ways to go about it Appreciate that, Kuno. France, any differing opinions on challenging asset classes?


France Kingsbury: No, I would echo Kuno. And maybe the last one is private equity is always complicated to explain to the regulator also because it's very particular. You really need to understand it. So the valuation takes a big, big, big chunk of the discussion and the liquidity also of the product. So these would be probably the challenging one. And the other ones I would say is that if you do have a lot of products in the same asset classes of alts, the question about why this one versus the other one then becomes very complicated to have with the regulators. So, again, taking notes is key because you can really explain, OK, why did I pick this one versus this one? It was for that specific necessity, you know. item within the product that explain why I took it. So again, we're going back to always the same thing, but taking notes and explaining in these types of products is even more important.

Ian Tam:

Thanks, France. We're going to pivot a little bit to the, close to the last topic here. And this is more of a, you know, a positive one. And this is around using CFRs or client-focused forms to your advantage and providing advice as scale. So France, I'll stick with you for a second. The spirit of the client-focused reforms was intended to raise the, in my opinion, intended to raise the minimum bar for the average advisor in Canada. Do you think that's the case?

France Kingsbury:

I think that's the case. I think as I started the conversation, it was there. It was not there for everyone. I think I agree with you on this one. And I think now we're seeing more as we professionalize a little bit more and then we can actually feel free to really market that profession. maybe before we didn't have the tools for it. So I think it did raise a bar and I think that everybody really appreciate that. We're just a bit, you know, with the work that we have to do around it, but that's, you know, that's part of it. You can have everything.

Ian Tam:

Thanks, France. Kuno, I'm going to change it up for you. Advisors often have a view, or at least some advisors, have a view that compliance requirements are a check the box type of an exercise. How would you encourage an advisor to leverage the rules and requirements to maybe instead better engage with the client?

Kuno Tucker:

100%. Thanks again. And I completely agree with what France just said. It really, the client-focused reforms were difficult to implement, but I think it increases the level of trust that clients have with firms and advisors in Canada. So going to your question about compliance not being, and it's not, a check-the-box exercise. I think most good advisors will completely understand the value of doing proper compliance because going back to what I said earlier. clients will trust them a lot more. They're able to gather more assets. And it's a lot easier for them to have the conversation with a client. And the one thing that shouldn't get lost here in the conversation is conversations with clients are not always easy for advisors. Some clients don't want to share everything about their assets, et cetera. So if you build that trust with everything that we've built and the advisor truly believes in CFR and the benefits, et cetera, and expects explains that, like France was saying, to the client, I think that the clients would be more forthcoming, provide more information, allow the advisor to truly deliver a comprehensive goal-based plan, and then provide proper asset allocation and suitable investments and help the client reach their financial goals. So it's not just a tick-the-box exercise. It really is a way to engage properly with the client and deliver the right outcomes.

Ian Tam:

Awesome. Thanks very much, Kuno. I appreciate that. I'm really going to go to the last question here, and I'll start with you, France, and this is around, I guess, the future. And what I'm looking at, from where I'm sitting, I see almost a trifecta of forces that will ultimately increase competition amongst Canadian advisors. And those three things are, one, open banking. An early iteration of that is, I know that the British Columbia Security Commission has kind of a pilot program around collecting KYC information digitally. I think they're calling it that. the eKYC pilot. And that information is stored centrally, I think, with the ultimate intent to make it easier for an investor to switch from advisor A to advisor B. And we put that together with the likes of total cost reporting, which is even more fee transparency on top of CRM2. But that, again, that I think maybe shines a brighter light on what value an investor is getting. from their advisor. And finally, we have this great wealth transfer that's happening as we speak. You know, investors are getting younger, they're typically from survey data, less likely to use an advisor. So all these forces are coming to tell me that it's going to be a little tougher in the next, you know, five, 10 years to be an advisor in Canada. So big question for us to you is, what advice would you give an advisor today from your lens to ensure that their books continue to grow?

France Kingsbury:

So It's true that we're removing the hurdles, right? We're removing the hurdles as we go, and we're giving more power to the client. So even more so to continue to have those discussions with your client and building that relationship, this industry shifted a little bit into more of having that discussion with the client, but also... doing a team effort and i think this is key for progress in our industry to have a strong team servicing a client with all your strength at the right the right place you have some people that are better with the relationship part you have some people that are better with the research part you have some so use this to your advantage and segment and put this within a team and you know you'll be able to service and leverage also and probably have more clients, but also leverage all the forces of everyone. And the other portion is really, really key is to automate as much as possible. Anything that you can automate that is more clerical in nature or administrative, start looking into it. Look at intelligence, artificial intelligence tools. There are many out there coming out. Look at it with your firm. I think we're all very open to to this to be scalable. So that would be my advice.

Ian Tam:

Thank you, France. Great advice. And Kuno, over to you.

Kuno Tucker:

Yeah, completely agree with what France says. A team-based approach. I would highlight that the average age of an advisor is in, I think, their mid-50s. Unfortunately, several advisors don't have a succession plan themselves. And this is a great opportunity to do that. And I imagine similar to IA. You know, Manulife is looking at making sure that all advisors have a succession plan in place, doing book buys internally, and helping newer advisors joining in the ability to buy books and to sort of get into the industry. I think that's really critical because I think the advice gap is going to grow if we don't all do that as an industry and completely agree on artificial intelligence. We launched a month ago a tool which is really simple. no private information. It's just about a way to get to our compliance policies and whatever using AI. And it's a huge time saver for all of our advisors. And they're really, really happy with that. And we're going to very safely and carefully explore other IE tools, such as using AI for note-taking, et cetera. But again, you have to be very careful about how AI works. And that's a whole different discussion. So we'll get into that. The other thing is we're looking at trying to encourage advisors to look more at portfolio management. And if they don't want to become a PM, at least use Unified Managed Accounts, UMAs, which we launched in May, because that helps simplify their practice. And I think helps them deal with all the CFR issues and also deal with the other part is because advisors are not just providing advice to clients, they're running a business. And time management is critical. So moving towards something like UMA, I think helps a lot of advisors. I think other firms are going towards that as well.

Ian Tam:

Thanks, Kuno. Yeah, just linking that back up to a consistent kind of scalable process makes total sense. So really appreciate that. Before we move on to the open Q&A section, I just wanted to thank you, Kuno and France, very much for participating in our webinar today. You've been great hosts. We will jump into Q&A. I'm going to pass it over to David. We probably won't get through all the questions. Hopefully we answered some of them as we were speaking. But just rest assured, Please keep sending those questions in. We'll make sure we send all the questions to all the panelists. And then as we go through them, we'll make sure that written response comes back to you in an email format. That being said, I'll pass it back over to David for the open Q&A session.

David Kitai:

Thank you so much, Ian. And thank you for facilitating a fascinating conversation. And thank you, Kuno and France, for your just brilliant insights. We've had, as Ian says, plenty of questions flowing into the box. Please enter them while we're here. and I know we're set for a 3 p.m. Eastern end time, but we can push it out another 10 minutes for any attendees who want to stay with us and make sure they get at least some of these questions answered. And the first one is quite a practical question that's coming to me, which is, when discussing risk tolerance and matching to the appropriate level of risk, Nikki mentioned using robust tools, specifically a validated risk tool, in quotes. Can you provide an example of this type of tool? investor profile questionnaires are not standardized in the industry.

Ian Tam:

Maybe I'll start with my answer and France, please feel free to jump in. So Morningstar has a version of a risk profiler or risk tolerance questionnaire, if you will. And I think what she meant in that is that it's a psychometric risk tolerance questionnaire. So it's not simply, you know, answer these 10 questions and here's your score, your medium. What it actually does is compare each answer as the response. respondent is going through them against a much larger data set. So in our case, we have roughly 2 million answers that we collected over the last decade or even more now. So as the respondent is going through, the investor is going through and answering, does two things. One is that it will detect, hey, did you notice that your answer is very different than a million other people that have a similar profile as you? Do you want to revisit that? And that's kind of codified in the client focused reforms as well, because I think the CFRs ask that you clarify that the client understands the question. That's the first thing it does. The second thing it does is we found, based on our data and our studies, that by doing a risk tolerance questionnaire this way, we're seeing consistent answers regardless of market cycle. So you take the questionnaire during a bear market, you take the same questionnaire in a bull market, you should get the same answer. And then our data tends to show that, at least in our version of the RTQ. But to the person that asked the question, you're right. RTQs are not standardized in the industry. We certainly see a wide gradient for them in Canada. So we certainly hope that, you know, that people are paying attention to that type of thing. Kuno, France, either of you, feel free to jump right in there if you like.

Kuno Tucker:

Yeah, we created our own using another third party many years ago. It was actually before I joined Manulife. And, you know, we've looked at Morningstar and a number of the third party vendors. and each have a lot of great strengths to them. We also have a number of advisors say that I don't want to use the RTQ, which is completely fine. We've talked to Ciro about that. But providing you have, again, the old good detailed contemporaneous notes to support how you arrived at assessing the client's risk profile. I'll add one thing, which is these RTQs or RPQs, they are great. They can be a great time saver. And yes, benchmark against millions of others. you can say hey Similar people usually come out with this result, but you came out with that result. You know, that's a little bit different. I think what we have to understand is we're all human beings. We all come from different backgrounds, have different biases. And maybe this one or two people, these one or two people, just despite being similar to, you know, 10,000 other people, they just have a different risk, personal risk profile for whatever personal reason. Right. And so that can play into that as well. And that's when the advisor's notes play a huge role. But yes, absent that, the RPQ, RTQ really can help. And I actually don't think it's a bad idea that there's no one industry RPQ, RTQ. I think we're not going to see progress if we just have one standard set. I think it's good for different vendors to come up with different solutions because competition.

France Kingsbury:

 Yeah, maybe I could add that a bit like Kuno, we have not mandated a specific form right for this, but it's also part of for us, like KYC is key, right? Like that discussion, that first discussion that you have with your client is key. It's the start of your relationship. Then like sometimes ticking the box doesn't do it for you, right? Like so A lot of advisors did push back and say, like, we want to have notes, we want to have more. So it does help to kind of allocate the risk profile and being able to, you know, enter it in the NCAF. But it does remove you a little bit from digging further. And that's the part where we were concerned about. So, again, some of our advisors are using templates that we do offer one, but it's an in-house one. but most of our advisors they don't right they rely on their notes so i've had another question come in um and it's one that i think a lot of advisors can relate to um there is a large population of investors who use an advisor because they don't want to have to understand all of the details behind their finances but the regulators are requiring that we disclose more information about products with each new regulation the outcome is that clients are often confused and uninterested in hearing this information as they trust their advisor to know what they're doing. Is there a position from the regulators about this conflict? And maybe, France, given your background within the regulators, I'd be curious to maybe start with your answer here.

France Kingsbury:

Well, it's true that we're providing a lot of information to the clients, but I think it's also a measure of protection for the advisors, right? Because there were some litigation where, you know, the client doesn't really want to know anything about... Until there's something happening, right? And then what do you rely on? So I think it's servicing the advisors actually to be able to provide some information. Now the question is how deep you have to go into the information. And like anybody else, it depends on the generation. Some people, they do want to have more. Some people don't. I personally like to have a Zoom meeting with my advisor. It gives me the bare minimum. but I'm in a managed relationship too, right? Because that's another possibility where actually clients, if they don't want to, well, they can give actually the mandate to the advisor, but you cannot have both, right? If you don't want to provide that mandate to manage your assets, then you need to be involved. So it's a two-way street in that sense. So it's a shared responsibility, if I may say. Okay. Kuno, anything you want to add there?

Kuno Tucker:

Yeah and I completely agree with France and uh there are probably a number of uh canadian clients who are probably confused by the financial landscape but the proliferation of all these products out there and their heads are probably spinning and they're probably like i trust you the advisor going back to what i said earlier uh to provide the right uh tools to get me to meet my financial goals at the end right so if you say this is the right asset allocation and these are the right products great and to france's point That's why we see more and more people going towards either becoming a portfolio manager and or using the UMA platform, you know, how to manage accounts, right? Assigning it to other designated professional portfolio managers. And so really the role of the advisor is really just to understand the client, understand their needs and risk tolerance, et cetera, and time horizon and meet those needs, right? So you just give them the high level overview. Then again, you'll have some clients who really want to dig into the details of every single product, go to different client set. uh but i think the important thing is and i think france said it earlier is to speak in plain language when you talk to your clients about the products okay and was there anything you wanted to add on that one from a morningstar standpoint uh

Ian Tam:

Nothing for me appreciate that David!

David Kitai:

Then with that I will say we are now hitting our new 310 end time uh and I will just say thank you so much to all of our panelists um on behalf of wealth professional it's just been utterly fascinating to again hear your insights and your expertise um and thank you to all of our attendees we really appreciate you taking the time uh to learn about this incredibly important subject as mentioned the Morningstar team is going to work on any questions that were unanswered but on behalf of everyone here just uh thank you so much and have a great rest of your day thank you.