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January 2020 BYB: OUTLOOK 2020 INVESTMENT EXECUTIVE 16
How collaboration is improving advice
Professionals unite to meet industry challenges
professionals who want to focus on advice within a transactions-based regulatory regime. Planners “can only get compen- sated for the product they sell,” Plaskett says. “To put food on the table, good-quality financial planners are having to get licensed to sell mutual funds [or] insurance.”
The IRONSHIELD syndicate solves the issue, Plaskett says: the group of profes- sionals has bargaining power to attract portfolio managers and implement refer- ral arrangements with them. This also benefits clients because portfolio man- agers operate under a fiduciary stan- dard, he says. Syndicate members might also refer other professionals, including insurance specialists, mortgage brokers and corporate reorganization specialists.
While neither the ACP nor IRONSHIELD syndicates is new, there’s been a move to fee-only advice in recent years. In 2017, the number of referral arrangements between Ontario Securities Commission registrants and non-registered professionals increased by 69% compared with 2015, according to the regulator’s latest annual summary report.
Planners also are collaborating to establish their status as professionals. The Financial Planning Association of Canada, which launched last year, aims to support the financial planning indus- try’s transformation into a profession, with members adhering to ethical and fiduciary standards. As part of their duty of care to clients, members must provide clients with “independent, conflict-free professional advice that is free of bias,” the association’s charter states.
In some larger financial services insti- tutions, tied selling can be a problem, even within the financial planning channel, says Dave Cassie, managing director, consult- ing and deals, in PwC’s financial services
consulting
practice in
Toronto. What
seems like an independent
plan can turn
out to have
certain prod-
ucts as a solution, he says.
Saskatchewan and Ontario have or are enacting legislation to regulate the titles “financial planner” and “financial advisor,” but the focus is on credentials. This focus is despite industry participants such as the Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada) sug- gesting that being independent should be a requirement to call oneself a “financial planner.” (Insurance advisors in Ontario are unlikely to be subject to the regulation, even though the Financial Services Regulatory Authority of Ontario regulates them.)
client collaboration
Offering professional advice also requires collaboration at a grassroots level.
“As we collaborate with other profes- sionals, it’s important not to get distracted by the fact that collaborating with the client and their family is the most import- ant thing,” says Ethan Astaneh, certi- fied financial planner at Nicola Wealth Management Ltd. in Vancouver.
At that firm, client/advisor collabora- tion produces such things as retirement projections and family trees. The latter demonstrate that the advisor understands who comprises the family and helps the family members visualize their wealth trajectory, Astaneh says. The result is greater client engagement.
Collaboration at Nicola extends to cli- ents’ children, who must be prepared to
BY MICHELLE SCHRIVER
to best serve clients this year
and beyond, you should aim to offer a full range of services through collaboration.
While collaboration is familiar to any financial advisor who’s ever referred a client to a tax expert or a lawyer, collabor- ation is becoming formal and extending to business models.
Advisors have long networked with other professionals as a way to offer holistic advice and more services, typically leveraging traditional channels for tech and compli- ance support, says Matthew Lawrence, sen- ior director of PricewaterhouseCoopers Canada’s (PwC) financial services consult- ing practice in Toronto. Some advisors now use formal professional associations for those functions, he says.
The Alliance of Comprehensive Planners (ACP), for example, is a U.S. business asso- ciation that offers compliance support, tech discounts and formal training for a membership fee. A Canadian equivalent is IRONSHIELD Financial Planning Syndicate. Scott Plaskett, CEO and senior financial planner with Toronto-based IRONSHIELD Financial Planning Inc., says the syndicate’s platform provides the cost-effective infra- structure that financial planners require as entrepreneurs, such as business processes and back-office capability, as well as train- ing. Planners can choose between branded and non-branded versions.
While the syndicate’s practical offer- ings attract planners, Plaskett says, the real draw is joining a community of like-minded
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Offering professional advice also requires collaboration at a grassroots level
receive wealth by acquiring the requisite financial and family knowledge, Astaneh says. Advisors can help by hosting events with outside experts or arranging meetings with a facilitator who can help the family with communication and decision-making.
smaller clients
While collaboration can lead to better advice and promote industry change, the process typically is reserved for higher net-worth clients. “A mass-market, younger population is still being some- what ignored,” Lawrence says, specific- ally citing insurance advisors, who tend to focus on high net-worth clients.
To serve younger clients, firms are look- ing for multiple low-cost self-serve solu- tions, such as curated content and financial planning tools that can monitor clients’ income, wealth and behaviour to identify when changes are required, Cassie says. That way, firms can offer products and services piecemeal as needed by clients.
Montreal-based National Bank of Canada, for example, has an agreement with Toronto-based Nest Wealth Asset Management Inc., which has access to financial planning products through Nest’s subsidiary, Razor Logic Systems.
Digital and hybrid models help firms seeking these solutions, Lawrence says. Still, when it comes to serving clients throughout their lives, he says, “I don’t think any [firm is] doing that really well.” IE
Artificial intelligence can boost compliance
Machine learning and data analytics will play growing roles in helping regulators find wrongdoing
IIROC can apply AI technology.
Over the past few years, the Canada
Revenue Agency has been using data analytics and AI, such as machine-learn- ing algorithms that predict tax non-com- pliance and detect activity in the underground economy. Since 2018, the Department of Justice Canada has licensed the use of Tax Foresight, AI soft- ware developed by Blue J Legal Inc. in Toronto, which employs machine learn- ing to predict — with about 90% accuracy, according to the company — how a court might rule on a particular tax scenario.
“It’s not just about speeding up [analy- sis] that would otherwise happen,” says Benjamin Alarie, co-founder and CEO of Blue J Legal and Osler Chair of Business Law at the University of Toronto. “It’s about making [widely] available a really good prediction that would otherwise be the domain of an experienced [lawyer].”
AI technology could bring more cer- tainty to the interpretation of tax law, Alarie adds: “Everyone benefits from that.”
AI allows computers to replicate some features of human reasoning, including analyzing data, identifying patterns and adjusting for new information. In gen-
eral, government and insti- tutional regulators still are in the early stages of introducing AI and related machine-learning initia- tives. Many government and institutional regulators are either piloting AI projects or have indicated they are considering developing AI
capabilities, not only to become more effi- cient in how they perform their roles, but also to keep pace with the market partici- pants they oversee.
“We know our dealers are starting to invest in this area; we know their clients are investing in this area. So, we need to be responsive,” Pinnington says.
In May 2019, IIROC launched an upgraded market surveillance system that uses Nasdaq’s SMARTS. “[This upgrade] will mean that we’re being far more pro- active and efficient in detecting bad behav- iour in the market, and that cannot help but enhance confidence for investors and advisors,” says Pinnington.
As for the Mutual Fund Dealers Asso­ ciation of Canada (MFDA), the organiza- tion states it has leveraged technology and data to identify patterns and target issues to enhance suitability testing in examin- ations. The MFDA declined to comment on whether it’s considering AI initiatives.
Over the past few years, provin- cial securities commissions have been looking to technology for help in their oversight roles. These efforts include launching regulatory development “sand- boxes” to help, and learn from, fintech firms, and working on a new market ana- lytics platform to allow for more efficient data analysis. Provincial securities com- missions are also co-operating with inter- national regulators to foster regulatory technology innovations.
The Autorité des marchés financiers (AMF), Quebec’s securities regulator, has been developing AI technology prototypes in its in-house fintech lab. The lab developed
CP en temps réel!, which uses natural lan- guage processing to review companies’ news releases in real time. The technology ranks releases by probability of having mis- leading information, says Lise Estelle Brault, senior director of fintech, innovation and derivatives training with the AMF.
“Rather than reviewing 10 press releases randomly, [AMF] analysts now can review the 10 that the machine has decided as being the most problematic,” Brault says. “So, we’ve reduced the num- ber of false positives.”
Regulation experts say AI could allow regulators to be more proactive in alerting market participants to issues before they become a problem.
“A high percentage of enforcement cases are about unsuitable investments,” says Colette Arcidiacono, founder of Montreal-based compliance consult- ing firm Conformité 101, and formerly case assessment manager for complaints received by IIROC. So-called “regtech,” including AI, would help “at the beginning, when the portfolio starts not to fit with the client’s objectives.”
Yet, experts don’t anticipate these innovations will replace human analysts and financial advisors, whether in the regulatory realm or in the broader finan- cial services industry.
“It’s not about substituting one form of intelligence for another,” says Rhodri Preece, senior head of industry research for CFA Institute in London, U.K. “It’s about building greater collective intelli- gence by harvesting the cognitive powers of machines and humans.” IE
BY RUDY MEZZETTA
both government and market
regulators are increasingly using artifi- cial intelligence (AI) and data analytics tools and techniques as part of their over- sight functions, including surveillance and auditing. These watchdog groups say they are looking at building out their AI initiatives in the years ahead.
“We’re actually piloting using AI to calibrate our alerts and reduce false positives, so that our surveillance offi- cers are focused on the more substantive alerts,” says Victoria Pinnington, senior vice president of market regulation with the Investment Industry Regulatory Organization of Canada (IIROC) in Toronto. The regulator has a dedicated data analytics team that has been stream- lining data processes and looking for ways
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AI technology has the potential to allow regulators to be more proactive in anticipating issues