Page 7 - Newcom

MID-NOVEMBER 2020
PAGES 7-8
What are
the toughest
CFR challenges
for firms?
Deadlines to implement the client-focused reforms were extended, and dealers are working out how to comply with the new requirements
PAGE 7
“The more [regulators] raise the bar, the better it is for cli- ents,” says one advisor with ScotiaMcLeod Inc. in Ontario.
Says an advisor with Richardson GMP Ltd. in Atlantic Canada: “We need to be up front with clients and I hope [the CFRs level] the playing field. I’d like [the CFRs] to weed out some of our bad apples within this industry.”
Still, there were concerns about the “extra paperwork” the CFRs will require, as well as the potential for additional reforms.
HOW FIRMS ARE ADJUSTING
While extending the deadline to comply with the CFRs was help- ful, many firms are beginning to think about how they’ll imple- ment the reforms.
“Most firms had to put a pause on what they were doing for the client-focused reforms because they had to deal with busi- ness-critical and client-critical issues,” says Nick Cardinale, chief compliance officer at RBC Dominion Securities Inc. “[We have] returned our attention to the client-focused reforms. We are completing detailed
self-assessments against all of the provisions and developing action plans.”
On the front lines at RBC DS, the pending CFRs aren’t yet a top priority. Cardinale says the CFRs “won’t be a pressing issue until we’re implementing and updating our policies and pro- cedures. As [that] gets closer, we’ll open up forums and ensure advisors have access to the infor- mation they need.” RBC DS will also provide advisors with the necessary training, he says.
The overarching nature of the CFRs will pose one of the greatest compliance challenges, Cardinale notes. “Even if it’s just tweaking things,” he says, chan- ges must be made to compliance policies, client agreements and back-office surveillance systems.
Under the CFRs’ suitabil- ity provisions, advisors will be required to consider a “reason- able range of alternatives” before recommending an investment to a client — and will have to document that work. Wayne Bolton, chief compliance officer at Edward Jones Canada, says this will be a major hurdle for both his firm and the investment industry at large.
“What is that level of docu- mentation that you need?” Bolton asks. “You don’t want to have too little or too much. Where is that balance?”
Edward Jones is co-ordinat- ing internally on how to imple- ment the CFRs. Bolton says the firm also has set up “change management” teams for advis- ors. These teams include senior leaders from various divisions. Edward Jones also has a branch advisory group consisting of 11 financial advisors and 12 branch office administrators working to implement the CFRs, in addition to other projects.
Bolton says Edward Jones is on track to meet the CFRs’ new conflict-of-interest require- ments by the end of 2020, ahead of the June 30, 2021, deadline. (Edward Jones also plans to pub- lish a plain-language rule book by early 2021, mirroring the pro- ject that the Investment Industry Regulatory Organization of Canada plans to complete by December 2021.)
Bolton says relationship dis- closure documents may be longer under the CFRs, but he antici- pates these longer documents will “provide greater clarity on
how suitability is determined” and a better summary of the client-advisor relationship.
Maria Jose Flores, chief compliance officer with Carte Wealth Management Inc., says she anticipates the CFRs will lead to longer-lasting relationships with clients.
Flores says Carte Wealth is trying to make its standard know-your-client (KYC) form more in-depth and interactive as a way to meet the CFR require- ments. Instead of simply asking how many dependants a client has, for example, Carte Wealth will use a more conversational tone to ask questions about a client’s future plans. KYC forms and account-opening forms will be updated by the firm more fre- quently, she adds.
Changes to KYP rules under the CFRs will require dealers and advisors to take reasonable steps to assess, approve and mon- itor changes to the products on their shelves, in addition to con- sidering reasonable alterna- tives. Flores says she could use a “little more” guidance on how much advisors will need to know about products that aren’t on their shelves. She adds that CFR training will be given to all advisors and their assistants at Carte Wealth.
Andrew Marsh, president and CEO of Richardson GMP, says his firm’s portfolio managers already have a fiduciary duty that goes beyond the CFRs’ stan- dards. As a result, Richardson GMP is focusing on other ele- ments of the CFRs, such as the standard for disclosing and man- aging material conflicts of inter- est when an account is opened.
“This is something that I think you’re going to have dif- ferent perspectives on regard- ing what a conflict is and isn’t,” Marsh says. “Identifying our approach and managing conflict will be the biggest change.”
Marsh notes that CFR train- ing was “a key part of our plan for 2020,” but due to the pandemic, that training now is “a key part for 2021.” The content of the reforms, he says, is consistent with how Richardson GMP has been evolv- ing into a more client-focused business over the past decade.
“This is where the world is turning,” Marsh says. “We have an evolution of what it means to be a professional in our industry.” IE
How we did it this year
Like the regulators, Investment Executive (IE) had to adjust its operations over the past year due to the Covid-19 pandemic. Instead of conducting our annual sentiment survey with compliance officers as we normally do, we spoke with regulatory staff to get a sense of the year’s developments. — KATIE KEIR
n BY KATIE KEIR
due to pandemic-related
challenges, the Canadian Securities Administrators’ (CSA) client-focused reforms (CFRs) won’t be in full effect until Dec. 31, 2021.
In April, the CSA pushed back the implementation date for the CFRs’ conflict-of-interest provi- sions to June 30, 2021. The CSA also postponed the implementa- tion of new relationship disclo- sure, know-your-product (KYP) and suitability provisions to Dec. 31, 2021.
Given these extensions, investment dealers may be tempted to put off their
preparations for complying with the CFRs — but the CSA advises against procrastination.
“Even though the [CFRs’] implementation has been delayed, registrants are encour- aged to consider the reforms with every interaction they now have with their clients,” the CSA stated in an email to Investment Executive.
Financial advisors operating in the brokerage and dealer chan- nels are largely in favour of the CFRs: more than 85% of survey participants in the 2020 Brokerage and Dealer Report Cards said they supported the reforms.
Next step for the regulators
Here’s a look at how the self-regulatory organizations and the Canadian Secur- ities Administrators are preparing to implement the client-focused reforms (CFRs).
INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA (IIROC)
Irene Winel, IIROC’s senior vice-president of member regulation and strategy, says the self-regulatory organization is working on amending its rules to align with the CFRs: “The hope is to publish our amendments for comment before the end of the year.”
Winel adds that IIROC has synchronized the rollout of its plain-language rule book with the new implementation dates for the CFRs “so firms can prepare appropriately and efficiently for the implementation of both of these im- portant initiatives.”
Winel says IIROC plans to use tools such as webcasts to communicate with registrants about implementing the CFRs.
MUTUAL FUND DEALERS ASSOCIATION OF
CANADA (MFDA)
Paige Ward, general counsel, corporate sec- retary and vice-president of policy with the MFDA, says the MFDA is revising staff notices on know-your-client, know-your-product, suit-
ability, relationship disclosure and conflicts of interest to provide additional guidance regarding the CFRs. She adds that the MFDA plans to co-ordinate the publication of these notices “with IIROC and the CSA.”
Ward says that the MFDA has received “specific questions from members in respect of various aspects of the CFRs” and has presented those questions to the CSA’s CFR implementation working group.
CANADIAN SECURITIES ADMINISTRATORS (CSA)
A CSA spokesperson wrote in an email to Investment Executive that the CSA’s CFR im- plementation committee has “received great feedback [on the CFRs] from industry so far.”
The CSA published a CFR FAQ page in late September, which was shared widely by prov- incial regulators through “co-ordinated email blasts to registrants.”
The CSA stated the CFRs will “require regis- trants to do more to clarify what clients can expect from them,” especially in relation to fees and the disclosure of any limitations on products and services that are available.
The CSA also noted that it wants to be flex- ible when possible while enforcing “a high and uniform standard of conduct for all registrants.”
— KATIE KEIR