You probably consider several options before recommending investments to your clients. You’ll have to prove it by the end of next year.
This is because the Canadian securities administrators’ client-focused reforms (CFR) will introduce an explicit requirement to consider a “reasonable range of alternatives” before recommending an investment to a client.
This requirement, along with other changes to know-your-product (KYP) and suitability regulations, will come into effect in late 2021.
“Many advisors will say, ‘Well, of course we’re doing research and considering alternatives,’” Dave Carr-Pries, vice president of product and marketing at Toronto-based InvestorCOM, said in an interview. “But how do you document the things you have considered?”
Technology can help.
For example, InvestorCOM has developed a technology tool for just this purpose: PeerCompare. The tool compares mutual funds on a dealer’s shelf to similar alternatives based on cost, risk and return criteria. The software generates a compliance record for each recommendation issued, as well as an optional customer information document. The advisor then makes a final recommendation to the client.
Other technology providers, such as Toronto-based Pascal Financial, also offer software that allows advisors to meet the new CFR requirements. In an email, Howard Atkinson, Pascal’s chief business officer, said the company’s AI Portfolio Optimizer provides a “reasonable range” of investment options based on a client’s risk profile, similar to the company’s portfolio comparison tool.
Last month, InvestorCOM hosted a virtual roundtable with leaders from 16 wealth management firms to discuss CFR compliance strategies.
According to report An InvestorCOM release following the event indicates that 69% of firms participating in the roundtable said they plan to use technology to document that their advisors are considering a range of alternatives for their clients.
So far, most investment companies have focused on preparing for the CFR regulations on conflict of interest, which will enter into force at the end of June 2021.
However, Kelly Vickers, senior policy advisor at the Canadian Investment Fund Institute and co-host of the InvestorCOM roundtable, said companies are now “stepping up” their plans to ensure compliance with new KYP and suitability rules that come into effect late next year. year.
One such company is Industrial Alliance Securities (iA Securities), which was among the 16 companies participating in the roundtable.
“We have until the end of 2021, but we wanted to discuss (our) options early to ensure we find the best solution for the company and advisors,” said Mandi Epstein, director of regulatory compliance at iA Securities.
Investment dealers will also be required to monitor “material changes” to products on shelves until the end of 2021 – technology could help solve another challenge.
InwestorCOM ShelfMonitor notifies dealers of material changes – such as changes in risk ratings and fees – to mutual funds, ETFs and segregated funds on their shelves. (Pascal platform too monitors changes to the risk and cost of investment funds.)
Dealers who participated in the roundtable said ensuring their shelves are compliant with the new KYP requirements under the CFR can be challenging.
“When we asked if companies had procedures in place to review and approve products, 100% said yes, which is not a huge surprise,” Carr-Pries said. “But when we asked, ‘Do you have a way to document or demonstrate that you’re in compliance?’ it was 50/50.”
Further findings from the InvestorCOM CFR Roundtable can be found in the article full report.
