by Tom Bradley
The other week, David and I attended a Morningstar Executive Forum on regulatory reform and the future of advice. It was a topic only geeks could love.
The Canadian Securities Regulators (CSA) are proposing an extensive set of rules to enhance investor outcomes and improve industry practices. There are new provisions in the areas of knowing your client, product knowledge, portfolio suitability and conflict of interest. This initiative is meant to put the clients’ best interests at the forefront without entrenching an actual best interest standard (a topic for another day).
There was lots of good discussion amongst the panelists about how practical and costly the new rules will be. As the session went on, the tone became more and more about why this couldn’t be done. There was, however, few concrete alternatives proposed.
My overall impression from this session, and others like it, is that the wealth management industry is only playing defense. It’s on its heals, constantly protecting the status quo. It has ceded all leadership on improving the landscape for investors to the CSA.
As David will attest, this kind of approach gets me worked up. It’s time the wealth management industry shifted gears. It needs to take the ball back from the regulators and play offense. That means showing some leadership in making the industry more client friendly, as opposed to firm friendly.
The industry associations should get all their members in a room and lock the door. Nobody leaves until they commit to improving the clients’ lot. The working list might include:
- Showing the client’s total cost of investing. Be clear about how the advisor is being compensated and don’t just meet the regulatory standards, blow right through them.
- Disclosing conflicts of interest up front - i.e. “my firm rewards me for putting one of our funds in your portfolio.”
- Making communications readable and understandable. Less jargon and more explanation.
- Show portfolio results in a way that’s relevant to clients’ goals – i.e. long-term, after-fee returns.
- Give the client the full picture. On every statement, rollup all accounts into a consolidated view.
- Link compensation to something more than just sales and assets under management. Client outcomes and quality of service should figure in there somewhere.
I’ll conclude with two notes and a plea.
First, there are firms that are doing these things and putting clients first. Unfortunately, they’re rare.
Second, at Steadyhand we don’t like all the new rules either. It will increase our operating costs and could potentially make the client experience more cumbersome. But we’ve been playing offense since kickoff in 2007, so adjustments for us will be relatively minor.
And finally, if the wealth management industry put as much energy and resources into improving their offering as they do defending the inadequate status quo, they’d be able to push back the regulators and start putting some points on the board. A constant goal line stand isn’t good for the firms or clients.
We're not a bank.
Which means we don't have to communicate like one (phew!). Sign up for our blog to get the straight goods on investing.