Canada: Manage Compliance Risk, While Bringing Clients Along

Last Updated: May 25 2012
Article by Ellen Bessner

Advisers are often overwhelmed with changing regulatory and internal compliance obligations they are required to incorporate into their daily practices. But once they appreciate the risk of losing their licenses or ruining their reputation they come to realize that they have no choice. Where to begin and how to get long-time clients to become accustomed to these new priorities and commitment to professionalism is often a struggle.

The simple solution is, "communicate, communicate, communicate." Advisers must appreciate how the systems they adopt will help them build a strong foundation to their business as well as help clients and provide even better service than before.

Some advisers believe that if they incorporate more and new processes it will scare clients away, but new processes can be incorporated in such a way as to reflect a positive light on the adviser. Here is an example: The most important process for advisers is to ensure they have a paper trail that reflects all communication with their clients. This could be in the form of letters, emails or simply handwritten or electronic (typed) notes. However, advisers who have not adopted routines to ensure there is a solid paper trail of communication with clients often use the excuse that their clients will not like it if they take notes in meetings instead of looking the clients in the eyes and nodding their heads in agreement. The advisers are fearful that the clients will not think they are listening if their head is down and they are writing while the clients are talking.

This is not true; all professionals (lawyers, accountants, doctors, dentists) take notes of their client meetings, which aids them later on when a client denies having instructed the adviser and the adviser insists that indeed instructions were received or information imparted by the client. The adviser could say to the client: 'What you're saying is so important that I want to make sure that I write this down." It is more likely a client will have new respect for the adviser, as this process exudes professionalism. In fact, an adviser might not want to trust a client who objects to note-taking.

Before advisers introduce new systems, they should be sure that their team members understand their respective roles and the way in which new systems will operate. Again, when there is buy-in from staff, the new systems will be incorporated more smoothly.

Do not focus on past infractions or get discouraged by the fact that rules were not set with clients earlier. Advisers need to focus on the present and future: Determine good office procedures and train staff to get everyone acting professionally. With diligence, commitment and support from staff, it is easier to get clients to accept new procedures. Here are a few steps to ease the pain for both advisers and clients:

Step 1: Review the client list and prioritize it according to the degree of risk exposure. The most exposure will be from the following types of accounts:

Large accounts, since these clients have the most to lose and their complaints would result in the largest claims;

Accounts in which there is a significant proportion of higher risk investments and, therefore, a greater likelihood of loss;

Leverage/margin accounts — the clients who lose money on borrowed money tend to complain the loudest as their losses go beyond their own capital;

Husband and wife accounts in which the adviser has not met one of the spouses;

Offshore accounts;

Accounts in which the adviser has not met the clients face to face;

Elderly clients with whom the adviser has never discussed power of attorney; and

Accounts in which the adviser takes instructions from the person with power of attorney, particularly those accounts belonging to clients whom the adviser has not met.

Step 2: Advisers need to develop a plan that includes the help of their team members. The plan will vary, depending on the number of an advisors clients and the amount of potential exposure to client complaints and lawsuits. Advisers need to contact each client individually. They need to ensure that any issue that puts them and their teams at risk is remedied. Advisers and their teams will not be able to remedy everything instantly, but this strategy will work if they develop a plan and system to review a certain number of clients monthly.

Step 3: Advisers need to assess their staff. If they don't get support and "buy-in" from certain members of their teams, they may need to hire new people in their place. Advisers do not want the lax attitude of apathetic staff to drag them down. They do not need the unnecessary, negative exposure that arises when a colleague does not share their goal to be in the business for long, but takes shortcuts to increase commissions instead. If a staff member shows little interest in compliance or in safer practices to protect the advisors reputation, advisors muse reevaluate the staff member's role in the company.

Step 4: Advisers need to assess their clients. If they do not cooperate and an adviser thinks they are too risky, he or she may want to cut them loose.

Step 5: Once the adviser is satisfied that the office is becoming more compliant and the clients have been trained, retrained or terminated, then the adviser can establish a follow-up plan to continue to improve efforts toward further compliance. This will include having better systems to maintain documentation and ensuring that the team continues its efforts to comply. While no office can be perfectly compliant, advisers and their teams should aim for continual improvement.

Professionalism is fundamental to the success of advisers and dealers. It is important to communicate with clients to manage their expectations and prepare them for the introduction of new processes. Follow these steps, do not get discouraged and rest assured that existing clients will come to appreciate the efforts more than ever.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Ellen Bessner
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