How to Stay Compliant in the Era of CRM2
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In this presentation, John Easton, Maximizer's Wealth Management Director shows how a wealth management Customer Relationship Management system helps advisers stay compliant.
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How to Stay Compliant in the Era of CRM2
- 1. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. How to Stay Compliant in the Era of CRM2
- 2. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. John Easton Director, Wealth Management
- 3. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Click to edit Master title style Maximizer Services: The Fast Facts
- 4. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Who We Are • Head office in Vancouver, Canada - 75 staff • Sole focus on Contact Management & CRM since 1987 • Offices on 5 continents • 40 business partners in Canada, 400 Worldwide • Helped 100,000’s customers to date Strong Performer: Mid-Market CRM, SFA, Customer Service 10 Must-Have Apps for your BlackBerry
- 5. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. The Purpose of CRM • Being Organized • Being Compliant • Provide Superior Client Engagement • Prepare for Growth and/or Succession
- 6. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Staying Out of the Penalty Box: ensuring your financial advisor practice is complaint in the era of CRM2 • MFDA • IIROC • Federal Gov’t
- 7. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. What’s at stake? • Fines • Reputational damage • Operating restrictions • Legal action
- 8. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Current disclosure trends • Variable at best • Product recommendations – 75%+ • Thorough KYC information – only 32% • Risk – return - ~ 50% • Product fees - ~ 55% • Advisor fees – less than 30%
- 9. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. CRM2 - Disclosure is a Primary issue facing Advisors today “Research by Investment Executive showed that close to 50% of Canada’s financial advisors say their businesses are to be impacted to an appreciable degree”
- 10. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Statistics clearly show many Advisors are not ready • ~ 50% of the asset management respondents say they have not even started to implement the final requirements for compliance with CRM 2 PricewaterhouseCoopers
- 11. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Canadian Compliance Requirements • “Know Your Client” (KYC) obligation” • Adherence to a client’s investment objectives and risk tolerances • Judging the creditworthiness of the client • Identifying any industry regulations that will apply to a client account
- 12. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Canadian Compliance Requirements “KYC is the foundation of best practice and compliance across the industry and provides guidance to both financial advisors themselves and to the courts, where cases hinging on questions surrounding financial advisor liability arise” Legal liability for financial advisors in Canada, Dolden Wallace Folick LLP, January 2011
- 13. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. KYC Update Requirements • change of account name • address change • new marital or employment status • another person who takes a financial interest in or who gains control over the account • new trading authorization • a major change in financial circumstances • new investment objectives or risk factors • any amendment to items in the regulatory section (i.e. insider status)
- 14. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. One Overriding Principle • Duty of care • deal fairly, honestly and in good faith with clients • observe high standards of ethics and conduct in the transaction of business • ensure proper disclosure and handling of conflicts of interest • do not employ prohibited sales practices • supervise activity in client accounts
- 15. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Proof of Service • Following the regulations correctly • Employing adequate processes and safeguards in acting on client intentions • Securing and recording client permissions and instructions • Apprising clients of deadlines, meeting those • Ensuring client data protection and security
- 16. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Fact: Using CRM Mitigates Risk 31% of the North American financial advisors surveyed still listed “Paper Notes/Rolodex/Sticky Notes” among their three leading tools for managing customer relationships, 12% enumerated “I keep it all in my head”
- 17. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. CRM Mitigates Risk Just 20% of the Wealth management practices surveyed by Maximizer in 2014 had a standard automated client onboarding process in place.
- 18. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. How to be Compliant? • Use your CRM • Automated Processes • Accurate record keeping • Consistent client experiences
- 19. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Critical Feature Requirements • Correspondence tracking • “set it and forget it” capability, meaning you can flag a client address in Outlook and all future communications will be saved on your CRM platform
- 20. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Critical Feature Requirements • Communication and interaction tracking • Conversation notes – categorized • System generated audit notes • Appointments • Tasks • Actions Plans
- 21. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Critical Feature Requirements • File Management • Client facing documents • Emails
- 22. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Critical Feature Requirements • Industry-specific configurations • Custom fields • Segmentation searches • Dashboards • Action plans
- 23. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Critical Feature Requirements • Mobility
- 24. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Challenges • A 2014 survey revealed that as many as 61% of advisers who pay for CRM systems don’t even use them in a most basic and useful way: to capture notes from client conversations – central to compliance audit trails. • Therefore usability, the right configuration, training and staff buy- in are essential factors to successful compliance through CRM
- 25. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. CRM2 • What is it? • A new fully-harmonized set of rules being brought in by all the regulatory and self-regulating bodies overseeing the financial advice industry
- 26. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. CRM2 • Why is it being brought in? • To increase transparency in the reporting of both fees and investment performance
- 27. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. CRM2 • Who is affected by this? • Financial advisors and firms tied to banks, investment dealers, asset managers, and insurance companies with asset management businesses, plus independents registered with one of the umbrella self-regulation organizations
- 28. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. CRM2 • What is required? • Clear and complete reports on all charges and compensation to the advisor for all investment products and services provided • meaningful and accurate reporting of investment performance
- 29. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. CRM2 Timeline • July 15, 2015 – advisor firms to provide pre-trade disclosure of charges for all securities transactions and report on compensation from debt securities transactions • December 31, 2015 – firms required to provide enhanced client statements that detail position cost information and market value • July 15, 2016 – firms must begin delivering annual reports on charges and other compensation, as well as investment performance reports
- 30. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. CRM2 Timeline “The key for most advisor firms is to build CRM2 compliance into their everyday procedures and build in the processes and infrastructure to support the implementation and maintenance of CRM2 disclosures at minimal cost.” CRM2: Ready or Not, PricewaterhouseCoopers, 2015
- 31. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Using CRM to Address CRM2 Requirements CRM solutions provides the structure and technology for compiling and distributing reports on fees, compensation and investment performance to clients on an ongoing basis
- 32. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Using CRM to Address CRM2 Requirements • Custom fields • Dashboards • Action plans • Conversation notes • Appointments • Tasks • Documents • Audit trails
- 33. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Custom Fields
- 34. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Dashboards
- 35. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Dashboards
- 36. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Action Plans
- 37. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Conversation Notes
- 38. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Appointments
- 39. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Appointments
- 40. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Tasks
- 41. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Tasks
- 42. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Documents
- 43. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Audit Trails
- 44. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Audit Trails
- 45. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Mobility
- 46. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Compliance failure is a Risk, Mitigate Your Risk!
- 47. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Questions Johneaston@maximizer.com http://www.maximizer.com/your-industry/wealth-manager-crm
- 48. WWW.MAXIMIZER.COM © 2015 Maximizer Software Inc. Thank you
Editor's Notes
- Regulatory compliance is all too easy to put to the back of your mind on a day-to-day basis if you are a financial advisor. Fielding client calls, tracking the situations of everyone in your book of business, keeping abreast of the new developments in the financial products marketplace, hustling for new business, and generally trying to stay ahead of the game tends to push compliance down on the agenda. Nonetheless, regulatory issues should be a major concern to financial advisors and a compliance failure could be catastrophic to both individuals and their firms. In Canada, financial advisors are self-regulated, meeting requirements set out by industry organizations, which include the Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC) – except in Quebec, where government legislation applies. Failing to meet rules and codes of conduct set out by the regulating organizations could have profound repercussions.
- Financial advisor practices failing to meet regulatory requirements risk significant financial hits, damage to reputation, operating restrictions and even the loss of their ability to practice. In addition, advisors open themselves and their businesses to legal action by disgruntled clients. This risk is particularly acute for firms that run a somewhat loose operation, particularly small “family practices” that are reliant on paper trails, cobbled together client records and personal recollections of client circumstances. Compliance failure can put your entire business in peril. If an audit shows significant lapses, fines could run into the tens of thousands of dollars, conditions could be imposed and advisors could find their licenses suspended or even revoked. For instance, in one case an Ontario advisor selling mutual funds broke a number of MFDA rules through a number of infractions that involved serious misrepresentation. The result was a permanent ban on doing business and a $250,000 fine. ‘MFDA decision presents a vexing problem’, Will Ashworth, Wealth Professional, March 2015
- Unfortunately, strict adherence to regulations often seems to get overlooked when a customer is sitting in front of an advisor. “Mystery Shopping” research carried out by the Ontario Securities Commission, IIROC and MFDA in 2014 found that compliance was strong in some areas and patchy or deficient in others. The organizations found the vast majority of firms making product recommendations did so in a suitable manner, but that just 32% of all those vetted gathered thorough know your client (KYC) information from the shoppers and only 52% of advisers discussed the risk-return relationship. While 56% discussed product fees, a mere 25% went into their own compensation.
- From a big-picture, strategic point of view, regulatory compliance is seen as a primary issue by a substantial proportion of financial advisors. According to research commissioned by Maximizer last year on what financial advisors viewed as strong obstacles to growth, “keeping up with regulatory change” was named by more of the 900-plus North American advisors surveyed than any other, with 25% of the Canadian respondents identifying it as a concern. And yet, even though the pace of regulation ranked as the most pressing concern facing FAs, the proportion of Canadian respondents listing it seems low given the changes going on in compliance at the moment. The industry’s regulating bodies are in the process of bringing in new rules that aim to improve transparency and accountability in the financial advisor industry: Client Relationship Model phase 2 – dubbed “CRM2” – which governs financial advisor disclosure of fees and investment results. CRM2 promises to shake up the state of compliance, affecting the vast majority of advisors.
- Yet many in the industry are behind in preparing to meet the more stringent disclosure rules. Research by PricewaterhouseCoopers shows that 32% of wealth management professionals have not started to implement the final requirements for compliance with CRM2 (due to come into effect in 2016), including 45% of the asset management respondents. The PwC research makes clear that a significant proportion of financial advisor firms have not organized their operation so that it will meet the new standards.
- The conduct codes and rulebooks of all the major organizations regulating financial advisors of different types in Canada have one central tenet: the “Know Your Client” (KYC) obligation. Advisors have to be able to: determine the client’s investment objectives and risk tolerance judge the creditworthiness of the client identify any industry regulations that will apply to a client account KYC is the foundation of best practice and compliance across the industry and provides guidance to both financial advisors themselves and to the courts, where cases hinging on questions surrounding financial advisor liability arise Legal liability for financial advisors in Canada, Dolden Wallace Folick LLP, January 2011
- KYC is the foundation of best practice and compliance across the industry and provides guidance to both financial advisors themselves and to the courts, where cases hinging on questions surrounding financial advisor liability arise Legal liability for financial advisors in Canada, Dolden Wallace Folick LLP, January 2011
- KYC requires updated client information whenever there is a major change in circumstance, including: change of account name address change new marital or employment status another person who takes a financial interest in or who gains control over the account new trading authorization a major change in financial circumstances new investment objectives or risk factors any amendment to items in the regulatory section (i.e. insider status) What’s more, detailed procedures such as updating client photo IDs that are expiring – so that you can confirm beyond doubt that you are always able to visually confirm the identity of each client – and key deadlines for investments must be strictly adhered to.
- Specifically critical to KYC compliance is ensuring that you meet at least once a year with each client to ensure all information is updated and reflective of their current priorities and instructions. The aims underpinning KYC are closely linked to one overriding principle: duty of care. Overall, Canadian financial advisors are charged by the various regulating, training, accreditation and advisory organizations with acting within the law and with integrity at all times in their dealings with clients. According to Investment Funds Institute of Canada, financial advisors are responsible for maintaining systems to monitor regulatory compliance to ensure they: deal fairly, honestly and in good faith with clients observe high standards of ethics and conduct in the transaction of business ensure proper disclosure and handling of conflicts of interest do not employ prohibited sales practices supervise activity in client accounts Fiduciary duty, best interest standard, The Investment Funds Institute of Canada, February 2013
- Not only do FAs have a duty of care but they must be able to demonstrate they have acted in accordance with this principle, following the regulations correctly, employing adequate processes and safeguards in acting on client intentions, securing and recording client permissions, appraising clients of deadlines, meeting those, and ensuring client data protection and security That means all client related actions need to be recorded and auditable.
- How CRM enables financial advisors to mitigate risk by embedding compliance standards Too many financial advisor practices come up short when it comes to standardized processes and the technological support required by regulatory organizations today. Maximizer’s 2014 research into the wealth management sector showed that 31% of the North American financial advisors surveyed still listed “Paper Notes/Rolodex/Sticky Notes” among their three leading tools for managing customer relationships, while 12% enumerated “I keep it all in my head” as a top means of doing so – Indicating that a significant proportion of advisors are at risk of a major compliance failure due to their current working practices.
- Putting a process in place that systematizes and tracks and records all client interactions is critical to both to ensuring practical compliance on a day-to-day basis and, if necessary, proving that relevant regulations, guidelines and best practice were all followed to the letter with each client. Many firms are letting themselves down with inadequate and inconsistent systemization. Just a fifth of the wealth management practices surveyed by Maximizer in 2014 had automated client onboarding, according to the research. This sort of fundamental lack of established process could lead to mistakes – e.g. missed steps, omitted information, failure to secure the right permissions – that, at best, eat up time and resource in completing and correcting poor client records or, at worst, trap your firm in a legal quagmire with regulators, litigious clients or both. The best way to avoid these pitfalls is to utilize some form of automated processes, record keeping, traceability and back-ups into your business systems via a purpose-built technology – in other words, CRM. This is the most straightforward way to embed the logging of client information and instructions, the firm’s advice, any communications between the two parties and all transactions. CRM is vital to unequivocally ensuring and demonstrating strict adherence to standards set out both by the firm and by regulators.
- USE YOUR CRM!!! The best way to avoid these pitfalls is to build automated processes, record keeping, traceability and back-ups into your business systems via a purpose-built technology – in other words, CRM. You need to embed the logging of client information and instructions, the firm’s advice, any communications between the two parties and all transactions. CRM is vital to unequivocally ensuring and demonstrating strict adherence to standards set out both by the firm and by regulators.
- The critical features that a wealth management CRM system that systematizes client management and ensures compliance should include: Correspondence tracking – “set it and forget it” capability, meaning you can flag a client address in Outlook and all future communications will be saved on your CRM platform
- Communication and interaction tracking – manual notes for conversations stored and searchable system generated notes for tasks, appointments and activities prompted by dashboard alerts and actions recorded
- File Management Client facing documents Emails Searchable!
- Adherence to best practices and streamlined processes: the following set up under industry-specific terms and pre-set configurations – Custom fields Segmentation searches Dashboards Action plans
- Your need to be as productive out of the office as inside the office, your clients are expecting it.
- The big ‘but’ in all this is that even financial advisors that have CRM need to make it accessible, easy-to-use and an absolute requirement in their company. A 2014 survey revealed that as many as 61% of advisers who pay for CRM systems don’t even use them in a most basic and useful way: to capture notes from client conversations – central to compliance audit trails. Therefore usability, the right configuration, training and staff buy-in are essential factors to successful compliance through CRM. ‘Software can help financial advisers boost their business’, Robyn Post, Reuters, 7 November 2014
- CRM2 is a new fully-harmonized set of rules being brought in by all the regulatory and self-regulating bodies overseeing the financial advice industry. (Note: as an acronym, CRM2 – Client Relationship Model phase 2 – is distinct from CRM – Customer Relationship Management, which refers to the software application and methodology for handling clients).
- CRM2 is intended to increase transparency in the reporting of both fees and investment performance. Financial advisors and firms tied to banks, investment dealers, asset managers, and insurance companies with asset management businesses, plus independents registered with one of the umbrella self-regulation organizations, are among those affected.
- Financial advisors and firms tied to banks, investment dealers, asset managers, and insurance companies with asset management businesses, plus independents registered with one of the umbrella self-regulation organizations, are among those affected.
- Under CRM2, financial advisors are required to provide clients with clear and complete reports on all charges and compensation to the advisor for all investment products and services provided. They also must provide meaningful and accurate reporting of investment performance. Most firms should already have begun to prepare themselves for full compliance in 2016.
- CRM2 timeline: July 15, 2015 – advisor firms to provide pre-trade disclosure of charges for all securities transactions and report on compensation from debt securities transactions December 31, 2015 – firms required to provide enhanced client statements that detail position cost information and market value July 15, 2016 – firms must begin delivering annual reports on charges and other compensation, as well as investment performance reports This means firms must not only have systems for tracking all client activity, recording it and creating reports, but must make sure that all the information is correctly communicated to all clients when it is required to reach them. Some firms view this as an onerous regulatory burden but others see it as an opportunity to demonstrate the value of what they do and use the opening of communications to further develop strong client relationships. The key for most advisor firms is to build CRM2 compliance into their everyday procedures and build in the processes and infrastructure to support the implementation and maintenance of CRM2 disclosures at minimal cost. CRM2: Ready or Not, PricewaterhouseCoopers, 2015
- CRM2 timeline: The key for most advisor firms is to build CRM2 compliance into their everyday procedures and build in the processes and infrastructure to support the implementation and maintenance of CRM2 disclosures at minimal cost. CRM2: Ready or Not, PricewaterhouseCoopers, 2015
- How a CRM solution helps you specifically address CRM2 compliance Customer Relationship Management (CRM) software is the most efficient and cost-effective means of building in the ongoing reporting required by CRM2. A specific wealth management CRM solution provides the structure and technology for compiling and distributing reports on fees, other compensation and investment performance to clients on an ongoing basis.
- Indeed, CRM provides the means of not only ensuring you meet CRM requirements, but of demonstrating to regulators that you have done so in an accurate and timely manner by recording each instance in which you have disclosed your fees and kept the client abreast of investment results. CRM ensures you stay visibly compliant through: custom fields – who I have and have not communicated with dashboards – how many clients have I spoken with, how many are remaining action plans – detailing and following of steps to be taken as part of each client disclosure conversation notes – recording of conversation(s) of the subject appointments – proof you met, and when Tasks – showing what was done for each client, by who in the office, and when documents – signed by the client denoting disclosure and the understanding of such Audit trails- recording of who changed what in the system and when.
- custom fields – who I have and have not communicated with
- dashboards – how many clients have I spoken with, how many are remaining
- dashboards – how many clients have I spoken with, how many are remaining
- action plans – detailing and following of steps to be taken as part of each client disclosure
- conversation notes – recording of conversation(s) of the subject
- appointments – proof you met, and when
- appointments – proof you met, and when
- Tasks – showing what was done for each client, by who in the office, and when
- Tasks – ability to toggle between seeing all tasks with a client, and then back to only those related to a particular workflow with that client
- documents – signed by the client denoting disclosure and the understanding of such
- Auditing trials- recording of who changed what in the system and when.
- Auditing trials- recording of who changed what in the system and when.
- Mobility, don’t leave home without it!
- When you really think about it, CRM is Insurance for Investment Advisors. Buy it and use it, and whenever you need to show every bit of your firms interactions with any one of your clients, whether it be to the client themselves, or to the a regulator or compliance officer, you can do so with really about 8 clicks of the mouse, just as I have just done for each of you today. We have looked a brief history of all of my interactions with Lou Chan, first at a 10,000 foot view, with the ability to drill down into the detail of any interaction with just one more click. That unto itself is what sets the Maximizer Wealth Manager in the very top tier of CRMs in the financial service market today. The way we organize all of your required information in a very concise way, combined by the fact that the entire product is pre-configured for your use from the first time you start using it, provides long lasting value to all of our users. Compliance failure is an ever-present risk for financial advisors but it can and should be minimized with the right technology and level of organization. CRM provides the documented proof that you done what you are supposed to be doing. Your use of the CRM is not only how you will demonstrate your compliance, but it will also be the foundation of what you use to demonstrate your value to your clients. You are now about to have to fully disclose your fees to your clients, showing how you use the CRM to manage the clients to your clients is great way to show over time the level of interaction you are having on a regular basis.