Clients receive too much paperwork, says IIAC

There’s nothing more frustrating for advisors and clients alike than being buried beneath a growing pile of disclosure documents. At least that’s what the Investment Industry Association of Canada thinks.

Recently, the IIAC sent a letter to Jean St-Gelais, president of both the Canadian Securities Administrators and Quebec’s Autorité des marchés financiers, decrying the “excessive and unwanted disclosure material” that clients receive. The organization said that its members’ clients are frustrated with the volume of disclosure documents and the fact that advisors cannot omit unwanted material because of regulatory requirements.

Robert Abboud, CFP and president of Ottawa-based Wealth Strategies, says annual reports, SRO documents and the advisor’s own disclosure information can add up to a whole lot of paper. “If a client has funds with five different fund companies who generate six different statements … you could easily get 40 pages of documents every six months.”

Abboud’s own disclosure package is 11 pages, and includes privacy policy statements, payment information, and even a page directing clients who to call with complaints.

He says most of the information he gives to his clients is excessive, and for the most part, they don’t bother reading the package. “I have yet to have a client say that they’ve read the full 11 pages. But they sign it. Without signing, they can’t come on as a client.”

One reason for the IIAC raising this issue is financial. It says the large volume of paperwork is not cost-effective for the industry. “The reduction in the flow of disclosure materials to investors … would reduce costs to member firms and issuers, costs that are ultimately passed on to investors.”

Abboud agrees. “Imagine what (less paper) would do to MERs,” he says. “I think management fees could be reduced considerably if they stop mailing things. Every time they make a change to a fund, they send something to a client to vote. What does the client do? They call their advisor and say, ‘can I please throw this out?'”

Another motive for writing the letter is that the OSC announced in its Statement of Priorities for 2007–2008 that it has pledged to “re-assess the impact” of NI 54-101, the regulation dictating disclosure requirements. The IIAC says the national instrument “mandates the delivery of extensive quarterly and annual disclosure material.”

Under NI 54-101, clients can choose to receive all or no material from Canadian issuers, but foreign companies are not obliged to restrict information for Canadian shareholders. The IIAC wants the CSA to reexamine 54-101, in hopes that the securities body can “determine the various means that could reduce the shareholder communication materials now sent by foreign issuers.”

A spokesperson for the CSA said the organization has “no comment” to the letter at present, but the staff is planning to respond “in a few days.” He added that the reevaluation of N1 54-101 is being overseen by the OSC, not the CSA as a whole, though St-Gelais is involved in the discussions.

When they do respond, they’ll also have to address IIAC conerns related to clients who have discretionary managed accounts. In setting up this arrangement, they have chosen to “have a trusted advisor oversee their investments and guide investment decisions.” As a result, the SRO says dealers should be allowed to withhold a client’s name from shareholder registers.

Another downside to excess paperwork, says the IIAC, is that it’s harmful to the environment. The letter says that the CSA should be “mindful of the environmental consequences of its policies. The mailings of unwanted materials to investors represent a huge waste of materials and energy.”

But the worst part of receiving too many documents? Clients fail to understand how they’re protected in case something goes wrong. “Let’s assume we actually get taken to court by a client,” says Abboud. “I’m assuming they can say there are so many documents to read, so they just sign it. I just don’t think it’s going to hold up.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com