How to leverage — not loathe — compliance

Financial advisors got plenty of tips to improve their practices by leveraging compliance, courtesy of the Independent Financial Brokers of Canada (IFB) spring summit in Toronto on Wednesday.

A compliant practice can “add value to your business, build trust with your clients, and provide security to you and your family,” said Sheldon Stier, IFB president and chairman, and president of Stier Financial Advisors in Winnipeg. He spoke at a session called “The Future-Ready Advisor.”

Stier highlighted an Ellen Bessner column that connected a compliant practice to its sale value. He further noted that clients want knowledgeable and professional advisors, saying you can demonstrate those qualities through compliance.

He outlined several regulatory requirements to leverage, including continuing education — a common area of noncompliance. Stier suggested advisors tell clients about their enhanced skills and knowledge by including helpful information they’ve learned in newsletters or emails.

Errors and omissions insurance is also important from a client-service perspective. “We own it so that we protect [clients],” Stier said.

In particular, advisors may want to consider extended-reporting-period coverage on their own businesses or ones they’re considering buying, he said, because client complaints can arise years after a book has been transferred.

Stier discussed client disclosure — including potential and actual conflicts, compensation, complaint processes, referral agreements and services — as a way to build business value. Up-to-date, documented disclosure, consistently performed to show a pattern of behaviour, protects advisors during audits and demonstrates professionalism, he said.

Compensation transparency has been positive for his business. “It’s allowed me to discuss the DSC [deferred sales charge] transition much more effectively,” he said. Transparency “opens the door for [clients] to understand how we work and what our advice is worth.”

When he conducts financial needs analyses with clients, he outlines each of his lines of business and asks clients to sign off on each — a process that typically results in more client conversations, he said.

He also urged advisors to allocate adequate resources to cybersecurity to safeguard client data — another way to demonstrate professionalism. Also, when it comes to selling your business, proof of complying with anti-spam and do-not-call rules helps set the stage for the purchaser to serve your clients.

For independent advisors, complying with anti–money laundering and anti–terrorist financing legislation also shows they’ve done due diligence on their books of business, adding value when selling, Stier said.

He also reminded advisors to follow industry best practices, including proof of needs analysis, reason-why letters and contemporaneous notes. Such best practices are used by regulators to assess an advisor’s suitability for licensing, and by insurers and managing general agencies to assess ongoing suitability for contracting.

Further, “well-organized and well-papered client files and electronic documents provide assurance to a prospective buyer that you’ve run a professional and compliant practice,” he said.

Advisor.ca and sister publication Investment Executive were media sponsors of the IFB spring summit.