Requests for rule advice should follow command chain

Relationships between advisory firms and their regulators are built at the staff level, but it’s important the right staff do the communicating.

Ken Woodard, director of communication and membership services at the MFDA, said he encourages firms to pick up the phone and ask for further information, or clarification, about rules, and insists that if an answer isn’t readily available, research will be done and a timely answer provided. “Any opportunity we have to talk to you, we want to take,” he told last week’s Changing Channel: The Future of Mutual Fund Dealers symposium in Collingwood, Ont.

At the same time, however, he said the MFDA and other regulators are reluctant to answer questions from reps or approved persons. Instead, they prefer questions come from a firm’s compliance department or head office. The logic is simple, said Woodard: Many advisory firms have practice standards that go beyond what’s required by MFDA’s rules. And the last thing a regulator wants to do is make an end-run around the policies of a firm it’s charged with supervising.

Terry Ford, national compliance officer with Partners in Planning Financial Services in Regina, said such phone calls can make the firm and the rep look incompetent, and can even make the regulator worried about the state of compliance at the firm. “You don’t want the regulator asking if you have a training programme,” he said.

Woodard explained a lot of the inquiries he receives from reps are scenario-based. A person will describe a given set of circumstances and ask whether or not he’ll get dinged. The problem with that approach, noted Ken Parker, president of Generation Financial Corp. in Calgary and the former director, capital markets at the Alberta Securities Commission, is that the rep’s version of the scenario may differ from the compliance officer’s take on the same set of circumstances.

Parker noted he would sometimes get phone calls from compliance officers that asked for guidance on a scenario just slightly different from one that had been laid out by a rep in an earlier call. “It’s a bit like a game of broken telephone,” he said. The good news, according to Parker is that regulators understand the situation. “Every firm in this country is a little bit different and they’re smart enough to understand if you explain yourself,” he said.

And don’t take it personally if there’s an air of incredulity during the first minutes of the conversation. “The regulators spend their time with the wrongdoers,” said Parker, “and that makes them cynical.”

Filed by Philip Porado, Advisor.ca, Philip.Porado@advisor.rogers.com