How to comply with regulators’ guidance on awards

Award-winning advisors should consider scrubbing their online profiles of related entries and celebratory posts, a lawyer suggests, even if regulators may show mercy in their first year of enforcing policies related to referencing awards based on sales, assets under management or revenue generation during client-facing interactions.

“From my conversations with dealers, a small percentage of advisors participate in award contests generally, so I don’t think it’s going to have an outsized impact. I think it’s manageable from a training and compliance standpoint,” said Matthew Latimer, executive director of the Federation of Mutual Fund Dealers, referring to the Canadian Securities Administrators’ (CSA) and the Canadian Investment Regulatory Organization’s (CIRO) recent warning.

Nonetheless, “it’s good that the regulators gave us a heads up in front of our audits so that dealers have an opportunity to get ahead of these potential deficiencies,” Latimer said, adding that he hopes the regulators will be more “understanding and accommodative in the first year.”

Noah Billick, partner and director of regulatory, funds and compliance with Renno & Co., a law firm based in Montreal, said that hope is likely to be realized.

“I only see [award promotion] being an enforcement issue if it’s part of a larger pattern of non-compliance,” Billick said, such as an advisor using their award to gain clients and then take advantage of them in some way. “I think at first, you’re going to get a warning.”

Nonetheless, “my advice would be to take it down,” said Billick, who has previously worked as a financial advisor and chief compliance officer.

The warning also applies to displaying awards in offices, mentioning them in client emails, speaking about awards to clients and referencing awards in media interviews.

Latimer said he hopes any regulatory activity related to this file will be “rolled out in a consistent and harmonized manner across all registrants, to maintain a level playing field as we [continue] to work with our new harmonized SRO.”

Advisors who are only licensed to sell life insurance, however, have not received similar communications about awards and recognition from provincial insurance regulators. In response to a question from Advisor.ca as to whether the Canadian Council for Insurance Regulators would be issuing similar guidance concerning awards, the CCIR reiterated its requirements surrounding the fair treatment of customers and placing customer interests ahead of the advisor’s own.

A joint publication from the Canadian Insurance Services Regulatory Organizations and the CCIR acknowledges that “recognition programs that are designed to increase sales volumes” may “increase the risk of unfair outcomes to customers,” but does not explicitly prohibit referencing them in client-facing interactions.

Joining the President’s Club

Registrants scouring their social media profiles may also want to look for celebratory posts about becoming members of their firm’s “President’s Club” — a club that often requires hitting revenue or AUM goals.

According to the CSA, such posts violate National Instrument 31-103.

“[W]e have specifically stated that if, for example, membership in a registered firm’s ‘President’s Club’ is based partly or entirely on a registered individual’s sales activity or revenue generation, the registered individual who interacts with clients must not use that recognition or award,” stated Ilana Kelemen, senior strategic advisor with the CSA, in an email.

The statement was added to the companion policy to NI 31-103 in June 2022.

“The guidance is quite clear that if there is a sales or revenue component, you can’t promote it,” Billick said. “What I think the dealers will do is find some way to separate [recognition] from those things.”

Latimer said he’s sympathetic to the need for dealer firms to motivate their employees, but stresses that motivation must be done compliantly.

“Members participating in a business should be able to retain recognition and incentive programs for these businesses,” as long as they are fair and justifiable, Latimer said. He added that including revenue generation as a criterion can make sense, as long as the program is “separate, distinct and behind closed doors from clients, where the tailored and professional advice clients need to receive should not be influenced by those factors.”

An industry practitioner in the compliance space with an Ontario-based mutual fund dealer said he agrees with the policy on President’s Clubs, noting that clients often confer more prestige to a title like “president” than may be justified. (Advisor.ca granted anonymity to the practitioner so they could speak without fear of reprisal.)

Billick added that publicizing membership in an organization or association that requires a certain level of production to gain entry — even if it’s not technically an award — could be non-compliant.

However, joining these associations represents “an accomplishment that you have reached a certain level of production,” the compliance practitioner said, lamenting that advisors are losing an opportunity to showcase a hard-earned achievement. “The disconnect is the regulators may be tying [the association membership] to productivity. But achievement and productivity are two different things.”

The practitioner conceded, however, that many clients will simply see the prestigious-sounding name of the association and not ask for the requirements for joining, which could potentially lead to misconceptions.

Billick believes that awards focused on client satisfaction, outcomes and expertise can thrive, pointing out that the law profession has long-running, prestigious awards of this nature that don’t include revenue as a criterion.

But he said the recent guidance from regulators points to a wider push to eliminate what the CSA and CIRO see as conflicts of interest.

“I think regulators are uncomfortable with the idea of how much money advisors make and the way advisors are compensated,” Billick said. “I think regulators would be more comfortable with a model that disincentivized some of the more aggressive sales things that advisors do.”

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.