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November 2, 2018

Client-focused reforms may end up confusing clients

1 min read

"The regulators are creating an incredibly complicated environment,
and I'm not sure the proposals would help investors understand
the things they need to understand."
Susan Silma, Practice Leader, Client & Industry Strategy at PureFacts Financial Solutions

Susan Silma was one of three panelists at a recent Morningstar Executive Forum in Toronto discussing the new client-focused reforms. The proposals revolve around a wide variety of specific reforms, including Know Your Client (KYC), Know Your Product (KYP), conflicts of interest, suitability and disclosure.

Silma pointed out that there are logistical challenges to implementing many of the proposals. For example, while she feels that the "substance" of KYC and KYP is important, there is a danger of "getting tied up into knots by too much paperwork and the compliance process."

She added that disclosure to clients runs the risk of becoming overly complex, and that the industry must get away from disclaimers to cover every possibility and concentrate on key concepts. Even with a focus on plain language, "giving the client 40 pages of plain language to read isn't helpful," she said.

Silma reinforced her point by saying, "Learning everything about financial products is not high on many clients' lists. They'd rather spend their time researching a better plan for their cell phones. We need to understand what are the key pieces of information the client needs, and present those in a way the client can understand, at the right point in time."

“If we can get to a place where we can focus on the substance and
not just the administrative box-ticking … the client will be better off."

Susan Silma

Moderated by Michael Keaveney, director of investment management at Morningstar Associates Inc., the panel also included Carol Lynde, president and chief operating officer of Bridgehouse Asset Managers and Greg Pollock, president and chief executive officer of the Financial Advisors Association of Canada (Advocis).

The intention of the proposed reforms is to raise the bar for advisor conduct and improve the client experience. However, the panellists suggested that there could be unintended consequences, such as information overload for clients, higher costs, limited product shelves at firms, and less innovation in the industry.

Excerpted from the Morningstar article by Jade Hemeon