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Compliance, clients to drive new tech

Investment Executive | Greg Dalgetty | Jan 31, 2020

regtech - Compliance, clients to drive new techFirms also can use technology to facilitate client onboarding and to make client reporting more engaging and interactive

The Canadian Securities Administrators’ (CSA) revised client-focused reforms (CFRs), published last November, could give financial advisory firms a kick in the pants when it comes to implementing new technology.

That’s because the CFRs, which will be fully implemented by the end of 2021, have introduced new know-your-product (KYP) requirements that mean financial advisors must “take reasonable steps to understand the securities that they purchase, sell or recommend to a client,” according to the CSA.

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This requirement may prove especially challenging for firms that have large product shelves, says David Reeve, CEO of Toronto-based InvestorCOM Inc., a firm that provides fintech solutions to investment dealers and asset managers. KYP is one area in which technology tools can help firms and advisors remain compliant.

“One of our clients has 50,000 products on their shelf,” Reeve says. “With the new client-focused reforms, if you have 50,000 products on your shelf, the regulators are going to expect you to keep track of any changes to those products.”

InvestorCOM’s research found that there was an average of 2,000 changes per week to the 50,000 products in question during the first month of 2019. Keeping up with that many changes on a weekly basis is “simply not a human task,” Reeve says.

“As products get more complex and change more rapidly, no human brain can process all of that, so it becomes a necessity to arm yourself with the right technology to support your clients,” Reeve adds.

To that end, InvestorCOM offers a subscription service that allows firms to separate material product changes from non-material ones. “You might not care about a 20-basis-point [management expense ratio (MER)] change,” Reeve says, “but you do care about a change from a medium to a medium-to-high risk rating.”

Other fintech providers offer tools designed to help you comply with new KYP requirements. Toronto-based Pascal Financial is launching a wealth- management platform in March that will alert you when it detects product changes.

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“Our engine automatically evaluates portfolios and triggers an alert to advisors when product conditions change, such as a risk rating or MER,” Yves Rebetez, chief investment officer of Pascal Financial, stated in an email to Investment Executive.

New compliance obligations are only one of the factors that will drive tech adoption in 2020. Technology also can enhance the ways you interact with your clients.

For example, Reeve says, as millennials begin to control more wealth, using technology to onboard them as clients becomes increasingly important.

“If you’re not leveraging technology to onboard clients, you’re going to miss out on a large segment of the population,” Reeve says.

“Why would you use paper, a courier and ‘wet’ signatures?”

(Regulators are on board with e-signatures: in March 2019, the Investment Industry Regulatory Organization of Canada provided updated guidance about electronic signature use.)

Firms also can use technology to make client reporting “more engaging and interactive,” Reeve says. For example, rather than simply giving a client an account statement as a PDF, an interactive dashboard can let them see how their portfolio could grow if they were to adjust their saving habits.

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