There are increased concerns among advisors about what products are receiving the RI or ESG label.Rawpixel/iStockPhoto / Getty Images
The end of 2021 marks more significant changes in the financial services industry with the implementation of the bulk of the client-focused reforms (CFRs).
These new rules will introduce enhanced know-your-product (KYP), know-your-client, and suitability requirements to which dealer firms and advisors must adhere. Yet, these reforms are not the only changes that advisors and their firms are focusing on.
From demographic changes to the rise of responsible investing (RI) and the hot housing market, these themes, and various others, made an impact in 2021 and will continue to do so in the year ahead.
Here are 10 articles on key trends advisors and the investment industry need to keep an eye on:
Why the investment industry should prepare for more rigorous regulations
Investment industry firms and advisors need to be working proactively on updating their client relationship policies and procedures in order to stay on top of anticipated future changes beyond the new CFRs set to take effect later this year. However, the CFRs don’t include several other proposals that have been discussed in recent years, such as a more rigorous KYP and investment suitability processes and restrictions on referral arrangements, which many industry players believe are coming.
New accreditation may lead to growth in use of the ‘Smith Manoeuvre’
The “Smith Manoeuvre” has been a niche strategy in Canada’s investment industry for decades, but a new training program and accreditation seek to professionalize the leveraged approach and, in turn, increase the number of financial advisors offering it to clients. Launched last year, the Smith Manoeuvre certified professional (SMCP) accreditation program aims to train not only advisors but also mortgage brokers, accountants, and other financial professionals who often help their clients use the approach of transforming non-tax-deductible mortgage debt into a tax-deductible investment loan.
Changing nature of financial advice could lead to rise of paraplanners
The increasing focus on holistic financial advice and financial planning in Canada’s financial services industry may lead to increasing demand for paraplanners – especially among those who bring an advanced skill set to the table. Paraplanning often involves the non-client-facing, data-driven aspects of a financial plan, and services range from providing more administrative tasks to the development of complex financial plans. It’s also an established service in the advisory space in places like Britain and the U.S.
Why advisors and investors need to take growing concerns of ‘greenwashing’ seriously
The skyrocketing interest in RI is posing a challenge for advisors: How to find the right investments for their clients while avoiding the growing concern of “greenwashing” that could backfire on results and harm their reputations. There are increased concerns about what products are receiving the RI or ESG label, along with the rising number of products on the market. Tariq Fancy, former chief investment officer of sustainable investing at BlackRock Inc., wrote recently that RI “boils down to little more than marketing hype, [public relations] spin and disingenuous promises from the investment community.”
What Canada can learn from the fallout of Britain’s financial services overhaul
As Canada embarks on yet another round of changes with the introduction of CFRs later this year, Britain still finds itself grappling with the fallout of its much more aggressive overhaul, the Retail Distribution Review, which took effect on Dec. 31, 2012. Britain’s regulators introduced sweeping reforms for the investment industry eight years ago, including banning all commissions, yet they still are working toward finding the right balance between ensuring investors receive high-quality advice that’s available to all and that the industry itself is healthy.
A different perspective on Canada’s aging advisory industry
The aging financial advisory workforce in Canada and the need to shift to a younger demographic have been concerns in the industry for about a decade. A 2019 survey of 2,000 members of Advocis, the Financial Advisors Association of Canada, found that 51 per cent of advisors were 55 years of age and older. More than half of those surveyed had been working in the industry for more than 20 years. Is that a bad thing? Older advisors say they bring skills that fit well with the future of the sector, benefiting clients and younger team members alike.
Do regulators need to prioritize negligence over fraud?
Investment industry regulators are focusing too much on trying to protect investors from fraudsters and not enough on shielding them from the more widespread problem of advisor negligence. While fraud awareness is important, so too is advisor negligence, says outspoken investor advocate Harold Geller, a lawyer at MBC Law Professional Corp. in Ottawa. That includes everything from advisors failing to know their clients’ needs and providing unsuitable recommendations to unauthorized trading or misleading a client with false information.
What needs to be done to bring more women into the investment industry?
Although the investment industry has shifted toward holistic, relationship-focused financial advice, there’s one thing that hasn’t changed: the proportion of advisors who are women remains stubbornly low, at about one in four in Canada. That’s not because firms haven’t been trying to attract more female advisors, say Judy Paradi and Paulette Filion, partners at StrategyMarketing.ca in Toronto. While they emphasize that there have been concerted efforts among financial services executives to encourage women to enter the profession, the challenge, Ms. Paradi says, is that “the branches are still predominantly run by men, who do the hiring – [and] people hire in their own image.”
Will raising standards for advisors be a double-edged sword?
Although measures imposed in Britain to raise educational requirements for financial advisors have resulted in investors who are better served, they have also contributed to a continuing shortage of advisors that has made advice harder to access for many investors who are less affluent. With some Canadian provinces embarking on similar reforms, what lessons can the financial services industry in this country take from Britain’s experience?
Retail trading phenomenon putting advisors in a tough spot
Investors have been encouraged to jump in on trends such as meme stocks, bitcoin and cannabis thanks to the advent of no-commission, “gamified” trading platforms; an onslaught of easily accessible market information; and boredom resulting from being stuck at home during the COVID-19 pandemic, says Bryce Sanders, president of New Hope, Penn.-based Perceptive Business Solutions Inc., which coaches advisors on how to attract high-net-worth clients. That can put advisors in a tough spot as clients ask how they can get in on the action, he says.