In today’s episode, Jason and Guest Parham Nasseri is going to discuss a bit different subject. They are going to talk about the implementation of something known as client-focused reforms. This is one of the biggest series of regulatory changes to happen in the investment industry in Canadian history. While the average consumer may not really have an understanding for what’s going to happen or know what was going to change for them. These reforms will change the way your advisor has to operate and actually interact with you.
Episode Highlights:
- 1.44: Parham Nasseri worked for a company called investorcom, this company is around since 1992. Fundamentally their RMO in the market is to help wealth advisors comply with regulations.
- 02.00: Jason asks Parham, “Tell us about the client-focused reforms; what is this and where did it come from and what’s to try to accomplish?”
- 03.10: “Western world modern sort of economies that have a Securities Act and awaited sort of capital markets from around the world they have been trying to increase their attention on reforms that improves investor protection,” says Parham.
- 04.00: Parham suggests, let’s move forward from just the plain disclosure model and ensure and mandate specific regulations that required investment advisors and wealth management firms to act in their client’s best interest.
- 04.45: Talking about the imperfections, Parham says regulators aren’t trying to clean up every single run that’s going on in the industry; but what they are trying to do is raise the bar and say - how can we ensure or mandate that the advisor has to act in their clients’ best interests?
- 07.35: As per Parham, there will always be challenges in the industry and the consumer advocates or investor advocates, and that world is never going to be 100% perfect.
- 08.21: Parham explains before you make a recommendation for a client, not only does it have to be suitable, but it also actually has to be in their best interest and are qualified in a principled manner.
- 09.30: Jason says,” The entire industry is based on client trust; it is 100%; without trust, the entire financial history doesn’t exist.”
- 10:20: In the industry, there’s a delineation between what is truly a financial professional who’s out there trying to act in your best interest, quote-unquote, traditionary versus someone who’s out there just Selling products, says Parham.
- 12.05: Parham says, post-December of 2021, there is going to be an added level of pressure on firms to act in a more align manner to their clients.
- 14.00: Jason says, “Risk tolerance according to academia is your ability or your personality around risk. How much are you willing to tolerate risk? But that’s a kind of a personality trait, typically measured by psychometric profiling questionnaires, which most industry uses absolute garbage questionnaires developed by their marketing department and don’t even aren’t even truly calculated properly. But there’s a number of really good and another expanding number of third-party tools that are tested rigorously in academia.”
- 14.31: Jason inquires, “Without a financial plan testing for someone’s ability to absorb the loss, how is it possible to measure capacity?”
- 15.20: Jason says, “What is it called wages and our risk profile? How often is that going to be expected to be updated under other new CFCF rules?”
- 17.00: Jason says, “You all are going to get your financial advisor calling you and saying, hey, tell me what has changed? Tell me what is going on. Tell me about your total assets to liabilities. You’re going to feel like that’s a little bit. The infringement of your privacy or why is this person asking me this again and again, but again the intention behind the regulation is for the financial advisor who is giving you investment recommendations for them to truly know, how your circumstances have changed?”
- 19.00: Parham recommends, “As a consumer, you should expect your client advisor to be bugging you more for this information on a regular basis. If they’re not and they’re just leaving, you know there is nothing being updated. They’re not living up to their recommended requirements.”
- 20.10: Parham says, “KYP stands for knowing your product as per the new obligations a firm that you’re dealing with the financial institution working with has some process in place. The individual financial professional has to do some additional diligence around the products that they are making that they are recommending for you in your portfolio. Fundamentally, think about this KYP piece as this gatekeeper function. Under the days where a financial advisor can recommend the product to a client to an investor without the firm knowing what the heck that product is all about, how that product change is that product is in my client’s best interest.”
- 22.09: Jason says, “The second I read the reform I thought to myself, well, this is going to lead several institutions to basically block anything but proprietary products.”
- 25.44: Parham and Jason discuss of digitization of processes. They also give detailed insight on the gatekeeping process.
- 30.07: Parham affirms,” Regulators are now going to firms and saying show me your process for considering a reasonable range of alternatives.”
- 32.40: Parham says suitability is fundamentally a matching exercise. If your investments are at high risk, then register for it. It is like Lego pieces coming together.
- 35.39: Jason reiterates, “The reality is where is the thought process methodology? How often should you be able to get all those answers? And frankly, I would encourage any advisor listening to this to get ahead of this and document that for yourself in the next couple of months.”
3 Key Points:
- Jason and Parham will talk about the implementation of one of the biggest regulatory changes that will happen in the investment industry in Canadian history.
- Jason asks Parham to share his views on the major tentpoles to the client-focused reform.
- Gatekeeping functions, KYP process are fundamentally good, and it is going to have a long-term benefit to clients, says Parham
Tweetable Quotes:
- “There is always this one world that is ever-expanding in this universe, or one part of the financial industry is ever expanding in this universe – It is compliance.” – Jason
- “The client-focused reforms specifically have to be implemented by the end of this year whoever is thinking about them.” - Parham
- “I am a big believer that financial advisors and planners should have a fiduciary responsibility to their clients.” – Jason
- “The majority of the industry is salespeople; they do not want to be called salespeople, and they want to have the auspice of being a professional.” – Jason
- “Capacity is one’s ability to absorb risks.” – Jason
- “Most financial professionals are going to have or should have a good idea of what time series ability and willingness to take the risk.” - Parham
- “Suitability is fundamentally a matching exercise.” – Parham
Resources Mentioned
Full Transcript
Hosted on Acast. See acast.com/privacy for more information.