Compliance: clients should do their homework

By Alain Thériault | August 26 2010 01:23PM

Compliance has become crucial, but offences persist despite steeper fines. Blank forms, clients' cheques made out to advisors and unwitnessed signatures are a widespread problem in the industry. By getting informed, clients could avoid dangerous situations, says an insurer that is poised to launch a campaign to boost client awareness.Jean Turcotte, Director, financial and estate planning at AXA Assurances, points out that forms left blank and unwitnessed signatures are commonplace in the industry. "Even if the intentions are good 95% of the time, these acts are unacceptable ethically," he says. Mr. Turcotte is a trained lawyer who has spoken at several compliance conferences.

These practices may seem minor and inconsequential. However, the code of ethics of the profession is unforgiving, whether an advisor's intentions are malicious or not. In a simulated process where an audience of over 200 advisors played the jury, Mr. Turcotte grilled a few volunteers about some dubious practices. "Many did not realize that they were making mistakes and tried to defend their practices in front of the jury," he recalls. Most advisors are unaware of certain provisions, he continues.

Clients' responsibilities

If these cases of stretching the rules seem harmless to many, it is because clients usually accept them to speed up the sales process. "Because it's not fraud, clients see nothing wrong with it. If they don't complain, these lapses may still come back to haunt them later, if there's another complaint," said Mr. Turcotte.

Bruno Michaud, Senior Vice-President, Administration and Sales at Industrial Alliance and President of the mutual fund subsidiary Investia Financial Services, wants to raise clients' awareness about their own responsibilities.In recent weeks, Industrial Alliance produced a pamphlet to raise awareness of compliance, which they attached to all client statements in the Investia network. If this first test run succeeds, the campaign will spread to all Industrial Alliance clients, Mr. Michaud says. One section of the pamphlet explicitly addressed to Investia clients contains the heading "Your responsibilities as an investor."

The insurer made this decision in May after holding a series of focus groups. "During these meetings, we thought about how to raise clients' awareness. We agreed that pamphlets would encourage clients to be cautious, and would remind advisors of the rules of the trade," Mr. Michaud explains.

There are three levels of responsibility in product distribution: the financial services firm's, the advisor's and the client's, Mr. Michaud adds. "The client is responsible for reading the information the supplier or firm sends."

One of the main pieces of advice that Industrial Alliance gives in its new pamphlet is that clients must not make cheques payable to the advisor, nor lend their advisor money. This happens surprisingly often, Mr. Michaud says.