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Referral arrangements must be disclosed to clients

By Susan Yellin | November 20 2019 02:35PM

Photo: Freepik

Financial advisors who want to have approved business relationships with other professionals have to do more than just disclose these connections to their clients, an FP Canada conflicts-of-interest breakfast was told Nov. 20.

Karen McGuinness, senior vice president, Member Regulation, Compliance with the MFDA, said advisors need to tell both current and prospective clients about the referral as well as the fee referral arrangement they have with that professional.

On top of that, said McGuinness, advisors need to make sure the person they are referring a client to has the actual qualifications to provide the services requested.

“I think key in any referral arrangement is understanding the qualifications of the party you are referring to, but that should also suggest to you that that’s not a one-time analysis.”

Advisors should also determine if any potential conflicts arise and make sure there are no new potential conflicts in the offing. As well, clients must be informed of any new potential or actual conflicts in writing.

Vulnerable investors

Potential conflicts of interest can also arise when vulnerable investors are involved, said Irene Winel, senior vice president, Member Regulation and Strategy at IIROC. The conflicts usually occur between a couple when one of them is a senior or has diminished capacity.

But Winel said this is where financial advisors can show their individual worth and the value they bring to the table.

“That’s the value-add that an advisor brings to this situation – the interaction and the questioning of the parties to determine…if conflict is manageable,” said Winel. “It’s an area outside of securities regulations where additional training [comes into play]. We’re seeing that with our advisors. They have now learned some of the softer skills.”

Winel said advisors who can manage a conflict shouldn’t think of it as a one-time event. She said advisors need to talk to the couple frequently to make sure they have covered all the bases and taken meticulous notes. “You want to be very careful to protect yourself and your firm.”

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