Survey Results: Investment Dealer Challenges
Did you know that during a survey of mutual funds done in 2019, it was discovered that over a five-week period, there was an average of 2,000 changes a week to the attribute data of mutual funds? And a recent review of Canadian investment dealers revealed that as a result, dealers have a challenge in monitoring the ever-changing landscape of investment products on their shelf. While each dealer had their own focus, there were some recurring themes that emerged during the study.
Staying on top of the regulations
With the recent introduction of Client Focused Reforms (CFR), dealers are realizing that they need to step up their game to stay ahead of the regulators. It is no longer good enough to understand the various high-level categories of funds. With CFR, you now need to know current details of the investment product, including the fees and suitability factors associated with the investment. And when choosing products for their customers, the advisors need to be able to demonstrate that the specific product meets the suitability requirements for their clients, based on current Know Your Customer (KYC) indicators.
Showing your work during an audit
Simply choosing the right investment products for a client is not good enough. With CFR you must be able to demonstrate the suitability, comparing the product to other alternative products on the shelf. At all times, it is important to have this information. As one CEO and President of a large Ontario-based mutual fund company told us, they need to be “audit ready”. Oh yes, and if during an audit, you have audit requirements, you need to quickly react and remedy your processes to respond to these requirements in a timely manner.
Keeping their back-office up-to-date
Across back-office systems, there are numerous situations where the attributes of an investment product become out-of-date. It is important that the back-office system has the latest details on an investment, and that this information is used in interactions with customers and prospects. The issues with currency are based on availability of changes, location of the back-office system (on premise or in the cloud), and the ease of loading the changed data into the system.
Getting the information from the fund companies
Many dealers are on the distribution lists for update information from fund companies. But the fund companies do not always send the information in an efficient manner for the dealer. For the updates, there are variations in:
- The time when they are sent
- The format of the updates
- The ease of transfer to a system readable format.
With these variations, it can take a long time to get the updated information into the back-office system, allowing advisors have access to use the correct information in compliance related decisions.
It all comes down to reputation
The reputation of the dealer is key to their recruitment of advisors, and their ability to retain high value investors and their portfolios. If the information is out of date, causing potential mistakes in compliance and integrity of the advisor, the dealer and their reputation is suspect.
In January, InvestorCOM release surveillance software that monitors the changes to investment products and sends alerts to the dealers. ShelfMonitor for Dealers is innovative software that helps dealers be more compliant and improve operational efficiencies. In my next blog, I will describe this innovative software, and its benefits to dealers.
Steve is the Director of Product Management at InvestorCOM. Steve has been a product manager with financial services software firms for over 20 years, helping his customers by defining and delivering software products that improve business efficiency, and allow them to achieve their business goals.
Tags: audit requirements, client focused reforms, compliance software, investment dealers, kyc, kyp, mutual fund, regtech