Trust, Disclosure and Technology


How being transparent with your clients can help build stronger relationships

Over the course of the last decade, compliance requirements for advisors have increased significantly, which has created tension between the industry and regulators at times. However, the goals of all industry stakeholders might be more aligned than some believe.

According to the CFA Institute, “Transparency, particularly around fee disclosure and conflicts of interest, will need to improve if trust is to continue its upward trajectory.” The primary goal of most advisors is to expand their business by building trust with clients and prospects. Disclosure is a key tool in trust-building.

Most recent industry regulation has focused on increasing investor disclosure. The philosophy behind disclosure-based regulation is that properly informed investors can make their own determinations regarding whether the potential return of an investment is worth the risk.

Recent examples of new disclosure-based regulations include Point of Sale (POS3), which requires the delivery and disclosure of a Fund Fact document at or prior to the sale of an investment product, and the Client Relationship Model (CRM2), which focuses on disclosing the fees investors pay for financial advice.

The investment industry is now working on the implementation of the Client-Focused Reforms (CFRs), another disclosure-based regulation that encompasses know-your-client (KYC), know-your-product (KYP), suitability and conflicts of interest obligations.

In a recent Forbes article, Carol Kinsey Goman identified disclosure as being one of the five primary actions that will build or destroy trust: “Self-disclosure is one of the hallmarks of close relationships, the essence of personal candor and of trust in the other party. Showing your strengths is easy, but revealing your vulnerabilities, weaknesses, and failures feels risky. It may be a risk worth taking. Leaders who combine strength with vulnerability build team trust faster than any management ‘technique’ I’ve seen.”

When an advisor provides full disclosure on the fees that she is charging, the product features she is recommending and the alternatives to be considered, she is building trust with her client. While some advisors may be reluctant to share this information, the research lessons from Goman and others is important to remember – full transparency, including revealing your vulnerabilities, builds trust.

If disclosure is an important part of building client trust, how is it best achieved? Given the vast amounts of data associated with product disclosure, technology solutions are required.

With over 60,000 Fund Facts available in Canada and millions of investment fund recommendations each year, timely and accurate disclosure at the point of sale requires a strong technology platform. The pending KYP disclosure changes that will be part of the CFRs create another significant data management challenge.

Considering that there are up to 2,000 investment product changes weekly with dealer product shelves that include over 25,000 products, the new disclosure obligation of monitoring these product changes becomes an impossible human task. We are working with our clients to develop technology solutions that automate this complex process, enabling advisors to meet these new disclosure demands in a compliant manner.

Embracing disclosure will increase trust in your client relationships — and embracing technology will enable accurate and timely disclosure.

By: David Reeve March 20, 2020
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