CRM2 and the Art of the Conversation: Practice, Practice, Practice!
Posted on October 26th, 2015

by Cameron O. Anderson

When the Client Relationship Model – Phase 2 (CRM2) comes into effect in July 2016, it will greatly increase the transparency between advisor and client, especially around fees.  This is going to lead to a lot of tough client conversations and will vastly increase the need for excellent communication skills from advisors.

There are some excellent training and consulting firms working with advisors in Canada to help them better understand and manage CRM2 regulations. These firms supply value-added services: everything from providing reporting templates, to supplying e-learning to traditional, instructor led training in positioning the value of advisor fees. However the impact and effectiveness of these companies would be substantially increased if the advisors were given the opportunity to engage in realistic, scenario-based CRM2 conversations. The opportunity to practice answers to the tough questions and objections their clients are sure to ask would equip advisors to avoid the worrying business repercussions that are predicted.

What is CRM2? CRM2 amendments came into effect on July 15, 2013 and are being phased-in over a three-year period. These amendments introduce new requirements for reporting the costs and performance of investments to clients, as well as the content of their accounts. The requirements apply to dealers and advisors in all categories of registration, with some application to IFMs as well. For more information about these amendments, see CSA Notice of Amendments to NI 31-103 and to 31-103CP (Cost Disclosure, Performance Reporting and Client Statements) On December 31, 2015 (delayed from July 15, 2015 at the request of the industry), expanded account statement requirements will be implemented. These include requirements to provide cost information and to determine market values using a prescribed methodology for most securities owned by clients, including those held in a client’s name. Beginning July 15, 2016, registered firms will need to:

  • provide an annual report on charges and other compensation that shows, in dollars, what the dealer or advisor was paid for the products and services it provided; and
  • provide an annual investment performance report that covers
    • deposits into, and withdrawals from, the client’s account;
    • the change in value of the account; and
    • the percentage returns for the previous year; and the previous three, five and ten years.

IIROC and MFDA member rules will be materially harmonized with the CSA’s CRM2 requirements and will be implemented on the same schedule. So What’s the Problem? While increased transparency offers many opportunities for great client-advisor conversations, there can be serious repercussions if advisors are not prepared to skillfully answer the inevitable questions. Canada is not the first country to experience increased transparency in regulations: the experience in the UK and Australia helps us foresee the difficult questions our advisors are destined to receive. Questions such as:

  • Are Exchange Traded Funds a good solution for me?
  • What fees do you charge me, expressed in dollars and as a percentage of my portfolio?
  • What commissions and/or trailer fees do you collect from third parties, expressed in the same terms?
  • What differentiates you from other advisors? Other firms?
  • I didn’t know I was paying you so much. Why are you worth the money I am paying?
  • What is the difference between money-weighted and time-weighted returns and why did you choose the one you chose?

And these are just a few of the challenging conversations that are ahead for advisors! Click on this link to see a concise overview of some difficult client questions: What happens if advisors aren’t prepared? Inadequate preparation will impact business results. This has been borne out by UK and Australian experience. Potential ramifications are:

  • Loss of clients and Assets Under Administration (current defection rate in Canada is about 10%; this rate is expected to rise to over 20% after CRM2 is fully implemented)
  • Increased client dissatisfaction
  • Increased client complaints
  • Migration toward lower cost products, such as ETFs (in Australia the use of ETFs almost doubled after similar regulations were implemented)
  • Increase in robo-advisor and online brokerage accounts being opened

What can I do as an advisor to ensure I am ready for these client conversations? It is clear that some advisors are concerned about their ability to explain CRM2, especially since many clients are confused by industry jargon already. Proper CRM2 preparation must include robust telephone or live practice with trained roleplay professionals. Instructor or peer led roleplay is limited in its ability to engender the confidence needed to excel at these difficult conversations. A scripted list of CRM2 FAQs simply can’t anticipate the many possible client reactions/objections that come from lack of understanding: anger, confusion, mistrust, and/or avoidance. Also, silently reading a list of FAQs at your desk is not at all the same skill set as actually dealing with an irate client sitting in front of you or on the telephone. It’s these emotional reactions that lead to defection. And don’t forget the person who will almost certainly receive the first client call about their new statement: the advisor’s assistant! Practicing that call as an advisor or as an assistant may be the difference between client retention and a client looking for a new advisor or platform. That’s why we say, practice with us, not your clients!

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