How transparency-based compliance can help grow your business

The nature of regulation is that either you’ve experienced it or you likely will experience it. In the U.S., months and months of news, discussions and delays regarding the Department of Labor’s fiduciary rule (now partially in effect and set to become fully applicable January 1) has gradually made advisors recognize the importance of demonstrating how they act in the client’s best interest.

Frank W. Andreoli, RFC, a 29-year MDRT member from Markham, Ontario, Canada, has long made a habit of attending compliance- and ethics-related sessions and ensuring his staff accumulates continuing education hours on the topic. He makes frequent visits to his company’s compliance officer and about five years ago tasked one of his three staff members with serving as the local office’s compliance specialist on a day-to-day basis as they deal with life insurance, investment planning and employee benefits for affluent families and business owners.

“Even though there are some things you may not think are important, you need to know about them,” he said, noting employment standards and anti-money laundering laws as examples of regulations with which he must comply. He said he also anticipates regulation in Canada that will move advisors to fee-based practices, similar to the DOL rule. This follows the 2016 implementation of a rule requiring Canadian advisors to disclose all fees on investment products. “You don’t want to be behind on compliance; you want to be on top of it,” he added.

These are some other ways Andreoli has enabled his practice to thrive while complying with regulation:

— Privacy letter signed by clients. Implemented by Andreoli in advance of the letter becoming required under Canadian privacy laws in 2005, it explicitly identifies that the client’s information will be protected and with whom the advisor can or cannot discuss their file. This also addresses if discussions can take place via email, fax or otherwise, and the best phone number where the client can be reached. The client must initial and date this letter for record-keeping.

—  An advisor letter documenting the business. This shows clients what Andreoli’s practice does, what companies they work with, how they get compensated and rules about conflicts of interest.

—  Clear communication. Andreoli has developed a manual identifying the discovery process with a new client. This addresses risk, goals, tax efficiency and much more, showing clients they have choices and also what fees are involved in the service. Clients receive a clear understanding of what they are paying for and if/how Andreoli can save them money. “When we get a new client, it’s amazing how many say they had no idea about fees,” he said. On average this discovery process is spread across two to three interviews, some of them lasting up to three hours, so Andreoli makes sure to explain the process up front in case someone does not want to go through it.

—  Recognize and embrace change. For example, when Andreoli entered the business 29 years ago, cash was accepted as a payment. That is not the case anymore. Similarly, he said, if a referral comes in with a lot of money, there are many questions that need to be asked to address the source of that income.

—  Delegation. With only so many hours in the day, assigning tasks (like database updates and backups/encryption) to others allows you to be better at what you’re good at, Andreoli said.

The result of all of this transparency and organization is a different kind of clientele, Andreoli said. “Once the clients understand the process, I think they appreciate it more,” he said. “Clients see you run an ethical business.

“One of the big clients we got last year referred us to a family member, who also was a very big client. They loved the transparency and that everything was in black and white.”

Plus:

— Learn more about preparing for the rule with this regulatory change checklist

— Hear how advisors from the U.S., U.K. and Australia adapt to regulation in episodes one, two and three of our DOL-related podcast series

Written by Matt Pais, MDRT Content Specialist