The Importance of Being Compliant

The Importance of Being Compliant

Compliance is an integral part of any good financial firm. Why is it good for clients, potential clients, and the company? Compliance is there to ensure that we follow the rules and laws of the province and the county.
Join us today as Financial Advisors Rob McClelland and Mike Connon take a deep dive into the importance of being compliant.



Rob (00:00):

Hello, this is Rob and Mike from The McClelland Financial Group of Assante Capital Management, and this is Think Smart with TMFG.


Today on Think Smart with TMFG, Mike and I are going to be discussing our compliance department. Mike, I thought, you and I have over the last few months hit a couple of roadblocks in terms of compliance, and rightly so. There have been some comments or suggestions we’ve made in our podcast that we’ve had to pull back on. Nothing that ever made it to the airways because it was pulled back.

Mike (00:40):

Sometimes you have to be a little bit more careful when you’re speaking to a number of people rather than speaking to an individual because, to be honest, we don’t know who’s listening to this podcast. Every month, we get how many people are listening but we don’t know what their situations are. So you have to be very careful when you give information. It has to be more of a general nature and not as specific.

Rob (01:01):

We’ve been doing this podcast for coming up to almost four years now and at no point have we actually discussed our compliance department. So I thought it might be interesting to do a little bit of an overview about what does the compliance department do at a financial firm such as Assante. What is their role?

Mike (01:23):

So what’s the main role, Rob?

Rob (01:25):

Well, the primary role of the compliance department, I view it as twofold. From the client’s point of view, it’s 100% to protect the client. That’s their primary job. As the advisor, I always like to think of it’s to keep Assante’s name so that it’s never at the front of the newspaper because of something that went wrong on the compliance side.

Mike (01:52):

To be honest, you’re very thankful to have a strong compliance department because that means your firm is going to have a relatively good reputation. You don’t want to work for a firm with a weak compliance department. It doesn’t look good on anyone. We want to work for a firm that’s held up in the top echelon of all Canadian firms and Assante’s done a very good job of that over the years, and we’ve been pretty happy with it.

Rob (02:16):

Over 30 years, I’ve never had to wake up to us being front page news, and that’s a good thing. At the same time, as an advisor and branch manager and business owner, at times your compliance department feels like you’re having to do a lot of work for them. And so I thought today, let’s do a deeper dive and what is some of that work that they do and some of that work that they force us to do, and why is that good for the client and good for the industry?


So we talked about protecting the client is the big thing. Number two is to make sure the company and its advisors are following the rules of the province and of the country, and that’s extremely important.

Mike (03:04):

It’s different different provinces. Quebec has very different rules than Ontario.

Rob (03:07):

In fact, Quebec tends to be a little more strict, their rules, and I have a fellow advisor who I communicate with regularly. He’s in Montreal. The rules that they have to play by are extremely different. They’re if anything, much more compliant. They have stricter rules that just don’t exist in the province of Ontario.


And imagine when you’re the head office compliance department, you’ve got to not only follow all the rules of what each advisor’s doing but what’s going on in each province and what are the rules and how does that relate.


Another piece that they play a role in is communications, and we’ll touch more on that in a minute, but just think of communications to clients specifically and to the market in general.


Client complaints. If a client has a concern about something, whether it’s an investment selection, an investment portfolio, a stock trade, whatever may have been done, if there’s a concern, maybe it’s a concern with the advisor, that goes through the compliance department.


And finally, making sure that everyone has the right license and following the rules of those licenses and making sure that you’ve got investor protection and all those things put in place.

Mike (04:31):

And there’s probably a lot more than we’re just saying here that goes on behind the scene that we’re not even thinking of right now too.

Rob (04:37):

We’re really just exploring stuff that we come into contact with as advisors and therefore most of our clients come into some contact with. So let’s start with maybe communication. So we’ve been doing this podcast, we’ve now had over 20,000 downloads. We’re approaching our 200th podcast and we produce the podcast. It then goes to our compliance department for approval. Why is that important, Mike?

Mike (05:09):

Well, when you give the numbers like 20,000, 20,000 people listen to our podcasts, you got to make sure they’re not saying that goes against what the company values are. They have to have a message that’s correct and you can’t just go making wild predictions about what’s going to go on. It can cause people to react on that and that can cause harm.

Rob (05:32):

With predictions, I always think of the word guarantee. We’re not to use the word guarantee with any of our investments because as we know, nothing is guaranteed, especially when it comes to the future. So that’s an important role.


What about the videos that our team puts out? Carlo and John put out a weekly video.

Mike (05:54):

We have asked TMFG videos that come out, and another thing that compliance does is as well as make sure communication’s in the right direction they also make sure that the communication’s fact checked. We will always be asked to provide backup for any facts we list on a video or a podcast and make sure people aren’t just making up numbers.

Rob (06:15):

The same applies to newsletters. All of our newsletters have to go through that compliance filter. Anytime we’re doing a presentation, they want to see a copy of the presentation before we actually present the information and sometimes that creates work. It creates work for certainly our marketing team. Sometimes there’s a lot of back and forth. We have to remove some things and all of those are a frustration for the advisor but they’re a good thing for the client and they’re a good thing for the industry.

Mike (06:45):

In our office, we can always write an email to a client that would be private and confidential between us when we go through emails, but if we start writing to multiple clients at a time any type of email, bulk or whatever it would be, at that time, we have to run that through compliance so they can take a look and make sure the message is okay.

Rob (07:03):

What about social media? That’s obviously something that didn’t exist really 10, 15 years ago and now is everywhere. I mean, you walk down the street and everyone’s just looking at their phone and you know nine out of ten times they’re on social media.

Mike (07:18):

Difficult thing for compliance. Social media has been a tough thing for compliance to deal with over the last several years because at least when we used to send letters to people, or newsletters, we could say who we’re sending the newsletters to. We used to know who we sent them out to. Social media is to everyone.


So what we talked about before, that the message may not apply to the person, you never know who’s picking up or what country they’re picking up their social media. And so you can say something over here that makes no sense for someone else in a different area or in a different financial situation and you got to be very careful with that.

Rob (07:53):

An example could be that if I said some things about other advisors. That can be broadcast across the country, across the world. So a compliance department wants to make sure that sort of thing doesn’t happen and it may seem a little strict, but I think it’s a good thing.

Mike (08:11):

The other problem too is with social media, there’s new platforms being introduced every day. I mean, first of all, we had Facebook, then all of a sudden you have Instagram and now we have TikTok. And TikTok has yet to be, I don’t think it’s been approved by our compliance department, but they have to understand it fully before they can just approve it. You can’t just take this new social media platform that comes out and say, “Okay, this is fine because it’s social media.” You have to go into details and find out what harm could be done by that.

Rob (08:39):

So think of all that work involved and The McClelland Financial Group, we are on most of those social media platforms except for TikTok, but they’ve all got to be monitored. Someone’s got to be looking at all of our posts and things like that to make sure they fit the bill as being compliant. So that’s a lot of responsibility just looking after advisor communication, corporate communication, et cetera.


Talk about, Mike, the trading side. What are they trying to do there and how are they trying to protect the client? What is the compliance role there?

Mike (09:17):

Well, the number one rule we have as advisors is called know your client and that means we should know everything about our client. Before we give any type of advice, we should fully understand their situation. So what they do is they monitor that. They make sure that we do know our clients and they make sure we update the information on a regular basis whenever there’s changes in client situations.


When you come into our office over the next period of time, you’re going to have forms to fill out. We hate filling out forms too, trust me, it is not our favorite thing to come and have you sign forms, but it’s really to make sure we’re looking at your situation, looking at any changes that have happened in your situation. That way our investment advice is going to be appropriate for your own personal situation.

Rob (09:54):

It’s interesting looking at, I’ve been at this over 30 years, and the difference that has happened in the compliance. Now, we’ve always said you need to know your client but the old rules used to be you need to update any changes and there was no timeline on it. So if anything changed, if someone became retired or had a new job, you needed to update that information.


I think what they discovered is that the regulators weren’t really happy with that. It wasn’t working that well because documents were not getting updated on a regular basis. So they first started putting timelines in and it was five years. So every five years you needed to go make sure all of that information was correct. So you had to go from A all the way down to Z to make sure all of those things were done. What are the new rules?

Mike (10:44):

Is it every one year or two years?

Rob (10:45):

It’s every two years now.

Mike (10:45):

Every two years now.

Rob (10:47):

So we’ve gone from when a change is made to now every five years and, sorry, and to then every five years and now today, every two years.

Mike (10:55):

And the reality is they’re right. My situation is financially different than it was five years ago. I don’t know many people whose isn’t. So things do change over time. We have to put down details on fixed assets. Whose house value hasn’t changed in the last five years, realistically speaking? So this stuff does need to be updated and we do need to keep it all up to date.

Rob (11:16):

It is interesting though, I look at other industries and I guess my accountant knows at tax time what my situation is or what’s different just from the income taxes, but my bank’s information doesn’t really get updated that often unless I take out a new loan or mortgage or something like that or open a new account.


And same in the insurance side. My automobile insurance, unless I go buy a new car or have an accident, there’s no real updates that are done there. What else do they look after? So not just the know your client form, what else is really important from a compliance point of view and from a regulator point of view?

Mike (11:56):

Well, they take that know your client and then they start to judge suitability and what they do is they make sure the investments you’re recommending for your clients match up with their number one risk tolerance and what they can afford. If you have a client with very little money and you’re putting them some complex tax strategy, you’re going to get a call from compliance saying, “Hey, this client isn’t meant to own that.” And it’s very good. They do a great job at monitoring that and find out if everything is how it should be.


And a client always needs to make sure all their investments are suitable for the needs and that’s part of… It’s number one, the advisor’s responsibility, but if some advisor goes a bit rogue, at least you have this backup of compliance department to identify that.

Rob (12:37):

Approved investments. What are approved investments?

Mike (12:40):

Every investment that sits on what we call the shelf of Assante, which means things that we’re allowed to sell to clients, has to go through an approval process, which means there’s a research team that goes and does a due diligence on those investments. It doesn’t guarantee the investments going to go up in value or anything like that, it doesn’t have much to do with that, but it’s to make sure they’re legitimate, I’ll put it that way.

Rob (13:04):

It’s to make sure the necessary safety precautions are in place. That there’s documentation that’s been provided to the client, all of that type of thing. And clients will have noticed that over the years. You’re getting a lot more communication if there’s a new investment that goes into your portfolio. You’re going to get PDFs sent out to you with all the facts and the cost of the investments, how long it’s been going, et cetera, et cetera.

Mike (13:30):

You can make risky investments but you need to understand when you’re making a risky investment and that’s the one thing they got to make sure is when someone’s going to buy an investment, they don’t think it’s a secure investment and in reality it has a ton of risk attached to it.

Rob (13:43):

What about insider trading? What’s that all about?

Mike (13:45):

This is just to make sure. There’s a lot of rules if you have different roles in companies. If you have access to financial information that’s not public information. There’s a lot of rules into how you can trade, let’s say that, stock. So let’s say we have an accountant that works for a large firm that’s a publicly traded company. When they go to trade any stocks, they may know something that the general public doesn’t and when you have that, that has to be revealed and has to let them know about any trades being done because you want to know when the owners of a stock are all of a sudden selling or dumping that stock. That’s got to be… There’s special forms that make it aware so people know what’s going on.

Rob (14:24):

I just saw that an executive of a big firm down in the US took his life recently because of insider trading. He had just been called out on insider trading on a company that he had only been part of since 2020. We all remember what Martha Stewart went through and jail time.


So insider trading, a very serious thing. Luckily in our experience, we’ve had nothing like that hit our radar.


License, licensing, following the licensing rules. What’s that all about?

Mike (14:57):

We have to make sure the advisors are qualified. You have to go and, number one, make sure they have the right exams. They’ve passed the right tests to give advice in the appropriate areas. They have to make sure there’s continued education in place to make sure those advisors keep up to date.


Years ago, people didn’t… You’d see some old advisors around and they would never go to any courses and their information was 20 years ago. Nowadays we have to do a certain amount of hours. One is for the IDA, and one is for…

Rob (15:28):

For your security license.

Mike (15:29):

For your security license keep, and then you and myself and Carlo and our CFPs, and we have to go and make sure our licenses… They have even more stringent requirements on what’s required to keep your CFP license up to date. Insurance has the same thing too. They need certain amount of hours to make sure you’re up to date in knowledge.

Rob (15:51):

The last section I’m going to touch on is client complaints. What role does the compliance department play if there is an issue with the client and the advisor?

Mike (16:03):

It’s the first step. If a client isn’t finding a good resolve or disagreement with the advisor and they’re not happy, the next step is for them to go to the branch management and the branch manager brings that directly to compliance and that department deals with it. They take a very neutral view on everything and they see if they can solve it on the initial stage and if they can’t, it’ll get passed onto the next stage.

Rob (16:28):

We’re pretty lucky, in all our years we have not had to deal with many complaints of that nature and any that we did were quickly resolved and were typically just misunderstandings and that’s sort of how you and I have woken up every day and looked in the mirror. We just never want to have to deal with that sort of thing so we’ve tried to keep those complaints to a minimum and do what’s right for the client.


So at the end you can see that the compliance department of a firm plays a major role. They’re almost like the police for your individual firm. It’s not an easy job, it’s a stressful job. You’re having to deal, Assante alone has over 700 financial advisors all across the country, different locations, all with different strategies, different recommendations, and using different investments, of course, all of them on the approved list.


But it’s not an easy job. Sometimes there needs to be some work where the compliance department and the advisor are working together on the same team but that’s not always the case.


That brings us to the end of another week. Thank you for joining us. This is Rob and Mike with Think Smart from The McClelland Financial Group of Assante Capital Management reminding you to live the life that makes you happy.

Assante Capital Management (17:46):

You’ve been listening to The McClelland Financial Group of Assante Capital Management Limited. Assante Capital Management Limited is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate and Insurance Services Incorporated. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however, no warranty can be made as to its accuracy or completeness. Before acting on any of the previous information, please make sure to see a professional advisor for individual financial advice based on your personal circumstances. The opinions expressed are those of the authors and not necessarily those of Assante Capital Management Limited.


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