July 13, 2021 Thought Leadership 5 mins read

From CFRs to Competition, Digital Technology Is the Path Forward for Financial Advisors


With Client Focused Reforms (CFRs) barrelling down the pipe for Canadian financial advisors, many firms are scrambling to adjust to the new regulatory requirements. Starting in 2022, advisors will, among other things, need a greater understanding of their clients’ risk and be better able to support and justify their investment recommendations. More scrutiny is coming as regulators look to further protect the interests of retail investors.


Financial advisors face several headwinds, beyond regulation. The financial advice industry has fallen woefully behind other industries in harnessing technology and is increasingly seen by the mass-affluent and other investors as out of step and behind the times. According to the Next-Gen Technology Survey released in February of 2021, innovation in the wealth management sector is among the least advanced within the financial services industry.

Fee compression continues as technological advancements and regulatory developments have prompted low-cost alternatives to advisor-driven investment solutions. Competition is increasing as innovations like robo-advisory and all-in-one single trade solutions (multi-asset class ETFs) are made readily available at a fraction of the cost of traditional portfolio construction solutions.

With real interest rates near or below zero and markets near all-time highs, the expected return from most asset classes over the next 10-15 years are at multi-generational lows. This will likely lead to further downward pressure on fees, as investors struggle to preserve their more modest portfolio returns going forward.

Lastly, but certainly not least, advisors are increasingly being challenged to demonstrate their value add. Investing in stocks and bonds has largely become commoditized. It is as difficult as ever for advisors to compete with passive investing, after fees. Investors are becoming more educated on investments and are recognizing the difficulty advisors have trying to differentiate themselves.

There will, of course, always be a demand for good investment advice. But how can advisors maintain an edge? Leveraging digital technology is the path forward. Digital technology empowers advisors to up their game and improve the ways in which they communicate with clients, manage their clients’ money, and demonstrate their value.


How Digital Technology Is Transforming the Advisor Practice


A good place to start when thinking about technology in your practice is to focus on what clients want from you; words like reliability, clarity, simplicity, relevance, and convenience come to mind. It’s what we all want in our everyday lives, and, if it becomes a focus for Canadian financial advisors, it will be welcome news.

So, why is our industry so far behind others? In a word – complacency. Up until now, the demand has not been compelling. The business has been sticky; investors have been acting like deer caught in the headlights; they know there is a problem, but they haven’t been able to navigate their way out.

We can expect that to change. Roubini ThoughtLab’s 2021 Wealth and Asset Management report had 82% of investors saying it was important for their investment provider to stay at the forefront of technology in the future.

Advisors have no shortage of technology at their disposal. The problem is that it often combines outdated legacy systems with modern add-ons, making for a disjointed and cumbersome experience. Technology needs to be easy to use and integrated so that the workflow is seamless between functional modules and advisors can efficiently execute their tasks, leaving plenty of time to engage with clients.

The user experience (advisors and clients) is also critically important to grow a successful practice in the future. Onboarding new clients and accounts must be a straightforward and easy-to-use digital experience, with full custodial integration.

The process of onboarding clients can now largely be automated. Investors have little patience for the need to scan paper forms, enter information more than once, or for sloppy execution by their advisor or custodian. Digital technology also provides the perfect opportunity to integrate the Know Your Client (KYC) CFRs into your practice using behavioural finance.

Regulatory and internal compliance need to be streamlined across the firm using technology such that intelligent alerts will give timely notice of any potential breach to clients, advisors, and compliance staff.

CRMs must be user-friendly for both advisors and clients. Key components of an effective CRM include dedicated and secure email, appointments, video conferencing, call notes, task creation and assignment, and article distributions. All should be fully integrated within the advisor platform with communication records stored digitally in the cloud. All relevant and important records, including oral communications must be preserved and accessible, as required under sections 11.5 and 11.6 of NI 30-103. This approach not only makes it easier for users to navigate but also makes it easier from a compliance perspective.

The coming CFRs will require better systems for conducting and recording product suitability analysis. A product comparison tool with advanced analytics and integrated with the investment platform enables the advisor to demonstrate that they have “considered a reasonable range of alternatives” and can show the work they did to present the alternatives to the client.

Portfolio management and trading systems do not need to be complicated. Technology has created a much more level playing field among investment professionals and DIY investors alike, as trading costs have plummeted. The use of model portfolios, bulk trading, and other efficient portfolio management tools allow advisors to focus their attention on what is important, while achieving scale and keeping costs down. These firms will be better prepared in an environment of continued fee compression.

Empowering Financial Advisors to Reimagine Their Practice


The coming CFRs, combined with a challenging competitive landscape going forward, make this an ideal time for wealth management firms to reimagine their practice for growth in the next decade and beyond.

Despite all the challenges that advisors face, advisory firms with a client-centred approach to organization and digital technology will be the winners, as they will be better able to scale up their business, overcome short term adversity, while providing advisors the space and resources they need to add real value as they build long lasting advisor-client partnerships.

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  • Mark Doyle

    Mark Doyle is President at Pascal WealthTech and is the head of Pascal’s behavioural finance product InvestorEQ. A recognized leader in the financial services industry, he has more than 30 years of experience building strong client relationships and winning investment management mandates. Mark also serves as President of Marksman Asset Management, a portfolio manager focused on creating custom taxable and tax-exempt portfolios for individuals and families. Prior to joining Pascal, Mark held senior investment roles with several of the world’s leading financial institutions. Mark holds the CFA designation and is a registered portfolio manager.