Merger of two regulators could lower costs and increase innovation – The Globe and Mail

A less rigid regulatory regime will create opportunities to provide investors broader solutions that integrate innovative investment products and advice.Kitti Kornkasame/iStockPhoto / Getty Images

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Canada’s wealth management industry is lauding the pending merger of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) for its potential to streamline oversight and reduce compliance costs.

For starters, IIROC points to a study Deloitte LLP conducted showing that a consolidation of the two regulators could result in savings of up to almost $500-million for the financial services industry over a decade.

Firms across Canada have long complained about the costs and inefficiencies created by dual oversight from IIROC, which regulates securities dealers, and the MFDA, which oversees mutual fund dealers. Industry players have railed against the unnecessary complexity imposed by the joint regulation at a time when many, if not most, financial institutions are active in both securities and mutual funds – a situation that places them firmly in the sights of both regulatory bodies.

With the merger coming into effect in January, wealth management firms will be watching closely to see how the move plays out – and looking for any opportunities to reduce compliance costs and capture other benefits the restructuring creates.

Decreased costs, increased flexibility

If regulators can deliver on their promises, the new integrated self-regulatory organization (SRO) will provide a more flexible regulatory regime that’s better able to accommodate innovation and evolve in response to changes in capital markets. This new model should benefit Canadian wealth managers, who are working to adapt their businesses to a rapidly changing marketplace.

Advisors today are competing in an era of self-directed trading, robo-advisors and an investor base that’s becoming younger, more independent and digital. To grow and even maintain their businesses in this new environment, they’re adopting new technologies, products and service models.

A more flexible and responsive regulatory framework would make those transitions easier, cheaper and less risky from a compliance perspective. A less rigid regulatory regime will create opportunities to provide investors broader solutions that integrate innovative investment products and advice. These solutions promise better product and service experiences for investors, and again, lower operating costs for providers.

Seizing opportunities

Achieving those long-term benefits could require some work in the short term. For many dealers, this work will include a broad reassessment of optimal business mixes and a realignment of both advisor product and back-office capabilities. This type of strategic review will require strong business leadership and co-ordination across the organization.

In addition, to take full advantage of the newly integrated regulatory framework, wealth managers may want to merge their IIROC and MFDA dealer operations into a single system. If they see big enough opportunities, they might also consider other changes to their internal technology and operational infrastructures. For example, they may choose to consolidate books of record under the new SRO – a complex task that will require significant time and resources along with technology solutions that allow them to remain compliant during the transition.

Although such changes are complex, individual wealth management firms may decide that the long-term benefits of expanded client relations, reduced operating costs, and compliance risks are worth it.

For now, the industry will have to wait and see exactly how the new SRO takes shape, and what, if any, opportunities emerge from the merger. But both regulators and wealth managers are united in their hope that the restructuring will be at least a small step toward lower costs, increased innovation, and an enhanced experience for investors.

Donna Bristow is chief product officer, wealth management, at Broadridge Financial Solutions Inc. in Toronto.

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