Mutual funds and Scholarship plans
Information on the relationship
The client relationship model (CRM) sets a framework for the relationship between the group savings broker, the representative, and his client. It aims to encourage better communication between them by providing information about the relationship. This information and the resulting discussion should take place at the beginning of the relationship.
The broker must provide the client with one or more documents, depending on the circumstances, defining the client-adviser relationship. In practice, however, the broker usually delegates this task to the representative.
- Account types and characteristics
- Client, representative, and broker obligations regarding the suitability of transactions
- Content and frequency of account statements
- Investment decision-related risks
The relationship documentation provided to the client is not sufficient. It is not personalized for the client or the representative. For example, this documentation may show various fee structures without specifying which one the client selected. It is therefore the representative’s responsibility to adapt his explanations so that they reflect the reality of the situation. To fulfil his obligation, he must present it adequately. This means he must present the details and scope of their relationship to the client clearly and in detail, which involves speaking about the products, services, and advice he will offer him. He must ensure that his client fully understands the information provided, verify his comprehension, and encourage him to ask questions.
If the document is not correctly explained to him, the client runs a high risk of filing it away without paying attention to it, even though it contains essential information on his relationship with the representative and the broker. The client may then form unrealistic expectations of the representative or broker, and risk being disappointed.
Presenting the documentation is also an opportunity to extend the dialogue and grow the client’s trust from the beginning. These discussions allow the representative to better grasp his client’s expectations and answer his questions. The client has the right to know all the facts that can help him make clear decisions. The representative must not assume that certain information doesn’t interest him. He must present all information to the client that could be of interest to him.
When the broker delegates this task to the representative, it is the representative’s responsibility to inform the client on the link between himself and the broker, and on the responsibilities of each party in this relationship, including their respective roles in terms of suitability.
Below are the specifications that the representative must provide to his client depending on the services provided by the broker.
| Services | Necessary specifications |
| Account administration | Transaction processing, preparation and frequency of account statements and reports, product examinations |
| Advisory services | Representative’s expertise, including for establishing an investor profile, recommending and explaining appropriate investments, following up on strategic allocation, and re-balancing the portfolio as needed |
| Client protection | Account supervision, examination of transaction suitability, regular account examination, and representative supervision |
In this era where we value communication and transparency, clients expect to receive as much information as possible and to know the impacts of their investment decisions; they select their representative accordingly.
A representative who fails to provide information on the relationship, especially regarding pay, fees, and transaction processes, risks harming the trusted relationship he is attempting to build with the client. See the section Pay for more details on fees and pay.
Best Practices
The representative must first ensure that he knows, understands, and has the documentation provided by the broker. He will then be in the best position to present it and explain it to his client.
The representative would be wise to address the aspects of his relationship with his client as soon as possible, if he hasn’t already (it’s never too late). He can use this documentation as an easy-to-use, free tool to accompany him in client education and, what’s more, help him fulfil his ethical obligations to advise and inform.
Mandate definition
Representatives working in group savings or scholarships must not carry out their client’s orders until the client has given them the authorization to do so. It is therefore essential that they clearly define the expectations and commitments made with their client—that is, their mandate. A good practice, of course, would be to have a document signed confirming the agreement that was made, so everyone is aware of its content.
A representative who does not follow his client’s orders is committing an ethical violation because he is not adhering to the mandate given by the client.
Executing Orders
The representative must demonstrate loyalty to his client and place his interests at the forefront of his concerns when carrying out a transaction for the client. That being said, he must execute the client’s orders in an appropriate time frame and only when the client gives him the authorization to do so.
The representative must verify his broker’s policies regarding the time frame to execute clients’ orders, as well as the allowed times to do so, to be certain he is complying with his duty to be diligent in this regard.
To avoid having to manage his clients’ disappointment when he informs them that their orders cannot be or were not executed immediately, it is best for the representative to inform them in advance of the usual time frames for completing such transactions. It should be noted that simplified fund prospectuses also indicate the cutoff times for placing orders.
Finally, rather than using signed blank forms, the representative must obtain a limited transaction authorization from the client if his broker’s or firm’s policies allow him to do so.
Having a limited transaction authorization does not give the representative the right to make discretionary transactions. Each transaction must be pre-approved by the client. The representative must document the transactions completed under this authorization, including the time, date, person who initiated the transaction, communication method, and the content of the conversation.
