POS a ‘waste of time’

“That is why it hasn’t passed yet,” said Bessner picking up exactly where she left off last month at the Mutual Fund Point of Sale Conference.

“The point of the point of sale is that there is a big assumption that clients need more paper, which they will read and that will protect them,” she said.

“There is another huge assumption in the POS material, that the advisors are not explaining the product sufficiently so the client can understand the product and understand the risks,” she said while jokingly asking members of the media to keep it off the record.

Clients don’t understand the product and associated risks, but another piece of paper is not going to resolve the problem, she said. In fact, clients are not particularly interested in learning the intricacies of the product.

“They want to write a cheque to the advisor and want the advisor the make them money,” she said.

A defense counsel for advisors and dealers, Bessner said POS is supposedly an effort to get the advisors to explain the product and product risks. “But it doesn’t say that they have to explain what’s in that document. All they have to do is deliver it. That doesn’t resolve (the issue),” she added.

Bessner isn’t worried about the sophisticated clients who are interested and know where to get product information. “Nor is POS concerned about those clients,” she said. “What [it is] concerned about is the unsophisticated clients who don’t understand the product and risks.”

“I think the regulators are getting closer because they are emphasizing ‘Know Your Product’, which is something I have been talking about for a long time.”

Although, she said, whether the client understands the product is a secondary issue. “The number one issue is that it is the advisor who needs to understand the product.”

Bessner also took product manufacturers to task, saying their attempts at advisor training have largely been limited to a “marketing brochure” or a “very attractive woman coming and explaining the product.” It only focuses on the good parts of the product without “digging into precise details of the products and product risks,” she said.

“If the advisor doesn’t understand the basics of the product and its risks then they cannot determine if it’s suitable for the client,” she said adding that protecting a client will protect the advisors from legal liability down the road.

And all that is needed to do that, said Bessner, is a photocopy of the two most important pages of the prospectus; those about the product and the products risks. “We don’t need a fact sheet. It’s all there in the prospectus.”

She stressed advisor’s need to keep a proof of the delivery of that information to forestall future problems arising out of potential regulatory infraction. “The client,” she says, “may be completely disinterested while buying the product, but I can tell you when there’re losses on the product, they become very interested.” Not so much in the product and its risks, but in the fact that the advisor didn’t spend enough time explaining them, she said.

A good way to guard against potential legal issues is to “identify rogue clients” as early in the relationship as possible, she said. “They cost advisors and dealers money and (cause) aggravation.”

(05/11/10)