There are many talented, dedicated people in the exempt market that are helping make this industry more and more popular with investors. In this issue of the Exempt Edge we wanted to highlight one of them. Victoria Kouzmichova has been the CCO at Raintree for six years, and has helped build industry best practises and standards during fast paced growth of this industry and gruelling regulatory scrutiny. Victoria takes some time here to share her knowledge with our readers.
1. You have always exemplified a high standard for compliance and an excellence in your work. What does good compliance processes in a firm mean to you? What value does it bring being the investor, and to the firm?
A dealership with sound compliance is necessary from a regulatory and risk management perspective, and ensures that the firm and the advisors can provide years of continued service to their clients. By incorporating sound compliance procedures in training, processes and systems, the advisors are better positioned to successfully withstand the challenges that this industry brings, and stay in business over the long run, which ultimately benefits the investor and the firm. Sound compliance systems can only be achieved through well-defined policies, adherence to regulations and legislation, and clear processes that are embraced and followed by the firm and its Advisors. These all serve to protect investors, advisors and the firm.
2. What do you feel investors should know about the compliance process when buying private investments?
To begin with, I would advise investors to take time to learn about the EMD with which your potential Advisor is registered. The quality of the firm will most likely define the quality and professionalism of the advisor, and ultimately the quality of the investment you are purchasing. Investors should educate themselves on risks and benefits of the exempt market in general and the products that your Advisor recommends.
Investors should understand that all EMDs are required to have compliance departments with experienced and knowledgeable compliance staff. They are responsible for ensuring that policies and procedures are followed, identify any potential compliance problem, and provide additional training and guidance for Advisors when needed. In addition, it is the responsibility of a compliance department to supervise sales and ensure that no transactions get processed unless there is sufficient proof that a suitability assessment was adequately completed.
How do compliance officers do this? They rely solely on the ‘Know Your Client’ forms, notes, and documentation that Advisors provide to them with every transaction. In other words, since they do not have the benefit of knowing the client the way the Advisors do, they depend on Advisors’ notes to help understand who the client is and whether the private capital market and a particular investment is suitable for them. In their assessment, compliance officers pay special attention to clients’ financial circumstances, investment needs and objectives, investment knowledge and risk tolerance.
3. In general, what do you feel new Advisors need to know about compliance coming into the exempt market? What are some common mistakes Advisors can make?
The exempt market is highly regulated, and the Advisors that do not value compliance will not be able to properly service the client. When selecting an exempt market dealer, new Advisors should do their due diligence to ensure that their new firm has a solid and above average compliance department with knowledgeable staff. New Advisors need to appreciate the importance of compliance officer’s role and not treat them as a hindrance to sales but instead, use them as a valuable resource and support to help them build compliant business and manage compliance risks. One of the mistakes Advisors make that I observe quite often is that they underestimate the amount of time required to satisfy know-your product, know your client, and suitability obligations. Getting educated and staying informed on products and policies can be very challenging if you cannot commit time to this market. The exempt market is not for “part-timers” in the financial industry.
4. What advice would you give someone starting a career in the financial services business?
Understand the demands of the industry; analyze your strengths and weaknesses, then determine your goals and align yourself with the dealer that can help you achieve them. Get a good understanding of policies and procedures of your dealer and develop and maintain processes and systems that work best for you and help you stay compliant.
5. In some other registrant categories, it is said that compliance is so strict and rules based that there is no flexibility in what can be offered to the clients, so they all end up getting the same ‘Pablum.’ What do you think our industry needs to do to maintain an investor centric focus where clients can be offered truly different investment opportunities?
We believe that a client centric focus can be maintained by providing diversified private equity investment shelf to investors. At Raintree we create portfolio diversification by diversifying amongst investment assets and allocation and by developing relationships with numerous portfolio managers across Canada.
6. Is there anything else you would like to add?
At Raintree, we found that keeping pace with regulation and the needs of our advisors were not mutually exclusive goals, but rather complimentary in nature. Instilling a mindset of sound compliance is not only necessary from a regulatory perspective, but also makes good business sense in uncovering opportunities that may otherwise have gone unnoticed. Our focus on ensuring our regulatory requirements are met ensures our firm and our reps can enjoy many years of continued success in the future.