The final stage of implementation for phase two of the client relationship model (CRM2) comes into effect today. What it means for Canadian investors is that they’ll begin to receive some much needed disclosure about investment fees and performance.

Under the directive of the Canadian Securities Administrators, financial institutions are required to send two new mandatory reports – one on cost, which explains charges and other compensation paid to your advisor or investment dealer – and one on performance, which gives your personal portfolio rate of return for the prior year and since opening your account.

3 Things To Know About CRM2

Why is CRM2 important? A recent survey by Tangerine revealed, to no surprise, that many Canadian investors are unaware of the fees they’re paying to invest. Now, as an investor, you’ll have consistent reporting from your investment dealer. For example:

1. You’ll know the exact dollar amounts you’re paying to your investment dealer. Once a year, your investment dealer will send you a report summarizing compensation earned such as trailing commission(s), in actual dollars, as well other earnings such as Deferred Sales Charges or referral fees. This report will also provide a summary of your out-of-pocket charges like annual administration and transaction fees.

2. You’ll get a more complete picture of your return on investment. Annually, you’ll receive a report that provides your personal portfolio performance for the previous year and since opening your account. Previously, firms only had to disclose the rate of return for the fund overall. This additional information will help you ensure your investments are aligned with your long-term goals.

3. You may not see this information right away. It’s important to remember that although the new requirements described above come into effect July 15, 2016, most firms will likely provide the two new annual reports on a calendar year basis. This means most investors will start getting their reports in early 2017.

FAIR Canada explains CRM2

FAIR Canada, the Canadian Foundation for the Advancement of Investor Rights, tasked Preet Banerjee to produce a series of seven videos explaining CRM2 and what it means for investors. Here’s the first video, an overview of CRM2:

I highly recommend watching the entire video series, particularly the ones about trailing commissions on mutual funds and deferred sales charge (DSC) mutual funds, which Preet explains very well.

Final thoughts on CRM2

I’ve written before that CRM2 will bring a new age of enlightenment for Canadian investors. Indeed, this could begin a major overhaul of the investment industry and hopefully lead to smarter investing solutions.

In a survey by robo-advisor Justwealth, 65 percent of Canadians are not aware of the upcoming changes to investing reporting requirements, while almost two-thirds of respondents did not know exactly how much they paid in annual investment fees.

“As investors come to understand exactly what they’re paying in fees, investment firms will be under the microscope to explain the value they provide their clients,” said James Gauthier, Chief Investment Officer, Justwealth.

The investment industry wants investors to go back to being mushrooms – kept in the dark and fed shit. But no more. A new era of transparency and disclosure will change the landscape for Canadian investors.

CRM2 is just the beginning. This fall, regulators will take a closer look at banning trailer fees on mutual funds and drawing a line between advice and product sales. Then, perhaps a long overdue change from the inferior suitability – Know Your Client – standard to a fiduciary duty of care for investors.


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