CRM2 Is Here (Finally!): What Investors Need To Know

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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  1. Sara P on July 15, 2016 at 10:13 am

    It’s unfair to say that the entire industry wants to keep investors ‘in the dark and feed them sh*t’. There are a number of investment management firms in Canada that work hard to explain fee structures to clients and make things as transparent as possible and some of these firms don’t charge trailers or DSCs. The only fee clients of these firms pay is for (active) management.

    In theory, CRM2 will provide transparency over fee breakdowns for investors who haven’t already asked those question – and ultimately decide whether or not they’re getting what they pay for. Hopefully that’s how it will work in practice, too.

    • Echo on July 15, 2016 at 10:28 am

      Hi Sara, you’re right and I didn’t mean to paint the entire industry with the same brush. It’s lobbyists and self-regulatory organizations like Advocis and the MFDA who are fighting to keep things status quo (regarding trailer fees).

      • Sam Hart on July 15, 2016 at 11:12 am

        If you didn’t mean to paint the entire industry with the same brush, then why did you paint the entire industry with the same brush! This suggests that what you write in here may or may not be what you really mean. This kind of writing happens frequently in journalism. Generalizations are simply easier than being more specific.
        The comment about the MFDA, the regulatory body tasked with the responsibility of overseeing the industry and auditing the dealers, is also castigated as being on the side of the dealers in preserving the existing compensation structure. And your proof source is?

      • Lloyd on July 15, 2016 at 11:18 am

        I agree with the mushroom principle. Almost all in the industry follow some form of ” Don’t ask don’t tell policy”. Hope this new CRM2 will resolve that and keep investors properly advised.
        I am tired of being made a mushroom by these unscrupulous elements.

  2. Sandra on July 15, 2016 at 11:28 am

    This is exactly what consumers need. Very happy about this.

  3. Sandra on July 15, 2016 at 11:31 am

    There are fees everywhere whether active or passive management applies. As a consumer I am happy that you won’t have to have it explained, but rather have it clearly on paper. There is a big difference when you are sitting in front of someone having them explain it to you, and having the time later to fully grasp MER’s and such. As I said, I personally love it.

  4. Jane on July 15, 2016 at 11:46 am

    Great article! I especially liked the video presentations by Preet Banerjee – very easy to follow. Thanks.

  5. Kathy Waite on October 8, 2016 at 5:23 pm

    Love the videos and am very excited that people will finally be shown the truth about their fees. Unfortunately it’s half a story, only what the advisor gets paid is declared not the total cost of the investment. If I were selling I would feel thrown under the bus by my dealer right now. I also think more information on performance against a standard benchmark would help people decide if they are getting value for money. Cheap is not always good, the investment needs to achieve your goals as well!
    I agree with Rob too much S%^t and treating people like mushrooms. The industry protests too much , just what do they have to hide? Sure there are some fee only and fee-based but it’s a tiny percentage of small firms. The biggest that use their size and reputation to make people feel secure don’t generally.
    Keep up the blogs!
    Whether people agree or not its debate which is better than apathy .
    Kathy fee only financial planner

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