CRM2: What is it and how will it affect you?


In the Canadian investment industry, the information investors receive regarding the costs and charges for investment advice and the investment returns generated by that advice has varied considerably from firm to firm. T.E. Wealth has always strived to provide transparent reporting to clients in terms of fees and the new CRM requirements should result in more consistent fee and compensation reporting across the industry.

In an effort to bring transparency and consistency to the investing process, and give investors the tools they need to make informed decisions, the Canadian Securities Administrators (CSA) introduced Phase 2 of the Client Relationship Model in mid-2013. Often referred to as CRM2, it has ushered in new requirements for providers to report to their clients the costs of investing, the performance of their investments, and the content of the clients’ accounts.

The new reporting requirements apply to investment services providers all across the spectrum — including investment dealers, mutual fund dealers, and investment managers.

In addition to the standard performance reporting received in the past, clients of T.E. Investment Counsel will receive additional reporting disclosing book and market values on an account-by-account basis, as well as a separate report detailing any fees paid to TEIC. The end result is a larger reporting package from TEIC.

CRM2 has been phased in over the past three years and the third and final phase took effect this past July. In the first phase, which kicked in on July 15, 2014, investment firms were required to disclose pre-trade, charges associated with that trade and, in the case of a debt securities transaction, to report the advisor’s compensation. The second stage — which came a year later — required that account statements include the cost for each stock position in a client’s portfolio, and that the market value of those positions be determined using a prescribed methodology.

By prescribing and standardizing two specific reports, the requirements of the third phase are perhaps the most extensive. That’s because the investment industry has historically used various methods to calculate returns or report costs, making it hard to perform an apples-to-apples comparison.

CRM2 requires that investment firms provide an Annual Report on Charges and Compensation, which discloses— in dollar terms — the charges to the account and the compensation paid to the dealer and advisor for products and services provided over the past year. This includes, embedded trailer fees, redemption fees, switching fees, and RRSP administration fees. Clients will know, separately and in aggregate, what they have paid to hold their investments during the past year.

Likewise, the new Annual Report on Investment Performance will show how each client’s account has performed. Using the “money-weighted” rate of return methodology, performance calculations will take into account money deposited into or withdrawn from the portfolio. The report will also show, as a percentage, your investments’ performance over the past one, three, five and 10 years.

T.E. Wealth welcomes these changes and shares the belief of the CSA and industry observers that these measures will provide investors with plain and consistent reporting of cost, compensation and performance.

Tessa Wilmott is a financial editor, writer and researcher. She was formerly editor-in-chief of Investment Executive, and has held various reporting and editing positions with the Financial Post, the Financial Times of Canada and the Toronto Sun.

This article was published in T.E. Wealth’s Strategies newsletter, February 2017 edition. Read the full edition here.

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