CRM2

DEFINITION of 'CRM2'

CRM2 refers to new rules around the reports and disclosures made by Canadian investment dealers and advisors. The new rules are part of the second round of reforms to the client-relationship model by the Canadian Securities Administrators (CSA), the umbrella organization that harmonizes regulation across Canada’s provinces and territories. The two new disclosures under CRM2 are: a clearer account performance report using standard measurement periods and an itemized annual list of fees and other costs charged to the account. CRM2 is meant to create greater transparency for Canadian investors by giving them a clear look at their account performance and what they are paying to get that performance (or lack of). The CRM2 rule changes take effect December 2016, with full implementation expected by mid-2017.

BREAKING DOWN 'CRM2'

One of the most interesting changes coming under CRM2 is the presentation of fees in terms of dollars paid rather than as percentages. Although there is no mathematical difference between the two styles, seeing fees in dollars for the first time — particularly if the accounts have not performed well — may cause sticker shock for some Canadian investors. On top of seeing costs in dollar terms, the return on the account will be reported using a money-weighted rate of return to provide a more personal view of an investor's progress towards his or her financial goals.  

What CRM2 Means for Advisors

With fees being made explicit in dollar terms, Canadian investment advisors need to show that they are providing value for the money. There could potentially be quite a few Canadian investors who start looking at lower-cost options like robo-advisors and passively managed portfolios. There is, of course, also an opportunity for high performing advisors to use CRM2 as a way to pull in clients from poor performing competitors. Simply put, if an advisor isn’t providing value for the dollar, then CRM2 is bad news.

What CRM2 Means for Investors

Canadian investors already had the ability to figure out performance and costs on their own, but it was a longer and more complex process than it should have been. CRM2 does the work on calculating direct and indirect costs, as well as standardizing performance reporting, making it easier to evaluate the value an investor is getting from his or her advisor. The ease of evaluation opens the door for comparison shopping when looking for investment advice, giving the investor the advantage of a better informed choice between the options.