What is 'CRM2'

CRM2 refers to rules for Canadian investment dealers and advisors that require greater transparency about the cost and performance of client accounts. The rules, which were fully implemented in mid-2017, were the second stage of a reform of 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 include a clearer account performance report using standard measurement periods and an itemized annual list of fees and other costs charged to the account. CRM2, short for "Client Relationship Model 2" 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 achieve that performance (or lack thereof). 

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 their financial goals.  

CRM2: What it Means for Advisors

With fees being made explicit in dollar terms, Canadian investment advisors need to show that they are providing value for the fees that they charge. 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 could be bad news for them. Regulators argue that while the act of having to explain and justify their fees to clients may be burdensome, advisors should already be able to explain and justify their value.

CRM2: What it 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. One report found that after the implementation of CRM2 there was an improvement in awareness of trailing commissions.

CRM2 vs. MFDA

In mid-2018 the Mutual Fund Dealers Association of Canada (MFDA) published a discussion paper that advocated for the disclosure of total fund costs to clients on top of the CRM2 disclosures. Such a disclosure would enable clients to make better investing decisions. This disclosure, outlined in a MFDA bulletin entitled "Discussion Paper on Expanding Cost Reporting," would raise the bar compared to CRM2. 

RELATED TERMS
  1. Mutual Fund Dealer's Association ...

    The Mutual Fund Dealers Association (MFDA) is a Canadian regulatory ...
  2. Advisor

    An advisor is any person or company involved in advising or investing ...
  3. Advisor Fee

    An advisor fee is a fee paid by investors for professional advisory ...
  4. Canadian Securities Institute (CSI)

    The Canadian Securities Institute is Canada's leading provider ...
  5. Federal Covered Advisor

    A federal covered advisor is a U.S.-based investment advisor ...
  6. Personal Financial Advisor

    A personal financial advisor is a professional who help individuals ...
Related Articles
  1. Tech

    Management Fees: How Advisors Can Protect Them

    With management fees falling, advisors are wondering what they can do about it. Here are a few tips.
  2. Financial Advisor

    Why Clients Leave Their Advisors

    Clients fire financial advisors for many reasons. Here's a rundown on why they're likely to do so and how to avoid losing any from your roster.
  3. Financial Advisor

    Losing a Client Is Not Always The End of The World

    Losing a client is never pleasant for a financial advisor, but sometimes this is a better outcome than continuing the relationship.
  4. Personal Finance

    How Your Financial Advisor Makes Money

    Do you know how much you are paying your advisor? There are two main ways they are compensated.
  5. Tech

    3 Big Keys to Advisor Profitability

    Competition is fierce in today's financial advisory market. Here's how advisors can maintain profits and grow their business.
  6. Financial Advisor

    Advisors: What Does Your Future Hold?

    Advisors who can adapt and incorporate new technologies will position themselves for success. Those who don’t will be left behind.
  7. Tech

    The Coming Fiduciary Rule: Advisor, Client Impact

    The proposed DOL fiduciary standard has wide ranging implications for advisors and their clients. Here's an overview for advisors and their clients.
  8. Financial Advisor

    How Financial Advisors Lose Clients

    Being a financial advisor isn't easy, but your chance of success is much higher if you avoid the most common mistakes that lead to client attrition.
  9. Personal Finance

    Determining a Financial Advisor's Value to You

    Who is the best advisor to help you accomplish your financial goals?
  10. Financial Advisor

    Top Strategies for Winning Business in 2015

    Looking to grow your financial advisory practice in 2015? These strategies will help.
Trading Center