Understanding the new Client Relationship Model (CRM2) – Phase 2

Client Relationship Model – Phase 2 (CRM2) is the second phase of the Canadian Securities Administrators’ (CSA) initiative to improve the disclosure of investment performance, charges and compensation to clients.

CRM2 is designed to give investors insight into how much it costs to invest. It will also result in new ways to show how their investments are performing, and provide more comprehensive reporting on the securities investors hold at specific times.

The goal of CRM2 is to ensure clients receive comprehensive information on both the performance of their investments and the costs associated with those investments, including all applicable fees and remuneration paid to advisors and their employers.

Beginning July 15, 2016, registered advisors and their employers will need to:

• provide an annual report on charges and other compensation that shows, in dollars, what the adviser and their employer were paid for the products and services they provided (including trailing commissions and commissions on bond trades); and

• provide the investor with an annual investment performance report that includes the following information
  • deposits and withdrawals from the client’s account;
  • the change in value of the account; and
  • the percentage returns for the previous year; and the previous three, five and ten years.

Investors Beware: CRM2 is a regulatory change by the Canadian Securities Administrator (CSA) and only applies to organizations that are regulated by the CSA. Segregated Funds are excluded from CRM2 reporting requirements. Since the investor must purchase segregated fund positions from an insurance agent, (who are not subject to CSA regulations) acting for an insurance company, all trades in segregated funds must take place outside of the CRM2 regulatory arena and, as a result, the requirement to provide disclosure of charges and performance does not apply to trades in segregated funds.