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). 

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.  

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.

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.

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.