What is CRM 2? (video)

Written by Tangerine

Monday, April 20th, 2015

What is CRM2?

Industry regulators are pushing for transparency and investor education so that investors better understand the rates of return and costs of their investments. Basically, that's Client Relationship Model 2 (or CRM2) – new reporting requirements that are rolling out over three years.

What's changing and why

Before 2014, regulations didn't require much disclosure of costs or performance information to investors. But now, CRM2 is bringing in more transparency, with required disclosure increasing over three years.

Pre-trade disclosure

The first set of changes were introduced in July 2014 and mainly involved pre-trade cost disclosure. The idea is that before investing, you should understand what sorts of fees you're paying and what your dealer will be receiving for the trade.

Account statements

The next changes come at the end of December 2015. Investment dealers will all need to show account statement information the same way. You'll see:

• The opening balanceand the market value of your investment during the period
• The cost of each security(meaning, how much you paid or the market value at the time the assets were transferred to the dealer) (and a description of that cost)
• Which, if any, of your holdings are subject to a deferred sales charge (DSC)
• Which investments are covered by an investor protection fund

Cost and compensation reporting

Next, in July 2016, you'll see additional account and fee transparency.

• Annual reports will show investors the charges and investment dealer compensation for their investments in dollars — not just percentages.
• And you'll get annual performance reports summarizing account activity during the year and since account opening.

The changes come into effect on July 2016, but investment dealers have one year from that date to begin sending these reports. You may only start receiving these statements in early 2017 to reflect the 2016 calendar year.

Important note

Even though CRM2 is about cost disclosure and performance reporting, the requirements don't call for disclosure of all costs.

For example, you'll get annual reports with information about how the investment dealer/firm is compensated, but not necessarily how an individual advisor is compensated. And to know the management expense ratio (MER) of your funds, you'll still need to check the Fund Facts sheet to see the total cost of the fund.

How does this impact me as an investor?

With the disclosure that CRM2 requires, you can better understand how your investment dealer is being compensated and how your investments are performing. That means you can better compare investments between different financial institutions. The bottom line is that you can be a more informed investor.