New reporting rules for advisors on the way
You may have recently seen references in the media to something called “CRM2” for financial advisors. It’s basically a set of regulations designed to provide investors with more information on investment advisory costs and fees. So why does it seem to have a lot of advisors in a flap? Shouldn’t advisors already be telling clients what their fees are and how their investments are doing?
Yes, advisors and investment dealers should be upfront about the fees they’re charging their clients and should, without question, be reporting on investment performance to their clients. The good ones have always done this automatically, without any prompting from clients or regulatory bodies. But there are plenty of not-so-good “advisors” – more properly called hucksters and charlatans – who have tried to take advantage of reporting loopholes to avoid closer scrutiny of their often borderline-legal activities. They’re the ones who are in a flap about all this. Transparent reporting is the last thing they want.
That’s about to come to an end. Or at least, that’s the plan.
Fee reporting transparency
Canadian securities regulators, under the umbrella organization called Canadian Securities Administrators, have been working on enhancements to regulations regarding the disclosure of costs and performance data by securities dealers and advisors to their clients. As with all things bureaucratic, this particular project goes by an unwieldy title. It’s called the “The Client Relationship Model – Phase 2,” which is really a set of amendments to something called National Instrument NI 31-103. The idea behind this regulatory push, which has been in the works for the past several years, is to ensure that all investors get transparent, easy-to-understand information about the performance of their investment portfolios and a detailed picture of what they are paying.
The CRM2 has a three-year phase-in period that began in 2014, when dealers were required to disclose pre-trade costs and provide a general description of benchmarks.
Mandatory fee reporting starts July 2016
As of July 15 this year, new requirements for expanded account statements were implemented, including cost information and disclosure of market values using a prescribed methodology for most securities. Various statement changes come into effect as of Dec. 31.
Then, beginning on July 15, 2016, registered firms will need to report annually to clients on dealer or advisor fees and compensation for the products and services provided. This information must be provided in dollar terms for each client. Firms must also report on annual investment performance, including deposits and withdrawals, as well as changes in account value, and investment returns over the past one, three, five, and ten years.
For more information and details on these regulations, see CSA Notice of Amendments to NI 31-103 and to 31-103CP (Cost Disclosure, Performance Reporting and Client Statements).
If you don’t know, ask!
But don’t wait until next year, or even until the end of this year. If you don’t know what your advisor is charging you for portfolio or investment services, and you have no idea how your portfolio has been performing, ask your advisor for this information now. If you get the runaround, you’d be wise to look around for another advisor – one who will give you this information right off the bat.