What's Up With CRM II?

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Heads up… there are some regulatory changes to the investment industry coming down the pipe that we want to make you aware of when you receive your investment statements.

The Client Relationship Model Phase 2 (CRM2), is about to enter its final stage of implementation in July. These changes are the Canadian Securities Administrators initiative to improve the disclosure of performance, compensation and fees to investors.

In essence, the regulators are trying to provide transparency in the investment industry, which is a great move forward for Canadian investors. We firmly believe that strong business ethics and a fiduciary duty requires this level of transparency.

Portfolio Stewards Inc., a fully discretionary portfolio manager, already provides our clients with full disclosure of all fees as well as performance returns.

There are three primary questions that these changes should answer:

1. How have my investments performed?

2. What sort of fees am I paying in my portfolio?

3. What compensation is my investment advisor receiving, including commissions received from mutual fund companies?

Starting in July 2014 there were new disclosure rules that phased in over three years. All MFDA, IIROC and OSC regulated advisors must adhere to these new rules.

Timeline of changes:

July 2014:

Pre-trade disclosure of charges, fees and other costs; trade confirmations for debt securities to include compensation information; explanation of what a benchmark is and how it can be used to assess portfolio’s return.

December 2015:

Enhanced account statements – investors may request quarterly/monthly statements which disclose: market value, cost of each securities, which securities carry a DSC and whether a security is covered by an investor protection fund.

July 2016 (Final Phase): Annual charges and compensation reports – investors MUST receive annual cost and compensation reports that include charges paid to the firm as well as compensation from third parties. Annual performance report – required to receive reports that include the change in account value, a summary of deposits and withdrawals and percentage returns over the past one, three and five years and since inception.

It is worth noting that CRM2 disclosure only applies to securities and not segregated funds, principal protected notes, GICs and Canada Savings Bonds.

Keep an eye out for these changes on your statements. A note to our clients: Your quarterly reports and annual statements already disclose all fees paid as well as YTD, 1, 3, 5 and since inception returns. All-in-all, this is the right direction for the industry to be moving in, albeit disheartening that it has taken the strength of the regulators for many advisory firms to provide this level of reporting.

All examples are for illustrative purposes only and are not intended to provide individual financial, investment, tax, legal or accounting advice. This material is for general information and is subject to change without notice. Every effort has been made to compile this material from a reliable source. However, we cannot guarantee that information will be accurate, complete and current at all times. Before acting on any of the above, please make sure to see a financial professional for advice based on your personal circumstances.

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