Help clients understand CRM II

Change creates opportunity. And Canada’s securities industry is in the midst of significant changes that signal a new era in investor information, as well as opportunities for advisors to strengthen their client relationships.

Improvements in the way information is presented to investors, known in the industry as CRMII and Fund Facts, are putting Canada firmly ahead of the rest of the world in providing clear and full information to investors. These changes are creating opportunities for dealers and advisors to adopt consistent language and practices that will put Canadians in an even stronger position to understand their investments and get the most out of their relationships with their advisor.

Read: Will there be a CRM III?

For investors, the new rules mean they will start to see more use of plain language and clearer, timelier presentation of information.

For advisors, it will mean revising their sales processes to ensure it complies with the new rules (e.g. pre-trade disclosures) and determining how this will impact the way they communicate with their clients.

With the first round of CRMII changes, which took effect in July 2014, advisors are required to inform investors of the costs of an investment purchase in advance of the trade—a practice many were already following—and begin to educate investors about benchmarks.

Read: CRM II requirements for 2014

But benchmarks and pre-trade disclosure are only the front line. Starting in July 2015, investors will see changes to their statements, with book cost or original cost being listed for each security. By the end of 2016, investor statements will go through further transformations as consumer-friendly reporting of performance and costs, in dollar terms, becomes mandatory.

To be successful, the investment funds industry must commit to going beyond simple compliance with the new rules. It must deliver on the spirit of CRMII by encouraging everyone within the sector to adopt consistent approaches that will enable consumers to easily understand the costs and performance of their investments.

Read: IIROC gets ok to change rules for CRM II

So what this mean for an advisor? Let’s use the explanation of benchmarks as an example. The rule says an advisor must provide an explanation of what benchmarking means to their clients. Compliance only demands that some sort of explanation be given. But benchmarks are not part of most investors’ everyday experiences, and a complex explanation may be poorly understood or, worse, misapplied. The opportunity to deliver on the spirit of CRM lies in providing a clear, plain language explanation that uses concepts easily understood by the average person, and in following up with a conversation that helps the investor understand both the benefits and limitations of using benchmarks to evaluate performance. IFIC offers tools to help advisors with these conversations.

Complying also means being ahead of the requirements to help prepare investors for the changes they will see in their statements. Research tells us that many investors take time to review their statements thoroughly, for example, to translate fees expressed in percentages into dollars and cents. Advisors can take advantage of the rollout to prepare and discuss new elements, such as book value or original cost, with clients and explain how it relates to the investor’s own account.

Regulators will be monitoring the effectiveness of CRMII and Fund Facts, and assessing whether we can succeed in improving investor behaviours and decision-making. It’s important to the industry and our clients that these initiatives are implemented effectively.

By addressing these matters early and directly, investors will gain a more sophisticated understanding of their advisor’s services, and a better appreciation of the value they add in the long term.

Joanne De Laurentiis is president and CEO of the Investment Funds Institute of Canada. She is an expert in managing and guiding multi-stakeholder financial services organizations. She has served in a leadership capacity for several organizations including Credit Union Central of Canada, Mondex Canada and the Interac Association. Currently, she serves on the Board of the Southdown Institute, a not-for-profit treatment centre, and the Ontario Press Council.