Financial advisers in Canada have had their regulatory belts tightened a notch, with the coming into force last Friday of what is known there as Client Relationship Model, Phase 2, or CRM2.
CRM2 calls for advisers and wealth managers to provide their clients with an annual summary of the charges they’ve paid, as well as the compensation that the company receives. Service providers are also required to report to their clients on the performance of their investments.
Firms affected by the new rules have a year in which to comply.
The legislation, which is similar to regulations brought into force in many other countries around the world in recent years, including the UK, was intended by the regulator – the Canadian Securities Administrators – to ensure consumers were fully aware of any service fees, referral fees and commissions that they might be paying.
In addition to advisers and wealth managers, banks, dealers, insurance companies with asset management businesses and asset managers are also affected by the legislation, although some investment vehicles, such as segregated funds, are exempt, at least for now.
The coming into force of CRM2 is the third phase of a process that began two years ago with the introduction of pre-trade disclosure and adviser compensation reporting, and was added to in December 2015 with new regulations covering client statements.
In an investment advisory to clients earlier this year, Royal Bank of Canada said the pending regulatory changes aimed at providing “more clarity around investment costs and performance” would help investors “make informed decisions, by better understanding the value they receive for financial advice”.
However, Neil Gross, executive director of FAIR Canada, an investor rights group, told a Toronto Globe & Mail reporter last week that it remained to be seen whether investment product providers would “provide the key information up front, isolated and in a manner designed to attract the client’s attention, or buried in a sea of other information and account data”.