CRM2 – What Does it Really Mean for You?

Many of you may have heard or read about the upcoming 2016 CRM2 investment reforms. More importantly, you may have already begun to wonder; how, if at all, does this really affect me? More importantly, is this something that you have to worry or think about?

The CRM (Client Relationship Model) initiative is a comprehensive reform package designed to promote transparency, enhance investor protection, and raise industry standards with the end goal of empowering Canadian investors.  All advisors and professionals who deliver investment services to individual Canadians must follow these reforms. Advisors required to follow these reforms fall into 3 different advisor categories: IIROC regulated investment advisors, [bank owned and independent security advisors] MFDA regulated independent mutual fund advisors, and provincially regulated portfolio management firms [Tulett, Matthews & Associates].

The reforms were started in 2013 and are expected to be completed by 2018. In 2016 the industry will be implementing important measures in CRM2. The focus will be on increasing clarity and transparency on two main fronts: 1) investor performance and benchmarking, and 2) advisory fee reporting. By providing performance reports and comprehensive fee reports, Canadians will have a much better idea of how they are doing and how much they are paying for advice. This will provide Canadians with a better start point to review the value of services they receive from their advisory firm.

Unfortunately, many Canadians do not receive clear information on these fronts. Regrettably, most Canadian investors have NEVER seen a performance report on their total investments, nor are they aware of the cost of their advisory services. These new reforms will not only help investors get better clarity on their investments, but they will also make advisory groups more accountable to their clients.

Does CRM2 really matter to our clients? Absolutely. However our clients have already been benefiting from most of what the spirit of CRM2 has set out to achieve. Sure there are specific changes we will be making to comply with the new universally prescribed standard; however, most of this framework has already been in place since the inception of TMA in 1995. In short, the best practices (on performance reporting and fee disclosure) in these 2016 reforms have been part of the norm for registered portfolio management firms. What is really happening here is that the rest of the industry (IIROC investment advisors and mutual fund dealers) is being mandated to operate at our portfolio management firm’s standards. Up to now there were really two worlds of transparency; a less than transparent and murky world and a transparent world. Our clients have experienced the transparent world.

Let’s take a closer look at two of the biggest areas affected by CRM2’s new reporting requirements:

1) Performance & benchmarking – Our clients have had the benefit of regular personal performance reporting and asset class benchmarking since the inception of the firm. Originally, our clients received semi-annual performance and account statements; now they receive those statements quarterly. We have been reporting time-weighted returns up to now but in 2016 we will be changing to money weighted returns. We will explain the difference in greater detail in our upcoming meetings. However, for our clients the time weighted return and dollar weighted returns should be relatively close to each other due to our investment philosophy and disciplined approach to portfolio management.

2) Management fees – Starting in 2017, advisory firms will be required to produce an annual report stating all fees across all accounts, for the 2016 calendar year. Canadian investors might experience some degree of sticker shock once this is implemented – especially if they have not had these discussions with their advisory firms. We look forward to presenting this new consolidated report to you and it will be found at the end of your performance account statement.

Over the past 20 years we have worked hard to provide our clients with fee transparency. Up to now, we have disclosed all Tulett, Matthews & Assoc. investment management fees in the following ways:

• As a percentage of assets in your annual meeting agenda (annual)
• As a percentage of assets in your Investment Policy Statement (every 3 years)
• In absolute $ in your TDWIS / NBCN monthly statements for all accounts (cumulative monthly)
• In absolute $ via annual non registered account invoice – for tax deductibility (annual)
• As a percentage of assets through the TMA Relationship Disclosure Information document. This document also shows all costs related to working with us.

Tulett, Matthews & Assoc. has been fully supportive of the CRM reforms since the outset. We think that CRM2 will set a more universal standard for transparency and will ultimately improve the quality of service that Canadians receive from the investment industry. We are very pleased that our clients have essentially been at the forefront and have been experiencing many of these best practice transparency standards since becoming clients.

We thank you for your support and continued trust.