Fee disclosure and what it means for you, CRM2

Curtis HaighBlog

By Curtis Haigh – Financial Advisor – February 11th 2015 – There has been a lot of buzz in the financial services industry over the last year or so about a new level of transparency for advisors, fund companies, and investment dealers.  The buzz surrounds a new level of transparency known as the “Client Relationship Model, Phase 2 – or CRM2“.   Various new client disclosure requirements will be phased in over the next few years, aimed at improving consumers knowledge of the fee’s attributed to their investment and retirement accounts.

Effective July 15th, 2016, investment brokers and dealers will be required to provide two new annual documents.    One of the documents which will outline account-performance, summarizing how investors did over various standard measurement periods.  This report will go into further detail including calculation of money-weighted return, customized according to when new money was deposited (new funds added to an RRSP or TFSA, for example), and when it was taken out of the account.

The second document will disclose fees and other charges, itemizing the cost of everything from embedded trailer-fee (commissions) to redemption fees, point of sale commissions, switches, administration fees and an aggregate dollar figure for the 12 month period.

The Canadian consumer has been demanding increased disclosure for ages, and now it will be implemented.  Given this new disclosure it’s no doubt there are many advisors out there who are fearful of disclosing how much they are compensated for their services to their clients, especially annual fee’s.  Some fear their clients will ‘wise up’ to the fact there is a small percentage of their yearly returns that are being allocated to paying them.  I ask, however, why is there such frustration with communicating to clients how we are paid?  If we are doing a great job of consistently communicating with our clients, meeting with them on a regular basis, responding to their specific needs and risk tolerances, wouldn’t they feel comfortable we are being compensated for our services?  After all, we have to keep the lights on too. If an advisor rarely meets with a client and collects a commission based off of the total value of their account, then a consumer has a perfect right to question the fee’s being charged to that account, and perhaps should consider a new advisor.

To put what we do into perspective – we as advisors have to maintain our licensing (which is a separate costs for each province we are licensed in – which will bring me to another rant/blog all together!), maintain a high level of product knowledge, obtain continuous education throughout the year, keep our professional liability insurance up to date, pay rent or mortgages on our offices, buy supplies, as well as run sophisticated systems and technology to communicate with our clients etc.   All of these requirements have a large cost associated to them.  If we are doing our jobs, then clients should understand there is a fee attached to this, and that is representative as a management expense to their portfolios.

Canadian household debt is staggering at an average of over 160% of our income and increasing, while retirement savings are dropping every year.  Canadians should demand a high level of service from their advisors to help guide them to investment and retirement success and estate preservation.  I am 110% on board with the new regulations and disclosure requirements and believe going forward this will do nothing but help bring clients and advisors closer together.