As the final phase of changes to the Client Relationship Model (CRM3) comes into effect, advisors and financial services firms will have to make sure they are ready to provide a greater level of transparency and fee disclosure to clients.
And while this may create some additional work for advisors, and come with new expenses, experts say CRM3 changes can also help build trust and strengthen advisor-client relationships.
“It goes back to the growing demand for transparency,” says Luca Congi, a principal within consulting firm Optimus SBR’s financial services group.
“We’re seeing a theme in the past couple of years around privacy and consumer protection. There’s more pressure to ensure that we have the right protection measures in place.”
The Financial Pipeline spoke with Congi as well as Simon Wood, one of its lead consultants on the CRM3 program, to break down some key considerations for advisors as they work with these new rules.
Here are a few key items to keep in mind:
- To comply with the CRM3 changes, advisors will need to be more knowledgeable about the fee breakdown. Since they are disclosing all the subsidy fees that a client incurs, they’ll have to factor in the cost implications of these fees when making a recommendation to the client. The statement will now show you, for instance, the respective fund expenses ratio percentages for each investment (which is a percentage derived from the total expenses of a fund to its total fund).
- Advisors will also have to ensure that they’re updating their day-to-day practices and are having conversations with their clients where they are able to answer and clarify any questions they have about the additional disclosure they may see on their statements.
- They should consider being proactive and having an upfront discussion about associated fees when suggesting investment options. It’s not just about the potential or upside, but also about why those investments are the right decisions, given the risk profile of the client and their demographic.
- Firms will have to deal with more vendors and understand where the data sits, as well as aggregating data to ensure that what they’re feeding into the statements is accurate and easily digestible by the client. That’s extra time and money that firms will have to invest, but it’s also an opportunity to add a different flavor, and sell their value-add to clients as well.
- Those dealing with investment holdings within Canada will have an easier time gathering data than firms whose investments are in the U.S. or a foreign jurisdiction. Since CRM3 is a Canadian regulation, there is no requirement (or the same requirements) for firms outside the country to comply with these regulations. Firms should keep in mind that they may not get the information, or when you get it, it may be in a format that’s not the same as the one used in Canada. They will need to account for that and still interpret that information to holistically aggregate everything to put on the statement.
