The latest changes to the Client Relationship Model (CRM3), also known as total cost reporting, partly came into effect in January 2026, and will need to be part of all investment statements by January 2027.
This follows on CRM1 and CRM2, which brought in additional information transparency regarding fees investors paid for particular investments. Combined, the three phases aim to bring a new level of disclosure and transparency around the fees investors pay.
The Financial Pipeline spoke with Luca Congi, a principal within consulting firm Optimus SBR’s financial services group, and Simon Wood, one of its lead consultants on the CRM3 program, to break down what these changes will mean for investors and for financial professionals.
Financial Pipeline: What are some of the key aspects of CRM3 that investors and advisors should understand?
Luca Congi: Ultimately, it’s total cost reporting. The spirit of this regulation is about providing more transparent information to clients on the cost of their investments. This has been a bit of a black box in the past, and throughout the regulations, there are now more granular details around what that cost looks like to your investment decisions. It now includes your direct and indirect costs – your management fees, advisory fees, performance fees, administrative costs. It goes into greater details around all the things that make up your portfolio as you make your decisions. From an advisor perspective, it gives them an opportunity to look at their client relationships and experience a little better. It gives clients more information, and ultimately it’s going to help them make better decisions on their investments and portfolios. It’s really about transparency and helping clients work with their advisor to make the right decisions.
FP: How is CRM3 different from the previous two iterations of the regulations? What are some of the biggest changes that investors might want to know about?
LC: When you look at CRM1 versus CRM2 and now CRM3, think of it as building blocks. CRM1 was really the basics around providing that visibility, transparency, soliciting basic performance disclosures, basic information on fees. (It was) pretty high-level stuff; a little more information. CRM2 (included) greater terms around transparency of the fees, your performance measurements, your commissions. It provided a little bit more granularity, and CRM3 takes it to the next level, especially around the costs and investments. The biggest challenge here is the back-end engine that needs to make this happen. It really becomes a very large data exercise, and you want to make sure (all this information) is also clear and easy for clients to digest.
Simon Wood: It was simpler for the FIS (financial information systems) that were tasked with delivering this with CRM1 and CRM2 in that all the information existed within the respective books of record. With this iteration, you’re reliant on third parties. So that means, if you invested in three different fund companies, all the dealers are required to get that information from each of the fund companies. That adds a layer of complexity to it. When you invest in a mutual fund, you’re not always aware that there’s an implicit cost associated with that fund. This is a way for the regulation to level the playing field, so the client gets the full picture as far as how much costs he or she incurs as a result of investing.
FP: Are there any downsides to having this kind of disclosure?
SW: I don’t think there’s a downside to it. With all the failures in the late 2000s in banking, it’s a natural progression where the regulators are realizing that transparency is key for the client. It’s difficult for firms because they’re (incurring) costs to create these statements – and there’s no implicit revenue benefit from that. But from a client perspective, it’s a more holistic view into your account to see exactly how much you pay for each investment. It helps the client make more meaningful decisions about how they spend their hard-earned funds.
LC: Like any regulation, it’s a cost. That has different impacts depending on the size of your book and size of your organization. The other side of this, from a change management communications perspective, is that the advisors need to understand what these statements are going to look like, so they can be prepared to answer any questions that may come their way. They may have to take a more proactive approach to ensure that they’re maintaining a positive client experience. If utilized correctly, this can actually build good client relationships, build trust, which is all paramount in this business. But it could also have a reverse effect, if you’re not able to answer the questions or aren’t disclosing (this) verbally … and (fees) show up on your statements. From a firm perspective, when it comes to regulatory spend, organizations (could) look at this as an opportunity to help transform their operation. Whether that’s relooking at their processes, their technology, or at different ways to operate their business, or to improve their employee experience, their customer experience, their efficiencies. You’re already setting aside x number of dollars to abide by this regulation, so (how do you) use it as an opportunity to dive a little bit deeper, to say, ‘if we’re spending this money, how do we get more bang for our buck?’
FP: If you look ahead, do you see another level of CRM changes being implemented in the future, and if so, what might that look like? Or have we reached a decent level of disclosure for now?
LC: I definitely don’t see any further change happening anytime soon. This is fairly robust, and, quite frankly, it’s pretty extensive. It has taken quite a bit of effort and investment to get to this level, and it is providing a level of granularity that I think would satisfy that level of transparency. Where I could potentially see an evolution is in line with financial products, as they evolve, (regulators) may want to incorporate things like digital assets, cryptocurrency, that sort of thing. Potentially, you can see that coming down the pipe. But again, given how long this is taken I don’t see anything changing anytime soon.
FP: When you look back at what we’ve seen with the CRM changes, which span about a decade and a half, what is your view on what those changes have done to the industry?
LC: From a client perspective, you have more visibility, more information, greater transparency. It only enables you to have more information to help manage your portfolio effectively, without relying on what’s going on behind the scenes. From an advisor or firm perspective, obviously, there’s a cost to it. They have to make sure that they’re making the right investments, to ensure that you get the right data, that the data is accurate, that you’re working with your advisors to make sure they know what they’re talking about from a change management communications perspective. At the end of the day, your more advanced key players in the field, the ones that do right by their customers and their clients, they’re going to excel. If you don’t know how to use this as an opportunity to help further cement your client relationships, further cement the client experience, you may not benefit as well from it. The ones that are going to take this and look at it from a positive perspective and utilize this information to help drive further relationships with their clients, and build that trust and further cement their relationships, I think it’ll work out well for them as well.
This interview has been edited and condensed for clarity.
