This year, the Canadian Securities Administration (CSA) is instituting a new type of regulation for the financial industry called Client Relationship Model 2 (CRM2). It’s a bland name for an important topic. That’s because, for the first time ever, advisors have to show their clients the cost of every fee they’re being charged. We’re talking everything from redemption fees to switching fees to embedded trailer-fees and more. It’s a commitment to transparency unlike anything Canadian investors have ever seen, as many types of fees have traditionally been buried in fine print or even gone undisclosed.
In addition, advisors will have to provide their clients an annual report on how their account is performing using what’s called a “money-weighted” rate of return, which essentially means you will be able to see how your account is doing relative to the original amount you invested.
Does all this sound extremely technical to you? That’s because it is very technical. Which begs the question—what good does transparent information do if you can’t understand it?
- Don’t understand what all the fees mean or why you’re paying them
- Don’t know whether the fees you’re paying for financial advice are on the high end or the low end
- Don’t know whether your investment performance justifies the amount you’re paying
Here’s what you have to do:
Your advisor will be required by law to provide you with this account information in writing for the period covering January 1, 2016 to December 31, 2016. However, this information will not be made available to you until sometime in the first quarter of 2017. You shouldn’t wait until then to find out these important details.
You should contact your current advisor and ask them these important questions:
- What actual fees you are paying and what each fee means
- Explain the actual performance of your investments relative to the appropriate benchmarks
- Discuss whether you are paying too much for the investment advice and performance you are getting and what other options may be available to you
For years, we’ve been helping people make investment decisions enabling them to work toward their financial goals. When the government first announced CRM2, we greeted the news with a shrug; mainly because we've been disclosing that sort of information to our clients all along. We feel strongly that investors need to understand exactly how much they are paying for investment advice they are receiving.
Click on the links below for more information: