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Thoughtful approach needed to implement CRM2

By Susan Yellin | December 02 2014 10:44AM

CRM2, the three-stage regulatory initiative that will increase transparency and disclosure to mutual fund investors, is an “inverted iceberg” that will touch investors often and must be implemented thoughtfully, a panel told members of the industry Oct. 8 in Toronto.While a good chunk of most icebergs is underwater – representing the behind-the-scenes work done by regulators, compliance, dealers and advisors – CRM2 work is up front and public, with much of it aimed at clients.

“There will be lots of ways CRM2 will impact on your clients and I think it’s important that people be aware of that,” said Susan Silma, a lawyer responsible for the launch of CRM2 when she was at the Ontario Securities Commission (OSC).

Silma, now co-founder of CRM2 Navigator, said both the OSC and the Canadian Securities Administrators (CSA) undertook a number of surveys prior to putting together CRM2 indicating that investors wanted to know two major issues about their portfolios: how their funds were performing and the amount of fees and other costs. When CRM2 is finished its final phase in July 2016, it will provide annual reports on both performance and charges and compensation.

But not implementing the various stages properly could set “money in motion. As a result, a thoughtful approach to implementation is important so that advisors know how to talk to clients and clients aren’t surprised or shocked by what they hear or see.”

Barb Amsden, managing director at the Investment Industry Association of Canada, cautioned that dealers and advisors shouldn’t rush from requirement to implementation, especially in light of all the provincial and federal regulatory changes coming about in the industry.

“We are trying to do everything possible to inform the client without overwhelming or confusing the client,” said Amsden. “It’s really all about achieving a balance.”

Risk methodology

In addition to CRM, the industry recently implemented Point of Sale. In the works are proposed risk methodology changes for mutual funds, a discussion paper on mutual fund fees and a paper dealing with fiduciary duty, said Bruno Carchidi, vice president, compliance and chief compliance officer at Dynamic Funds.

If advisors and dealers thought the current regulations were interrupting their businesses, there is more down the road, said Carchidi.

For example, he said that if the risk methodology paper is accepted as is, a number of mutual funds will have to change their risk ratings. “So that could cause much disruption to the advisor and the dealer community. We estimate that hundreds of thousands – if not more – would need to be repapered or mutual funds sold due to the risk rating change.”

The result of all of these current and expected changes is the possibility of confusing and surprising everyone from the client to the advisor and compliance personnel, said Silma.

Advisors need to take a more strategic approach to the regulations by taking the lead and starting conversations with clients, talking about the value they provide to their clients and walking them through the changes, she said.

She also suggested that dealers meet and exceed the needs of their clients by designing reports aimed at advisor’s specific target base, perhaps by simplifying language, to ensure ongoing dialogue between the client and the advisor.

“In order for this to succeed for all of us, we are going to have to get in front of and direct, not react to, that conversation.”

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