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CRM 2: Suitable, But Not Sufficient

August 26, 2016

Below is an excerpt from Mo Lidsky, which was recently referenced in the Globe & Mail, on both the positive impacts and shortcomings of the new CRM 2 legislation for investors.

Fee transparency for financial professionals is long overdue in Canada. In fact, we are a few years behind the UK and Australia, where advisors, brokers and money managers are required to clearly outline their fees and charges on investment statements. CRM2, which stands for Client Relationship Model Phase 2, officially went into effect two weeks ago. This gradually phased in regulatory requirement will now provide Canadian investors with a clearer picture of almost all the fees associated with their portfolios.

Having said that, CRM2 fails to deal with the biggest challenge facing investors. Under the new rules, Canadian advisors are still under no obligation to tell their clients about opportunities that are in their absolute best interests; only those that are merely "suitable."

This means that when there are two similar investment strategies yet one has lower fees or better terms, the advisor is not required to tell their clients about the superior option. If one investment benefits the advisor more than the other, the advisor can choose to present only that opportunity. As a result, investors may miss out on the most compelling opportunities simply because a “suitable” investment better rewards their advisors.

If one presents themselves as a salesman of financial products, they can choose to present whichever option they like. But if one presents him or herself as an advisor, presenting inferior options with the knowledge of superior alternatives is simply not acceptable.

Only when advisors are obliged to inform clients of all available investment options can the industry claim true fee transparency and ensure that advisors are working in the best interest of their clients, not just their own pocket books.


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