newspaper with a headline that says "stock market'

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.


Subscribe for future Insights

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Contact Us
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Copyright © 2021 Prime Quadrant Corp. All rights reserved. Privacy Policy

The offering, sale, and/or distribution of the products or services described on this website are not intended for any U.S. Person. If you intend to obtain any product or service from Prime Quadrant that is described on this website, you must first inform Prime Quadrant whether you are a U.S. Person. This website and its contents do not constitute an offer or invitation to purchase or subscribe for any securities or a solicitation of any offer to sell any securities to U.S. Persons. “U.S. Persons” are generally defined as natural persons residing in the United States, or entities organized or incorporated under the laws of the United States. U.S. citizens living abroad may also be deemed “U.S. Persons”.

References herein to Prime Quadrant refer to Prime Quadrant Corp., which is registered as a Portfolio Manager and Exempt Market Dealer in Alberta, British Columbia, Manitoba, Ontario and Quebec, and as an Investment Fund Manager in Ontario and Quebec.