While it certainly has its share of concerns, the Investment Industry Association of Canada (IIAC) suggests that the forthcoming second phase of the Client Relationship Model (CRM 2) reforms represents an opportunity for the industry, not a hardship.
In his latest letter to the industry, IIAC president and CEO, Ian Russell, takes on the CRM 2 reforms, which will impose new requirements for investment cost disclosure and performance reporting. The first tranche of these changes takes effect in July, with the rest being implemented over the next two years. (See Investment Executive, A closer look at CRM and CRM 2, Special Feature.)
Russell acknowledges that the implementation of these reforms will be a “big challenge” for the industry; and, he lays out several concerns that the IIAC has with the process — including, the time firms have to adopt the changes, the duplication of requirements by both the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC), and the need for the CSA to ensure that it enforces the requirements on the firms that it regulates directly. However, he also stresses that both investors and the industry will benefit from the reforms.
“For investors, CRM 2 will provide a clearer understanding of the financial performance of their portfolios, and the fees and charges paid to advisors and their firms. For investment dealer firms and the industry, CRM 2 provides the opportunity to showcase the superior value of the investment dealer industry compared with other registrants in the marketplace, in meeting the client’s investment objectives and providing sound advice on the client’s financial affairs,” he says.
Indeed, Russell indicates that the IIAC supports the CRM reforms “because the requirements should be good for investors” — by improving transparency, advisor contact, and levelling the playing field among investment dealers, and with other sorts of firms — all of which should boost investor confidence and encourage more trading.
Moreover, it gives dealers a logical opportunity to prove their worth. “The comprehensive portfolio performance reporting rules, and mandated reporting of fees in a clear, comparable way, will stimulate a dialogue between the client and advisor about the value of the advisor – and not just about investment advice, but also in terms of other services provided by the investment dealer, such as trade execution, tax efficiency, tax reporting for the client and record-keeping,” he says.
“When clients ask, ‘Why am I paying for this?’ the advisor will have the opportunity to explain the value of the service for which the client is being charged – and the client will get a better sense of the value the IIROC advisor offers,” he suggests.
In the meantime however, the industry has some way to go in terms of finalizing the IIROC rules and implementing the reforms. “The very tight deadlines for implementation could create serious problems for many IIROC-registered firms,” Russell notes, pointing out that the project involves myriad technical issues, valuation concerns, and complications such as reporting off-book positions. “It will be more difficult for the smaller firms to keep pace with the workload,” he says.
And, given these challenges, the IIAC asks regulators to limit the creation of other new rules to “absolutely essential initiatives”.