In July 2015, IFIC’s first CRM2 Myths and Facts backgrounder helped clarify
many aspects of the rule for journalists and investors. This 2017 version
repeats a few of the original myths and introduces several others that are
Myth #1: CRM2 applies mainly to mutual funds.
CRM2 applies to more than mutual funds. It applies to all securities and
applies to all dealers and portfolio managers registered with any Canadian
securities commission. The securities commissions are encouraging firms to
include non-securities products in client reporting, to the extent
Myth #2: Investors received two new reports last month.
Dealers have until July 14, 2017, to begin sending these reports to their
clients. In the majority of cases, investors arereceiving these
reports in the first quarter of 2017. This is because most firms chose to provide the information on a calendar-year basis (January to
Myth #3: The industry does not want investors to know how much they are
Studies have shown that more than half of mutual fund investors are already
aware of their fees and discuss fees with their advisors. As CRM2 is
implemented, this number is expected to rise.
The investment funds industry fully shares the regulators’ goal to provide
this new information to clients. The information will strengthen investors’
understanding of their investments and improve investors’ conversations
with their advisors. These are positive outcomes.
IFIC is launching a social media campaign: “It’s your money. Find out
more.” to help raise investor awareness.
For more information:
A Toolkit for Dealers and Advisors
Myth #4: The new report on investment performance provides
benchmarks so that investors can evaluate their personal returns based
on a benchmark.
In most cases, the report on investment performance will not provide
benchmarks. The report focuses on the individual investor’s Personal Rate
of Return and this cannot be compared to a benchmark.
The Personal Rate of Return is based on the individual investor’s specific
deposits into and withdrawals out of his/her account, as well as dividends
and interest earned within the account and changes in the value of the
securities held within the account. Since each investor has a different
combination of deposits and withdrawals, each investor could have a
different Personal Rate of Return.
Benchmarks help evaluate the performance of a fund over a time period,
which can be compared to other funds. However, benchmarks do not take into
account the timing of an individual investor’s day-to-day deposits or
For more information:
Understanding Investment Performance
Myth #5: The report on charges and compensation tells investors how
much their advisor is being paid.
The report on charges and compensation provides details about the money
received by the dealer firm over the previous year to provide services to
the investor. A portion of this money may be paid as compensation to the
investor’s financial advisor. The report on charges and compensation does
not provide a breakdown of how much is paid to the advisor and how much is
kept by the dealer firm. Each firm determines this amount differently,
based on its business model and split in responsibilities between the firm
and the advisor.
Services provided by the dealer firm may include (1) administration (e.g.,
processing transactions, preparing quarterly account statements and other
reports, product review, etc.), (2) advice, i.e., the expertise an advisor
provides to investors, such as helping them determine their financial
needs, investment objectives and risk tolerance, providing suitable product
recommendations and portfolio construction, and ongoing review, meetings,
account monitoring and portfolio rebalancing, and (3) investor protection,
which includes supervising accounts, conducting trade suitability reviews,
and ongoing account reviews.
For more information:
Infographic: Value for your mutual fund fees
Myth #6: The report on charges and compensation tells investors the
total cost of their investments.
CRM2 focuses only on the amount paid either directly or indirectly by an
investor to the dealer firm. For mutual funds, it does not include the
amount paid to the investment manager. For an understanding of the total
cost of a mutual fund, investors can review the fund’s management expense
ratio (MER), which can be found in the Fund Facts document for the
individual mutual funds, as well as a fund’s financial statements.
For more information:
Understanding Services and Fees
Myth #7: Investors will have sticker shock when they learn how much
their dealers are being paid and this will lead them to switch to less
Predictions of investor “sticker shock” are largely exaggerated. The
average MFDA financial advisor channel account at the end of 2015 was
approximately $46,000. For accounts consisting of funds with embedded
commissions, the average dealer compensation is between 50 to 100 basis
points, which is approximately in the range of $230 to $460 annually.
Cost is not the only factor that goes into a purchase decision. As
investors become increasingly knowledgeable, their confidence in investment
funds will grow because of the strong benefits that they offer Canadians.
Investment funds provide unique access to capital markets, allowing
individuals to diversify their investments across a wide spectrum of asset
classes and geographic areas without having to set aside the time and
develop the expertise to build their own portfolios from scratch.
There is no other product that offers the same combination of opportunity,
flexibility and protection.
Myth #8: Mutual funds in Canada are among the most expensive in the
This claim first appeared in a 2011 Morningstar report, which became a
source for other reports and commentators. However, in 2015, Morningstar
published an update that concludes that a more proper comparison would
place Canada at: “the top half of lower fee markets” in the 25 countries
that were studied.
The flaw in the original analysis was a failure to recognize a key
difference in the expense ratios reported in different countries. In
Canada, published expense ratios generally include the cost of advisor
services. In the U.S. and several other countries, most investors pay an
additional fee for advisor services, and this fee is not captured in the
reported expense ratio. To properly compare expense ratios with Canada, the
advisor fee must be added to expense ratios in other countries.
Comprehensive research conducted in 2012 and 2015 by independent research
firms in the U.S. and Canada showed conclusively that costs to advised
investors on both sides of the border are almost identical: 2.02% (before
taxes) in Canada and 2.0% in the U.S.
For more information:
Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios A
Canada-U.S. Perspective – 2015 Update
Myth #9: Advisors are not ready to talk to clients about the new
The industry has worked hard over the past three years to familiarize
advisors with details of CRM2 and provide plain language materials for
investors. Firms developed new business processes and systems to
accommodate the rule. Fundserv Inc. undertook substantial network upgrades
to facilitate a new functionality that enables fund managers to report
trailer fees and commissions at the investor account level and provide
distributors with the necessary details to prepare and test new cost and
performance reports to meet CRM2 requirements.
Extensive training of advisors and staff took place over the past few
years, including a CRM2 module made available at no charge by IFSE
Institute to teach financial advisors about disclosure requirements and
advisor obligations under CRM2.The industry worked together through IFIC to
produce an extensive series of tools and documents (several of which are
listed below) to significantly enhance public/investor understanding.
For more information:
Advisor Insights: Answering Your Clients’ Questions about the
Performance of their Investments
Advisor Insights: Answering Your Clients’ Questions about Services and
Advisor Insights: An Opportunity to Strengthen Your Relationships with
Infographic: Value for Your Mutual Fund Fees
Website material for investors: Understanding Investment Performance
Website material for investors: Understanding Services and Fees
Continuing Education Module on CRM2 Requirements
Infographic: Reach Your Financial Goals
Advisor Insights: Advice Creates Strong Value for Canadians
Advisor Insights – CRM2 Myths and Facts
Model Report on Charges and Compensation: CRM2 – 2016 Requirement
(April 13, 2015)
Model Report on Investment Performance: CRM2 – 2016 Requirement (April
Advisor Insights – Benchmark Disclosure (IFIC) – IFIC-branded
Advisor Insights – Pre-Trade Disclosure (IFIC) – IFIC-branded
CRM2 (“Client Relationship Model – Phase 2”) is the name of set of rules
developed by Canada’s securities regulators to make it easier for Canadians
to understand how their investments are performing and how much they cost.
In the final stage of CRM2, investors are receiving two new annual
reports – one on dealer charges associated with their investments and the
other on investment performance. Companies have the option of incorporating
this information into their clients’ account statements, or providing it in
the form of separate reports. As noted above, most mutual fund investors
are seeing these reports in the first quarter of 2017.
CRM2 was preceded by CRM1 (known simply as “CRM” at the time). The purpose
of CRM1 was to provide disclosure to clients at the time that they opened
their accounts regarding aspects of the relationship, including any
conflicts of interest that might exist. CRM1 went into effect with the
implementation of National Instrument 31-103 and subsequent rule amendments
by the MFDA and IIROC. CRM2 builds on this disclosure by providing clients
with annual reports indicating how the individual client’s investments have
performed, and what compensation the dealer has received.
Sara Clodman, Senior Manager, Public Affairs, Investment Funds Institute of
Canada. Email: firstname.lastname@example.org Telephone:
Content provided by
Investment Funds Institute of Canada
(IFIC), the voice of Canada’s investment funds industry. IFIC brings
together 150 organizations, including fund managers, distributors and
industry service organizations, to foster a strong, stable investment
sector where investors can realize their financial goals. By connecting
Canada’s savers to Canada’s economy, our industry contributes
significantly to Canadian economic growth and job creation. The
organization is proud to have served Canada’s mutual fund industry and
its investors for more than 50 years.
Notes and disclaimer
Content © 2017 by the Investment Funds Institute of Canada.
All rights reserved. Reproduction in whole or in part without prior written
permission is prohibited. Used with permission.
The foregoing is for general information purposes only. This information is
not intended to provide specific personalized advice including, without
limitation, investment, financial, legal, accounting or tax advice. Mutual
funds are not guaranteed and are not covered by the Canada Deposit
Insurance Corporation or by any other government deposit insurer. There can
be no assurances that a fund will be able to maintain its net asset value
per security at a constant amount or that the full amount of your
investment in the fund will be returned to you. Fund values change
frequently and past performance may not be repeated. No guarantee of
performance is made or implied.