Question

This question relates to the Client Relationship Model.

REQUIRED:

1. In your own words, describe the investment client-related issues that the Client Relationship Model was initially created to resolve (in 2009).
2. Again, in your own words, explain why further development of the Client Relationship Model was required in CRM2 (e.g. explain why CRM2 was required in 2013 after the original CRM changes were implemented.)

Answer 1

a) CRM came into force in September 2009. Before then there was no detailed, written disclosure requirement governing key aspects of the relationship between the dealer/advisor and the investor. Many firms did provide disclosure but there was variation in practices across the industry, and not all disclosure was provided in a single document. CRM harmonized registration requirements across the securities industry and required each firm to create one standard document – the Relationship Disclosure Document – that clearly sets out the key issues in the relationship, including the types of products that are sold, how suitability is determined, obligations of the dealer, responsibilities of the investor, compensation, conflict of interest, proficiency requirements and dispute resolution.

The consistent level of disclosure mandated through CRM provides investors with clearer, simpler information that is easier to understand. This has positively influenced advisors’ conversations with clients when they open or review accounts.

b) The second phase of changes, known as “CRM2”, was finalized in July 2013. These changes further enhance the advisor-investor relationship, in particular through an enhanced client reporting requirement that came into effect in July 2016. Once this requirement is fully implemented in 2017, each investor’s statement will show, in dollar amounts, all costs paid to the dealer firm associated with the investor’s account. On the performance side, investors will see how their investments have performed – in dollar terms – since they started to invest and their personal rate of return over several time periods.

By enhancing the disclosure of costs and the performance of the account, investors will have important information to help shape conversations with their advisors regarding the service and outcome they are receiving, and the specific costs involved.