MFDA issues revised CRM2 FAQ

first_img CRM2 fee disclosures fail to enlighten, empower investors: report Keywords Client relationship modelCompanies Mutual Fund Dealers Association New guidance from the Mutual Fund Dealers Association of Canada (MFDA) spells out how integrated dealers should report their compensation to clients as required by the second phase of the Client Relationship Model (CRM2). The MFDA on Tuesday published a revised frequently asked questions (FAQ) document on that provides guidance to fund dealers as they adopt the remaining CRM2 requirements that are designed to enhance transparency to clients. Related news First enforcement, now an exemption TD Waterhouse fined $4 million for ignoring CRM2 Share this article and your comments with peers on social media James Langton Thanks to relief granted by the Canadian Securities Administrators (CSA) earlier this year, firms have until Dec. 31 to implement certain measures that were slated for adoption by July 15. The remaining CRM2 amendments are still on track to be in effect by July 2016. The revised FAQ provides responses to a number of issues that have arisen as firms have begun implementing the CRM2 reforms. For example, the rules will require dealers to provide clients with new annual reports on the cost of their investments, and the compensation received by dealers (starting in 2016). One of the issues that has arisen is how firms that have integrated manufacturing and distribution should report their compensation if they don’t generate account-specific commissions on the sale of proprietary products, but instead have internal revenue-sharing arrangements. In recent months, there has been some debate about whether these sorts of firms should be required to report the total cost of investing to clients, or if they should be allowed to allocate a portion of the total cost to distribution, and just report that estimate to clients. The revised FAQ indicates that firms will be allowed to use either approach. “[Dealers] who receive transfer payments instead of commission revenue must make a reasonable estimate of what [they] would have received if it earned commission revenue,” the revised FAQ says. “For example, [dealers] can base their estimate on compensation that would have been earned by third party dealers from the sale of the same or similar products.” Alternatively, reporting the total costs paid by the client to the combined corporate entity, including both manufacturing and distribution revenue, also meet its requirements. “In either case, the description should be sufficiently clear so as to provide clients with an understanding of the services to which the compensation relates,” the revised FAQ says. Other issues addressed in the revised FAQ include: calculating book cost in certain situations; how referral fees and rebates should be reported to clients in different circumstances; assorted performance reporting issues, including the valuation and reporting of clients’ holdings in GICs and segregated funds; and the division of certain reporting responsibilities between introducing dealers and carrying dealers, and between dealers and fund companies. The guidance also clarifies that charges and compensation related to seg funds will not have to be included in the new annual reports to clients. Although, the revised FAQ suggests that it would be a good idea to include these instruments. “In the interests of providing more fulsome reporting to clients, and where reliable data is available, we would encourage [dealers] to provide disclosure on the Report on Charges and Other Compensation in respect of non-securities investment products,” the revised FAQ says. “Such disclosure will further assist investor decision-making and is consistent with the obligation of [dealers] to deal fairly, honestly and in good faith with their clients.” Facebook LinkedIn Twitterlast_img read more