Advisor Insights is in plain Word format so that dealers can apply their own branding to the materials. An IFIC-branded version is also available.

Transcription

1 CRM RESOURCES IFIC members are making IFIC-produced CRM communications tools available to all industry participants in the belief that consistent communication through broad sharing of these materials is of benefit to investors. Visit our website for resources to help advisors build their knowledge and talk to their clients about the changes arising from CRM2 and the value that an advisor delivers. Topics covered so far include information about rules that came into effect in July This includes pre-trade disclosure and benchmark disclosure, including a plain language description of benchmarks to share with clients. New tools will be added over the coming months, including additional reports and issues of the advisor-focussed information bulletin Advisor Insights. Advisor Insights is in plain Word format so that dealers can apply their own branding to the materials. An IFIC-branded version is also available. IFIC members, can login to access the complete roster of member resources. For more information, visit us at: IFIC Members: Non-Members:

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3 Advisor Insights Benchmarks Disclosure Effective July 15, 2014, dealers must provide a general description of benchmarks to their clients. This requirement is part of the new rules prescribed by the Canadian Securities Administrators (CSA). The rules are often referred to as CRM2, which stands for Client Relationship Model, Phase 2. What CRM2 means for mutual funds is that investors will receive timely, easy-to-understand, detailed information about the cost and performance of their funds. In the first phase, effective July 15, 2014, the industry must provide a description of benchmarks, and pre-trade disclosure of costs. More information on pre-trade cost disclosure is provided in a separate issue of Advisor Insights. The benchmarks requirement can be met by adding a description of benchmarks in the Relationship Disclosure Document. The description should be written in plain language so that consumers at all levels of financial knowledge will understand the concept. On page 2 is a description (also available in French) of benchmarks that IFIC has prepared to assist you in updating your Relationship Disclosure Document and discussing benchmarks with clients. What s ahead? CRM2 is being phased in over three years. By July 2016, investors will begin to receive statements showing, in dollar amounts, the costs associated with each of their products. A separate statement will tell investors how well their investments have performed in dollar terms and percentage terms over several time periods. The mutual funds industry supports CRM2 and believes the changes will allow investors to make better informed decisions about their investments. Informed investors are more committed to saving and creating a more secure financial future for themselves and their families. 1

4 Information to share with your clients What is a benchmark? A benchmark is information that helps you compare performance. Students compare their marks to the class average to understand how well they did. In the same way, an investment benchmark helps you understand how well your investments performed. Choosing the right benchmark You would not compare your math mark to the class average on an English test. In the same way, you must not compare your equity fund to a benchmark for bond funds. There are many different benchmarks and it is important to use the right one. Some funds do not use benchmarks. A fund that uses a benchmark will list it in its Management Report of Fund Performance. You can get this report online. You can also ask your advisor for this information. Important notes for clients Investment benchmarks are usually a group of securities known as a market index. One common example is the S&P/TSX Composite Index. A market index provides good historic information but it isn t a perfect comparison to your investment for three reasons: A market index does not reflect the costs of managing and operating a mutual fund. To compare your mutual fund to a benchmark, subtract the fund costs from the benchmark. A market index measures performance over a specific time period. If you held the mutual fund over a different time period, it will not be a perfect match. Benchmarks use a time-weighted formula to calculate performance. The statement that you will receive after 2016 will use a moneyweighted formula to calculate your return. For these reasons, your return might not mirror the benchmark for the fund. If you have questions, speak to your investment advisor or visit Prepared by Connect with us The Investment Funds Institute of Canada 2

5 Advisor Insights Pre-Trade Disclosure Effective July 15, 2014, clients must be advised of the costs (immediate or deferred) associated with the sale or purchase of a security, including mutual funds, investment funds and ETFs. This requirement is part of the new rules prescribed by the Canadian Securities Administrators (CSA). The rules are often referred to as CRM2, which stands for Client Relationship Model, Phase 2. What CRM2 means for mutual funds is that investors will receive timely, easy-to-understand, detailed information about the cost and performance of their funds. In the first phase, effective July 15, 2014, the industry must provide a description of benchmarks, and pre-trade disclosure of costs. More information on benchmarks disclosure is provided in a separate issue of Advisor Insights. Q : What costs must be disclosed? The following costs must be disclosed: The charges your client will pay for the purchase, or a reasonable estimate if the actual amount is not known at the time of disclosure, Details of any deferred charges that the client might be required to pay, including the fee schedule that will apply, Any trailing commissions that will be received. The CSA has recommended that advisors explain the following terms to their clients during pre-trade disclosure. This information can be found in the Fund Facts: Management fee Sales charge or deferred sales charge option available to the client Any other redemption fees or short-term trading fees that may apply Trailing commission, or other embedded fees Options regarding front end loads Fees related to the client changing or switching investments The following items are not included as part of pre-trade disclosure: Account operating charges Foreign exchange spreads Margins that cannot be attributed to a specific transaction 1

6 Q : How is the disclosure to be made? Disclosure can be provided in writing or through a discussion. Reviewing the Fund Facts with your client is an acceptable way to meet the pre-trade disclosure requirement. In particular, focus on the section How much does it cost?, which describes sales charges, fund expenses (including trailing commission) and other fees. In addition, make reference to the section A word about tax. Q : How should the disclosure be documented? Your dealer will have a process for documenting client discussions. At a minimum, you should record in your client record the topics that you have discussed. What s ahead? CRM2 is being phased in over three years. By July 2016, investors will begin to receive statements showing, in dollar amounts, the costs associated with each of their products. A separate statement will tell investors how well their investments have performed in dollar terms and percentage terms over several time periods. The mutual funds industry supports CRM2 and believes the changes will allow investors to make better informed decisions about their investments. Informed investors are more committed to saving and creating a more secure financial future for themselves and their families. Prepared by Connect with us The Investment Funds Institute of Canada 2

7 CHANGE IS COMING CRM2: A New Era in investor information The goal of CRM2 is to provide investors with timely, easy-to-understand, detailed information about the cost and performance of their mutual funds. By 2016, investors will receive statements showing, in dollar amounts, the costs associated with each of their products. On the performance side, investors will see how well their investments have performed in dollar terms since they started to invest, and their percentage rate of return over several time periods. CRM2 will lead to more informed investors, which will result in better conversations between investors and advisors. The industry is embracing the changes, and collaborating to ensure their smooth implementation. IFIC is creating a repository of information to help advisors across the industry prepare for implementation. The new rules are being phased in over three years. Key measures begin to take effect on the dates indicated below. Key Implementation Dates Date Status Requirements July 15, 2013 July 15, 2014 July 15, 2015 July 15, 2016 Dec. 31, 2016 Rule goes into effect and transition timeline established. Include benchmark information in relationship disclosure document. Disclose fees before a transaction (pre-trade disclosure). Include book cost or original cost on statements. Record necessary information to generate performance report. Provide performance report showing percentage rate of return for various time periods using a money-weighted calculation. Provide cost disclosure report showing in dollars and cents all fees and charges paid in the year and total trailer commissions received by the dealer in the year. First performance and cost report to be delivered. (For firms using a year-end date for performance report) For more information, visit us at: IFIC Members: Non-Members: