At long last, we’re reaching implementation of the regulatory initiative known as CRM2 (shorthand for the second phase of the client relationship model). Once it kicks in fully in July 2016, investment firms will have to give clients clear and straightforward information about how their investments are performing and how much they’re paying for the service their advisors provide. In a word, CRM2 is all about transparency.

Getting to this point hasn’t been easy. Progress has been slowed by the investment industry’s deep worry that CRM2 may cause seismic upheaval when investors are shown the full cost of products they’ve been sold and the impact of those costs on their investment returns. Nevertheless, most thought leaders in the industry seem to have come around to the view that greater transparency is necessary, or at the very least inevitable.

Despite this progress, it’s troubling to read that a prominent mutual fund company has begun counselling advisors to use euphemisms and overt message management when talking to clients about fees. According to a news article published on this website on Oct. 22 entitled What not to say when discussing fees, the firm in question recommends, among other strategies, that advisors avoid using the words “fees” and “commissions” altogether and instead substitute “costs” or “standard charges” during client conversations. This is disturbing on several levels.

Airbrushing away the word “commission” will obscure the fact that the advisor’s remuneration is tied to sales, thereby concealing — rather than making more apparent — important information about the nature of the advice provided. That sort of camouflage runs contrary to the spirit of CRM2.

It’s also inconsistent with the letter of CRM2, which requires firms to use the term “trailing commission” on account statements. Those statements will just be harder to decipher if advisors use different terminology, especially cryptic words designed to obscure how they get paid — and that surely will undercut the very core of CRM2’s transparency mission.

Hopefully, therefore, this one firm fond of artful linguistics will prove to be an outlier, and the majority instead will accept that transparency demands a willingness to present the truth in an unvarnished state and also a willingness to be upfront with the most critical information. This information must be presented prominently to ensure it’s really drawn to the client’s attention — and not merely made “accessible” but engulfed in a mass of details.

And so, will we get truly transparent written presentations under CRM2? Unfortunately, it’s not clear we will. The regulation stipulates what must be included in annual performance and compensation reports, but no presentation format is mandated. This could yield suboptimal results.

For example, a prototype recently unveiled by one industry source featured three pages densely packed with seven tables of figures and four charts, and then added a glossary defining 25 terms used in the preceding pages. No doubt this was meant to illustrate what’s required under CRM2. However it also effectively bypassed CRM2’s real purpose by failing to place right up front — in isolated, highlighted, bold and inescapable format — the key pieces of information CRM2 aims to convey, namely:

  • What was the investor’s real rate of return net of all fees, commissions and other expenses?
  • How much did it cost the investor, in dollars and cents, to earn that real rate of return?
  • How much were the advisor and the advisor’s firm paid (from all sources) to provide whatever advice and services the investor received?

It’s probably fair to assume that most retail investors will not wade through seven tables of figures and four charts to find the answers to those questions. A great many investors simply lack the ability to do so. Even among those who can, many just aren’t interested in anything except the “bottom line.”

All investors should be able to see their bottom line plainly at the beginning of the report — preferably without additional information on the first page distracting attention. It’s fine to add the rest of the detail in the pages that follow. Some investors certainly will find those details useful, and regulators are to be commended for ensuring the information will be there for those who want it.

But as policy-makers chose not to dictate the format of CRM2 reports, it’s now up to the investment industry to show leadership on this. If the industry embraces transparency in its communications, both written and oral, then CRM2 has potential to be a great step forward. However, there’s no room for semi-transparency; so for CRM2 to succeed, the industry must curb those within its ranks who may be tempted to be opaque.


Read the response from Invesco Canada Ltd. to this column: Plain language is not spin,, November 12, 2014.