CRM3 is here: The securities and insurance regulators announced that their total cost reporting (TCR) requirements have been adopted, which will lead to more comprehensive fee disclosure.
The disclosure is in addition to the current CRM2 fee disclosure in the annual fee report, and it is intended to make it easier for investors to see the embedded fees they pay on fund holdings. With TCR, dealer firms must provide investors with annual disclosure of the ongoing ownership costs of investment funds (including mutual funds, ETFs and scholarship plans). This disclosure will include:
- the total dollar amount of investment fund expenses and charges for all funds owned by the investor, and
- the fund expense ratio (FER) for each fund held by the investor.
FER is a percentage, representing the sum of the management expense ratio (MER) and the trading expense ratio (TER).
With TCR, investors will also receive for the first time information about the performance, cost and guarantees associated with segregated funds.
The requirements take effect for the year ending Dec. 31, 2026, with investors receiving the disclosure in early 2027.
Advice for dealer firms
Get started. Although the effective date seems a long way off, don’t wait to get started. This level of information has not been previously reported in this way, and it will be complex to sort out the issues around collecting the data in the manner and time frame required.
Start with the end in mind. While job one will be to solve for getting the required data, don’t wait to consider how to present the new information in the annual reports. If you start with the end in mind, you may even find that you need different data. Remember that the reports included in the requirements are only samples, and there will be different and better ways for your firm to provide the information to clients.
Reimagine your fee and performance reporting. Don’t just add the new information onto your current fee reports. Instead, use TCR as an opportunity to review and reimagine your annual fee and performance reports. Most firms have not sought client feedback nor reviewed the reports since they were launched through CRM2. Behavioural economics has also infused our thinking with a different perspective. This is a great opportunity to ensure that the information required collectively by CRM2 and TCR will be presented in a way that supports your firm’s story, is consistent with your firm’s value proposition, and is relevant to and understood by clients.
Remember that the annual reports are one of the most read pieces of communication that clients receive — they set the tone for their relationship with you. By stepping back to take a holistic view of your reporting, you may be able to significantly simplify and clarify it, benefiting both clients and your firm.
Get the right team. Make sure you have the right team working on TCR implementation. The team should include more than just representatives from compliance, legal and information technology; it should also include people with a client perspective.
Also, have at least a few people dedicated to the project, instead of having everyone work on it off the sides of their desks. This will provide the best path to successfully meet the requirements in a client-friendly way and by the deadline.
Advice for advisors
Don’t wait to start fee conversations. If you haven’t been having conversations about fees with all your clients, start now in order to get both them and yourself into the habit. The new TCR disclosure will introduce an entirely different element to the conversation, and it will be helpful to prepare and educate clients based on the CRM2 disclosure before the more detailed TCR disclosure starts.
Review your personal product shelf. The new fee disclosure will highlight differences between the ongoing costs of individual funds. Of course, cost is not everything, but you should understand the reasons for these differences and come to a view on whether they are justified. Some clients will ask.
Consider undertaking a review of your current personal product shelf to confirm that the funds you offer will stand the test of the new disclosure. If you need to make changes, that will allow you to make an orderly transition for your clients before the reporting begins for 2026.
Consider seg funds. This will be the first time that investors receive this level of information about holding segregated funds. The disclosure required includes information about a seg fund’s performance (including personal rates of return), total fees and charges, and the value of the guarantees. Advisors should ensure they understand the information that will be presented for seg fund holdings, and consider that information when they are recommending the sale of a seg fund.
Susan Silma is a lawyer and former regulator with a deep understanding of the client perspective, and is passionate about simplifying and humanizing the client experience in financial services.