Businessman hand showing financial report on table

Although mutual fund dealers are doing an acceptable job of complying with the second phase of the client relationship model (CRM2) requirements, there’s still work to be done, according to a new report that the Mutual Fund Dealers Association of Canada (MFDA) issued on Tuesday.

The MFDA’s report sets out the results of its compliance reviews on the latest CRM2 requirements, which demand greater disclosure of the costs of investing and dealer compensation, and a focused CRM2 compliance sweep. The report indicates that firms are generally doing a reasonable job of complying with the new requirements, but that there are still areas where they are falling short.

For example, although the report indicates that the “majority” of dealers are disclosing deferred sales charge (DSC) commissions adequately, the MFDA found that a few dealers that were reporting DSCs and trailer fees bundled together. In addition, one firm didn’t report its DSC commissions at all.

For the firms with integrated mutual fund manufacturing and distribution, the MFDA repport says that most firms that did not receive trailer commissions provided clients with estimates of the amount that they would have received had they acted as a third-party dealer. As well, a few integrated firms “disclosed the total costs paid by the client to invest and hold mutual funds, which included management fees and fund operating costs,” the MFDA report states.

“In the view of MFDA staff, total cost provides the most accurate and meaningful disclosure to clients,” the report adds.

The self-regulatory organization (SRO) reports it also saw one dealer report negative compensation after estimating a trailing commission, but then deduct “a trailing commission rebate, a management fee rebate and also deducted payments of intermediary fees.”

Among the other issues the MFDA saw include: a few firms reported costs on a per fund, or per fund company basis, rather than per client account a few deficiencies with dealers’ account statement disclosure; and instances of firms using boilerplate disclosure that didn’t accurately reflect their operations.

The MFDA’s report notes that the SRO will continue to examine compliance with CRM2 as part of its examination process and may issue further guidance where appropriate.

“The reviews we have conducted so far, however, have identified areas for further policy consideration, including expanding cost disclosure,” the MFDA’s report states, adding that the SRO plans to issue a paper on possible options for enhancing the cost disclosure requirements.