CRM2 reporting by firms is good, but it could be better.
That’s the finding from the MFDA, which published a bulletin and report on Tuesday outlining the results of its examinations and CRM2 sweep last year.
“Overall, we have found that members have made reasonable attempts to comply with the new CRM2 requirements,” says the SRO in the bulletin. “Specific findings from our reviews […] were isolated to a few instances and have been addressed with the relevant members.”
Problems with CRM2 reporting
The report reveals, however, that some firms’ compensation disclosure could potentially increase clients’ confusion about fees.
For example, some firms used different terms for trailing commissions throughout their reports—and some firms didn’t use the required definition.
That lack of clarity about trailing commissions is a problem, considering the BCSC found in its CRM2 study that only 9% of investors were familiar with indirect fees paid by third parties to firms (although that figure is up from 0% before CRM2 was implemented).
In the MFDA’s report, one firm had negative cost and compensation balances in some cases. That’s because the firm “disclosed an estimated trailing commission but then deducted a trailing commission rebate, a management fee rebate and also deducted payments of intermediary fees paid by the member,” says the MFDA.
There were also instances where costs were reflected per fund held or per fund company, rather than per client account. And some members combined deferred sales charges and trailing commissions into one amount instead of reporting them separately.
With these and other issues identified in its report, the MFDA says it’s considering further CRM2 policy, including expanding cost disclosure.
To further the discussion on expanding cost disclosure, the MFDA says it will issue a document outlining current practices and identified issues, and request feedback.
The SRO will also continue to examine compliance with CRM2 as part of its exams and will issue guidance where appropriate.
For full details, read the MFDA’s CRM2 report.