How young advisors can take advantage of CRM 2

By Craig White and Grant White | February 9, 2015 | Last updated on September 21, 2023
3 min read

Everyone in the financial services industry has now heard of CRM 2, as our compliance supervisors and management have been preparing us for the regulatory changes for years.

We think the new emphasis on transparency for fees and performance is going to make our business stronger than ever. So here’s how young can prepare for their many more years in the business.

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There will be two new annual documents that we’re required to disclose, as of July 2016. One is an account performance, which will summarize how an investor did over various standard measurement periods. This report will require calculation of money-weighted rates of return, customized to when new money was deposited or taken out of the account. The second report will disclose fees and other charges. This report will itemize the cost of everything from embedded trailer fee commissions, redemption fees, transaction commissions, switching fees and account administration fees. The report will also provide an aggregate dollar figure over a twelve-month period.

This greater fee transparency could lead to some sticker shock for clients. How can you cope?

Read: How to answer common fee questions

Prepare clients for this change by being transparent now. Transactional advisors who charge commissions on trades will likely have a harder time adjusting to this new fee reality compared to advisors who are already charging billing clients via a fee-based account. The in the latter scenario, clients are less likely to be surprised by the fees. So young advisors should structure their businesses with CRM2 in mind from the start.

Aside from being fee-based, we’ve also taken steps to make sure clients understand the value we’re providing and what exactly they’re paying for. We provide clients with an itemized list of services that that breaks down the costs. We will also likely implement annual reports for each client, which itemizes the specific services that were provided during the past year. And if clients have questions about our fees, we’re happy to answer them.

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For instance, one client that we recently signed worked with transactional advisors in the past. He questioned why he should pay a monthly management fee, even if we don’t make any trades in his account, or if the account loses money. We explained that our role is not just facilitating trades in the market. We provide a full wealth management service offering, complete with financial, tax and estate planning, as well as banking, planned giving and insurance advice. The client saw that we were providing a much wider range of services than his previous advisor.

Also, we asked the client about his past experience with transactional fees. In particular, we focused on when the advisor had been in contact with the client and when he hadn’t. He told us that when markets were good, the advisor had been in contact regularly. But when markets were poor, the client barely received any contact at all from his previous advisor. We explained that we had no incentive to increase or decrease our communication depending on what the market was doing. And even though we might not make any trades, we’re still monitoring and taking steps to ensure the client’s portfolio generates the performance we all expect. After hearing this explanation, the client was convinced and happy to accept the new method of billing.

As CRM 2 continues to take shape, not every advisor may be prepared. So there will be a lot of clients who may be unhappy with their advisors, and look for change. If you can clearly demonstrate your value proposition and the cost of your services, you’ll have a great opportunity to bring on a lot of new clients. And suddenly, CRM 2 doesn’t seem so bad.

Craig White and Grant White

Craig White and Grant White are investment advisors at Craig & Grant White Family Wealth Management Group, National Bank Financial.