CRM-2 – Preparing Now for 2016

2nd Annual PMAC Compliance Forum September 18, 2013 Prema K.R. Thiele Rebecca A. Cowdery

CRM was big – but CRM-2 is massive

100+ new and revised requirements

• Complex (and not always intuitive) rules and high regulatory expectations, coupled with the rise of investor advocates

• Multiple transition dates

• Affects everyone in your firm - dealing and advising reps, compliance staff, senior executive and boards

CRM-2 preparation cannot be developed “as needed” Bottom Line:

• Done right, CRM-2 can enhance your clients’ experience • Done without a plan or sufficient knowledge and understanding,

CRM-2 could be costly and increase regulatory risk

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WHAT’S CRM-2 ALL ABOUT?

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The essence of CRM-2

Giving retail investors tools to help them make better investment decisions and to assess how well their chosen “service provider” [dealer, rep., PM] is serving them • Not so concerned with institutional investors (“permitted clients”)

Five major elements • Clearer and more complete conversations between clients and reps

• Amended RDI (before account opening)

• Amended account statements (quarterly)

• New report on costs and charges

• New report on investment performance

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THE ART OF CONVERSATION

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Expectations on your reps

Enhancing the relationship and client understanding through discussion • Taking clients through the RDI before account opening

• Pre-trade disclosure (as of July 15, 2014) [non managed accounts]

• Discussion of various (new and enhanced) annual reports and content

Challenges • How much time do you need to spend?

• The “art of conversation” – how to train reps to comply, but also to

convey information

• What if a client doesn’t want to hear? And doesn’t hear? And doesn’t get it?

• How do you document that the conversation took place? And monitor

that conversation?

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AMENDED RDI – WHAT NEEDS TO BE IN WRITING?

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Enhanced expectations

Clarity on relationship, with some additional education Now: Charges and fees your firm charges, plus an

explanation of mutual fund fees (as applicable) 2014: Benchmarks – how you use them and how a client

should read/use them to assess account Now to 2016 – Explanations of the various reports clients

will get Important document – combo of a regulatory document

and a way to differentiate your firm

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AMENDED ACCOUNT STATEMENTS

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Enhanced requirements – July 15, 2015

NOW: At least quarterly – more frequent if client asks • Are you doing this now and, if asked, could you provide monthly statements?

2015: Nominee name v.s. client name – must be split out • Does this apply to you?

• How will you determine and obtain the information?

• How will you create the new account statements?

2015: New market value determination

2015: New position cost information • Original cost or book cost? What will you provide?

Now – 2015 – How will you deliver account statements?

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NEW REPORT ON CHARGES AND COMPENSATION

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New Report – July 15, 2016

Total operating charges, transaction charges, trailing commissions and other payments charged to the client over past 12 months • Can you get this information?

• What will this include?

• Systems enhancements

• Who will write the report (template)?

• Client name v.s. nominee name – does this apply to you?

When will you provide this report? • Same date for all?

• Anniversary date of opening account

• How will you provide it?

How can you make this information meaningful?

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NEW REPORT ON INVESTMENT PERFORMANCE

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New Report – July 15, 2016

Includes: • Market value at beginning and end of period, and annual change and

cumulative change in market value

• Market value of money and securities transferred in/out of account during period and since account opening

• Annualized total percentage return at 1, 3, 5 and 10 years periods

• Challenges in choosing the inception date

Money weighted rate of return • Why was this chosen?

• What can you do about it, if you feel it’s not the “right” measurement?

Coordination with other statements • How will you disseminate and coordinate with other statements?

How can you make this information meaningful?

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HOW WILL YOU PLAN YOUR PROJECT FOR CRM-2 COMPLIANCE?

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Project Plan

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Project Plan

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What’s the Reality?

For you? Who is doing what now?

How can the regulators assist?

What can the industry do? PMAC?

What should your clients be doing?

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Thank you!

Prema K. R. Thiele

Partner

Borden Ladner Gervais LLP

416-367-6082

pthiele@blg.com

Rebecca A. Cowdery

Partner

Borden Ladner Gervais LLP

416-367-6340

rcowdery@blg.com

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