What is CRM2?
CRM2 changes the way registered investment advisors and their firms disclose fees to investors.
Under CRM2, investment advisors must provide clients with:
- enhanced relationship disclosure information
- pre-trade disclosure of advisor fees and other charges
- expanded account statements
- annual reports on investment performance
- annual reports on charges and compensation
This sample Charges and Compensation Report details how investment fees are shown on an annual basis. Investors should have received their first Charges and Compensation Report between January and July 2017.
We created a video series that explains the various parts of CRM2.
Portfolio managers and many advisors charge a fee based on a percentage of the portfolio’s value. This fee is negotiated at the beginning of your client-advisor relationship, and pays for the cost of managing your overall portfolio.
These are amounts charged per transaction based on buying and selling stocks and bonds. The risk with a commission-based account is that an unscrupulous advisor could trade more than is warranted to increase their income.
Discount Brokerage Fees & Charges
Discount brokers vary in the services they offer and the amounts they charge. Generally, they charge a basic amount per trade, but may also charge additional amounts related to the number of trades and the size and the scope of the account.
Fee for Service
For fee-only services, the advisor charges a set (often hourly) rate and does not collect commissions. Fee-only advisors can avoid conflicts of interest and provide unbiased advice because they do not earn fees from the products they recommend.
Management Expense Ratio (MER)
Each fund pays its own operating expenses, including legal, accounting, and management expenses. The MER is the total of all expenses expressed as a percentage of the fund’s value. For example, if a $100 million fund has $2 million in annual expenses, its MER is 2%. The higher the MER, the more you pay indirectly for management and administration. MERs may be high because the fund manager actively researches, trades, and manages the fund, and there are high operating costs, such as legal fees.
A trailing commission is paid by the fund company to the advisor or salesperson each year as long as the advisor’s client stays in the fund. The trailing commission comes out of the management fee, not out of your account, so you may not have noticed it. Since different fund companies pay different trailing commissions to advisors, it may influence the advisor’s investment recommendation.
In September, 2020, the Canadian Securities Administrators (CSA) has adopted a trailing commission ban for dealers that do not make a suitability determination, such as online trading platforms that allow investors to buy and sell their investments on their own. The ban came into effect in all CSA jurisdictions on June 1, 2022.
Sales Charges or Front-End Load Charges
Paying a charge when you buy the fund is called an initial sales charge or front-end load charge. If you come across a fund without sales charges, be sure to compare other expenses, such as the MER.
Short-Term Trading Fees
If you sell a fund within a certain period, normally around 90 days, the fund will likely charge you. The purpose of this charge is to discourage investors from using mutual funds to make a quick profit by timing the market, and in the process decreasing the value of the fund.
Exchange-traded Funds (ETFs)
Management Expense Ratio (MER)
Each fund pays its own operating expenses, including legal, accounting, and management expenses. The MER is the total of all expenses expressed as a percentage of the fund’s value. For example, if a $100 million fund has $1 million in annual expenses, its MER is 1%. The higher the MER, the more you pay indirectly for management and administration. While most ETFs have lower MERs than mutual funds, some ETFs are actively managed. This may lead to a higher MER on a particular fund.