CRM2: Two family office titans speak out – Part One

CRM2: Two family office titans speak out – Part One

CRM2: Two family office titans speak out – Part One Northland Wealth Management CEO Arthur Salzer and Pangea Private Family Offices CEO Declan Ramsaran talk turkey when it comes to CRM2. With our CRM2 print issue out shortly, their remarks are timely and welcome.
Originally, we had intended to run both of their missives one after the other in a single article. However, because they’ve both been so thorough in their thoughts, we’ve decided to run Arthur Salzer’s today and Declan Ramsaran’s tomorrow.
Here then are Arthur Salzer’s views on CRM2:
We think that the CRM2 legislation plays an important role for the Canadian investor from the smallest to the largest investor and as a firm we welcome CRM2.

It’s our position that the more transparency between and advisor and their clients the better. When we provide additional information to our clients about the cost, market value and performance of their investments, as all advisors will be required to do under CRM2, we create the opportunity for discussions with the client that we may not have had otherwise. 

Speaking with our clients is always a good thing, and listening to our clients is even better.

If the additional disclosures of CRM2 lead to more questions from our clients then at the very least we have been given an opportunity to listen to our clients and get a better understanding of what is important to them.

The goal of CRM2 is to empower clients through the provision of better information. We agree with the goal of empowering financial consumers. 
As a firm, while we welcome CRM2, we also face some industry-wide challenges with its implementation.

The easiest challenge to meet is the full transparency of fees charged to the client.

As a licensed portfolio manager we’ve been providing this to clients for many years now. It may pose a larger problem for advisors that are members of self-regulatory agencies and may not have been disclosing their trailing commissions in a direct fashion to their clients. I would not wish to face that difficult conversation when they explain that they aren’t providing advice for free.

Another challenge: CRM2 will require firms to present performance data to clients using the Money-Weighted Rate of Return (MWRR). Like most firms that are licenced as portfolio managers, we have been presenting performance information using the Time-Weighted Rate of Return method (TWRR).

The two measures can give different performance results for the same portfolio over the same period.

Only providing the required MWRR will make it difficult for the client to compare the new performance measurement to past performance on old statements, or to compare performance with generally accepted TWRR benchmarks or with US-based advisors.

We are glad to say that as of September 2014 our new statements provide both MWRR and TWRR performance measurement at both the account level and on a consolidated basis in order to meet all current and future requirements of CRM2. 

Arthur C. Salzer, CFA
Northland Wealth Management