In the second of two parts, Pangea Private Family Offices CEO Declan Ramsaran follows Northland Wealth Management
CEO Arthur Salzer
’s comments from yesterday on CRM2. Advisors might want to pay attention.
Here then are Declan Ramsaran’s observations on CRM2:
The question of how CRM2 will impact family offices is a provocative one.
Provocative because, for those families who are paying close attention, CRM2 will begin to lift the curtain to reveal whether they’ve been dealing with a genuine private family office or not. Some may be in for a surprise.
Generally speaking, family offices currently exist in two forms within the Canadian wealth management context: Private
family offices or corporate
family offices. A private family office is one that a family decides to establish for the sole purpose of overseeing their private family affairs. This private structure is usually flexible enough to accommodate significant degrees of customization, including tailored reporting that heightens transparency for effective management of the family office operation.
Regular reporting and fee transparency are cornerstones in effective family office oversight therefore private family offices may only be marginally impacted by CRM2.
Corporate family offices in Canada that are owned by large financial institutions will have gaps to close in their reporting. Bank owned family offices will have to provide investment information for the most recent one, three, five and ten-year periods since their clients’ accounts were opened. The reporting will require calculation of money-weighted rates of return, adjusted according to when new money was deposited or taken out of the account.
The large financial institutions that are tackling the CRM2 challenge and advertise family office services will likely experience one of two reactions from their existing family office clients:
1) A large portion of those clients may not even blink twice at seeing the new detailed fee information because of the strong relationships they have with their advisors.
However, CRM2 terms like, “dollar-weighted percentage return” may cause some clients’ eyes to glaze over as they dread yet another list of financial acronyms to learn – the DWPR,
or the TWRR.
2) A smaller segment of those clients however will silently question the value they’ve been receiving when compared to the banks’ private banking offering or full-service brokerage offering.
You see, CRM2 will require the banks to report itemized costs of every fee from RRSP administration fees to embedded trailer-fee commissions, to redemption fees, sales commissions & product switching fees and the reporting will show a total dollar cost for the immediately preceding 12-month period. This sticker shock may create some dissonance.
In the end, clients’ best interest will be considered as a top priority as new reporting changes are implemented for bank owned family offices to remain compliant. CRM2 securities regulators are rightly focused on equipping Canadian investors with transparent information to assess their investment performance against their objectives.
Our firm is on the same page.
Declan W. Ramsaran
Pangea Private Family Offices