Four key CRM2 reporting terms clarified

A recent statement from CRM2 Navigator explains four specific reporting terms that advisors need to be able to explain to their clients

As CRM2 has officially taken effect, advisors are now compelled to adjust to new reporting requirements, which include new report formats, performance measures, and terminologies. Understandably, there’s a learning curve to be negotiated, as pointed out by a newly published post on the CRM2 Navigator Blog.

“At CRM2 Navigator, we’ve discovered through our work with both advisors and investors that there’s a lot of confusion around the new performance reporting based on the money-weighted approach that’s required by CRM2,” the piece says.

New CRM2 Annual Account Reports will be sent to investors starting January 2017, which will doubtlessly elicit many questions from them. The post does not delve into all of the potential sticking points, but four specific report items are highlighted and clarified:

  • “Since Inception”: this is the regulatory term prescribed to indicate the start of the reporting period. In other words, it is the starting point on which performance calculations must be premised. According to the post, many firms are choosing to use January 1, 2016 as their starting date.
  • “Change in Market Value”: Indicates the market value of an account at the beginning of the reporting period.
  • “Contributions and Withdrawal”: Shows inflows to and outflows from the account, as well as the change in value of investments in the account.
  • “Money-weighted rate of return”: this is the calculation method used to measure performance on CRM2 reports. The formula is very involved and technical, and there is concern that it would intimidate clients already overwhelmed with plenty of technical jargon in their current reports. To get around this, many firms are referring to the new measure as a Personal Rate of Return, and Individual Rate of Return, or a Percentage Return.

According to the post, while the new terms may initially present challenges, they are important for advisors to be able to more clearly explain the performance of their accounts and any costs they have incurred. These performance measures and standards can also be helpful in tracking a client’s progress towards a specific goal.

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