Fredi Magazine Winter 2016 / Volume 2 Issue 2 - Page 32

» the financial corner FINANCIAL CORNER uestion Q ARE YOU READY? Having worked as a financial advisor for 15 years, I have come to understand that the key must-haves for all of my clients are objectivity, service, and a unique financial skill set to customize their portfolio. Each one of these points is equally important, however, right now transparency is perhaps the most crucial. It’s crucial because of CRM2, which is coming into effect this January. CRM2, or Client Relationship Model II, is a new industry-wide disclosure mandate designed to provide investors with greater transparency in cost and performance. This is good news for everyone, including our industry in general, as this increase in information will provide a level of detail on the performance and fees that many investors may have not ever seen. FROM JASON IN WOODBRIDGE WHAT SHOULD BE INCLUDED IN MY RELATIONSHIP WITH MY FINANCIAL ADVISOR? MEANING, WHAT SHOULD I EXPECT TO RECEIVE IN RETURN FOR THEIR FEES? r e w s n A BY ROCCO DIPASQUALE The key deliverable a financial advisor provides is a comprehensive financial plan, which establishes needs for tax, estate, inheritance and charitable gift So what exactly does CRM2 mean for you, the investor? For starters, it will be mandatory that all investment dealers regulated by the Investment Industry Regulatory Organization of Canada (IIROC), firms regulated by the Mutual Fund Dealers Association (MFDA), such as respective mutual fund distributors of each of the major banks, and also investment counselling firms regulated by the provincial securities commission in Canada, send out two new documents for every account you have investments in. You can expect these two documents to be delivered to you by early 2017. The first document is called an Annual Charges and Compensation Report. This document will detail all the costs that have been paid out in the past year for investment management, account administration, transaction charges, commission-paid trailing commissions, etc. It is important to know that there are 32 • fredi winter 2016 planning. Over and above this, an advisor should provide an Investment Policy Statement that customizes solutions for man- no changes to the costs you are paying as a result of these new reports. These reports are meant to provide a detailed breakdown of what you have paid to your advisory firm in the previous year. The trailing commissions are disclosure for clients who have investments in mutual funds. Mutual funds have built-in costs calculated as the Management Expense Ratio (MER). This is a percentage that is paid on an annual basis to cover the costs associated with operating the fund. A trailing commission can be included as a component of the mutual fund MER fee for some mutual funds. In these instances, fund companies pay ongoing fees called trailing commissions to the firm for which your advisor works. The second document is called an Annual Investment Performance Report. This report will detail how much money was in the account at the start of the reporting period, how much was contributed, withdrawn and what the rate of return was on that portfolio. This rate of return is meant to show you how your investment account performed by using what’s known as a “money-weighted” calculation, which is sometimes referred to as your “personal rate of return.” The importance of these two new statements should not be underestimated. Knowledge is power and when it comes to your money, you simply cannot risk being ill-informed. I highly recommend that you use these two new documents to their full measure. Read them closely; they’ll give you insights that will help you decide if your financial advisor is giving you true value for the fees you pay. aging risk to achieve targeted rate of returns over long periods of time. To create and maintain the above requires ongoing research on specific holdings, markets and the economy—all of which needs to be explained and communicated to you on an ongoing basis. You should also expect regularly scheduled meetings to review your portfolio, as well as review any changes to your life that affect overall financial wellbeing. Lastly, an advisor should be willing and able to collaborate with your existing professional advisors, such as lawyers and accountants, to integrate your wealth plans. This article is supplied by Rocco DiPasquale, an Investment and Wealth Advisor with RBC Dominion Securities Inc. (Member–Canadian Investor Protection Fund). This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. ROCCO CAN BE REACHED AT 905 738 8877 OR ROCCO.DIPASQUALE@RBC.COM LIFE&STYLE //