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This past Friday marked a big day for investment companies. Broker-dealers entered the next phase of CRM2, a rule created by the investment industry that has significant technology implications.

Created by the Canadian Securities Administrators, the new Client Relationship Model rules are designed to give Canadian investors more transparency over the investment fees that they’re paying, and how their assets are performing. At the end of phase three, which began July 15, broker-dealers (the firms that buy and sell financial assets on behalf of investors) will be required to deliver two new reports to customers.

The first is the fees and compensation report (example here), which requires broker-dealers and their advisors to show clients exactly what fees and commissions they’re paying. The second is a performance report that shows specifically how that client’s investment is performing based on when it was purchased (and, if appropriate, when sold). For an example of that, see here.

Designed to increase accountability and trust among investor clients, these reports require a lot of heavy technological lifting at the back end.

“The technology needed to provide that to investors is very significant,” explained Michael Stanley. He is president & CEO of Quadrus Investment Services, one of the firms that has to meet these requirements. He also chairs the CRM2 communications task force at the Investment Funds Institute of Canada (IFIC).

“Because it’s a personal rate of return and money rated, there are intense computational elements and that requires significant horsepower,” he said, adding that some firms are turning to cloud technology to handle the computing squeeze.

Perhaps even more challenging than that, though, is data cleansing and integration.

“The biggest challenge in working with the industry on CRM2 is identifying where all of the data needs to come from in order to facilitate the reporting that’s required,” said Donna Bristow, managing director, business and product management for investor communication solutions at Broadridge, an investment communications software firm.

“Most broker-dealer firms have multiple systems for fees and performance,” she explained. “Clients identifying where that data is coming from and then working with us to translate that data into the requirements that CRM2 needs has been the biggest speed bump for the industry.”

Officially, broker-dealers don’t have to start delivering these reports until the cut-off date of July 14, 2017, a year after phase 3 begins. In practice, though, many of them want to be ready by the end of this year, so that they can send out a year-end report that provides data for an entire calendar year of transactions.

That means that many of them will be in the testing phase during the next few months, as they run the complex calculations on transaction data to tell clients just how much money specific mutual funds or stocks made (or lost).

Darren Chong, vice president of distribution systems at wealth management firm Assante, explained that the intricate nature of the financial calculations involved, along with the diverse nature of financial assets involved, makes testing a daunting task.

“The nature of rates of return means that accuracy is really important. While the development itself wasn’t necessarily easy, where a lot of the heavy lifting happens is the testing,” he said. “That’s countless hours, and we’re currently three quarters of the way through.”

For CIOs in investment firms, the next few months will be a busy time. After that, the real work starts: handling the calls from customers who will only then realize how much they’re paying for specific investment services, and explaining the value that they’re getting. For some financial services companies, that could be the toughest task of all.



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