by Tom Bradley
With new reporting regulations coming to the wealth management industry in the New Year, clients will be better informed about what they’re paying for investment services. Until now, even the most diligent investors often couldn’t determine what their total cost was (we know this, because we regularly help prospective clients determine what they’re paying). With CRM2 (Client Relationship Model – Phase 2), this forensic work won’t be necessary.
Recently it was reported that CIBC has been fined and will pay compensation of $73 million for double charging its clients. In fee-based investment accounts (the client pays a fee based on the size of the account and is not supposed to pay any sales or trailer commissions), clients were not only paying an account fee, but were also paying commissions on products that were in the portfolio. This violation was self-reported and may have been discovered as the bank readies itself for CRM2 reporting.
I’ve said before that CRM2 should stand for Clients Raving Mad Too. Well, I can tell you that these dishonest activities by the banks (TD Bank and Scotiabank previously settled with the OSC for similar violations) make my blood boil. You can’t tell me that advisors and branch managers didn’t know this was going on. We’re aware of clients who are getting back many tens of thousands of dollars from CIBC, which means many tens of thousands of dollars of excess compensation was previously paid to advisors, branch and regional managers and the bank itself. There should be consequences for the people involved (fines, firings, suspensions and management changes), but instead the notice to clients makes the bank sound almost noble for “reviewing our processes on an on-going basis.”
We regularly win clients from the brokerage firms and can confirm that this practice is more common than it should be. CRM2 will shake out this kind of behavior. It isn’t perfect (it doesn’t include the management fees on funds and other products), but it will allow investors to see what they’re paying their providers.
Note: At Steadyhand, we have reported all fees (including management fees) in percentage and dollar terms since inception in 2007.