Newly published research by the CSA shows beneficial shifts in investor and industry behaviour post-CRM2
The Canadian Securities Administrators (CSA) has released two research reports examining the investment fund industry and investor behaviour post-implementation of the Client Relationship Model Phase 2 (CRM2) Amendments.
These amendments, which came into effect in 2016, aim to enhance transparency in the financial information disclosed to investors, specifically regarding the costs and performance of client accounts.
The research suggests a shift in industry behaviour in directions aligned with the study's hypothesis on the impact of these regulations. It highlights that disclosure-based regulations may effectively alter industry and investor behaviour.
Stan Magidson, CSA chair and CEO of the Alberta Securities Commission, stated, “The main findings of the reports reflect positively on investment fund industry trends, as both average fees declined, and investment performance improved over the study period.”
From 2013 to 2020, the research examined changes in management expense ratios (MERs) and management fees across mutual funds and exchange-traded funds (ETFs), finding both had decreased.
It noted a migration of investment assets towards funds that charged lower fees and that investment fund managers had reduced the fees they charged investors.
Additionally, there were improvements in risk-adjusted, gross investment performance according to the study’s model benchmarks. The research showed no evidence of fund managers and product distributors shifting to products outside the CRM2 requirements.
The period of the study, limited to 2013-2020, was chosen to isolate the impact of the amendments from other regulatory and market developments that could influence the analysis.
The CRM2 amendments to National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations provide investors with clear, annual disclosures of their investment performance and all associated fees, including registrant compensation.
However, it is crucial to acknowledge that the changes in industry behaviour cannot be solely attributed to the CRM2 amendments, as other unaccounted factors may have also played a role.
The CSA, as the council of securities regulators from Canada’s provinces and territories, works to coordinate and harmonize regulation for the Canadian capital markets.
