Effectively immediately, the Canadian Securities Administrators (CSA) will no longer require all advising representatives (ARs) to have stock-picking expertise. Instead, specialized client relationship managers (CRMs) whose advice to clients will not include stock-picking may register as CRM ARs without stock picking experience, subject to a set of standard terms and conditions on their AR registration. These changes will provide portfolio manager firms more flexibility to divide client service responsibilities between stock-picking teams and specialized CRMs.
The key terms and conditions applicable to CRM ARs will include the following:
No analysis or selection of individual securities. The CRM AR may not give advice that includes analysis of the securities of any specific issuer, or recommendations or decisions to buy, hold or sell the securities of any specific issuer, whether on a discretionary or a non-discretionary basis.
Permitted activities. The CRM AR may:
- recommend model portfolios and pooled funds designed by an AR (an Unrestricted AR) who is not subject to terms and conditions that restrict their capacity to advise in respect of the relevant individual securities which make up the model portfolios and pooled funds,
- determine asset allocations for clients' accounts, and
- formulate and draft investment policy statements.
Activities requiring approval of Unrestricted AR. The CRM AR may do any of the following provided the activity is consistent with advice previously given or approved by an Unrestricted AR of the firm:
- communicate with clients regarding investments in individual securities,
- direct trades in individual securities to implement asset allocation decisions,
- direct trades in individual securities to implement account rebalancing.
Review and approval of advice provided by Associate Advising Representatives (AARs). The CRM AR may not review or approve advice provided by AARs of the firm concerning the securities of any specific issuer, but may review and approve for these purposes:
- AARs' recommendations of model portfolios and pooled funds designed by an Unrestricted AR,
- AARs' determinations of asset allocations for clients' accounts, and
- investment policy statements formulated and drafted by AARs.
No misleading use of titles. The CRM AR must refer to him or herself as a "client relationship manager" in all communications with clients and marketing materials (including business cards and e-mail signatures) and may not use any title that could imply to a reasonable person that the permitted advising activities of the registrant are materially the same as those of an unrestricted AR.
Disclosure to clients. The CRM AR must provide each client or potential client with a plain language explanation of the limited advising activities that he or she is permitted to perform, as well as an explanation of the advising activities that will be performed for the client or potential client by other registered individuals of the firm who are not subject to such terms and conditions. This disclosure may be included in the firm's client relationship disclosure information.
The CSA is not making changes to the proficiency requirements applicable to ARs and is not creating a new registration category for CRM ARs at this time, though it remains open to considering further changes in the future to formalize a permanent accommodation for CRM specialists.
Portfolio manager firms who intend to register CRM ARs are encouraged to review their policies and procedures.
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