You wouldn’t overpay for pizza or beers on a Friday night would you? That’s because you know what you want and exactly what you’re paying for.
The same cannot be said for millions of Canadians when it comes to investing advice – until now.
Under new regulations that came into effect on July 15, 2016, investment firms now must provide personalized accountings to clients about the costs and performance of their investments. To borrow some words from Tom Bradley, President of Steadyhand Investment Funds on this subject recently, when it comes to investing advice: get ready for the age of enlightenment.
Beginning July 15, 2016, firms now must:
- “provide an annual report on charges and other compensation that shows, in dollars, what the dealer or adviser was paid for the products and services it provided; and
- provide an annual investment performance report that covers
- deposits into, and withdrawals from, the client’s account;
- the change in value of the account; and
- the percentage returns for the previous year; and the previous three, five and ten years.”
That’s great stuff for many Canadians who don’t have a clue about the costs and performance of their investments.
This study found that while most Canadians (89%) consider themselves knowledgeable about their investments; many are unaware of the fees they are paying to invest. From the survey: thirty six per cent claimed they don’t pay any fees at all and another 11 per cent were unsure if they pay fees.
The survey stats get even worse.
When the survey narrowed in on the 67 per cent of investors who use a financial advisor, 24 per cent of those surveyed said they don’t pay fees or commissions for their advisor’s services, and another 13 per cent were unsure. Furthermore, of those who were aware of fees for their advisor’s services, when asked how well they understood the fee structure, nearly 40 per cent said “not very well” or “not at all.”
Canadians have historically paid (and many still pay) some of the highest mutual fund fees in the world. I recently wrote about this and my journey out of high priced fund products that killed my portfolio. That doesn’t happen anymore. Hopefully, this second phase of Canadian Securities Administrators’ requirements, under a series of reforms called the Client Relationship Model (CRM) will bring about more transparency and disclosure across the financial industry.
Here are three things to know about CRM2 changes:
- You’ll know the exact dollar amounts you’re paying to your investment dealer. Once a year, your investment dealer will send you a report summarizing compensation earned such as trailing commission(s), in actual dollars. This report will also provide a summary of your out-of-pocket charges like annual administration and transaction fees.
- You’ll get a more complete picture of your return on investment. Annually, you’ll receive a report that provides your personal portfolio performance for the previous year and since opening your account. Previously, firms only had to disclose the rate of return for the fund overall. This additional information will help you ensure your investments are aligned with your long-term goals.
- You may not see this information right away. It’s important to remember that although the new requirements described above are effective July 15, 2016, most firms will likely provide the two new annual reports on a calendar year basis. This means most investors will start getting their reports in early 2017.
Clarity in whatever industry you work in, is a good thing. Bring it on for investors please.
What’s your take on CRM2? Do you applaud this initiative or are you still in the dark about what this means?
Important reading and further review: