Most Canadian mutual fund investors do not know the total fees that they pay, and they don’t understand the types of fees that they pay. That is the conclusion of a study conducted for the Ontario Securities Commission OSC.
Yet on the Investment Executive site, it is framed as things are not so bad; it’s just that the newer regulations and fee reporting mandates simply came up a little short, ha.
It appears that the CRM2 fee reporting wasn’t a failure, it just did not enlighten Canadian Investors ‘enough’. Here’s the link to the Investment Executive post.
But once we get into the article we can get a true sense of the confusion that has been created.
In particular, the research indicates that many investors don’t understand that the reports only show dealer fees, and don’t include product costs.
Why should that be a surprise? The statements that investors receive only show the dealer fees. It feels asinine to even write that sentence. It’s a forgone conclusion that investors would not know of fees that are not shown? How would they know of something that is not there? Of course, that’s just ridiculous, but in Canada it passes as regulation designed to protect investors and make investors more aware of the fees that they pay.
If one were a skeptic they would say that the regulations where designed to confuse investors.
I’ve touched on that in previous posts. Here’s Canadian Investors, The Regulators Do Not Have Your Back. From that post ” The problem is, the annual statements that are required are not required to actually show the TOTAL fees paid. No, I’m not making this up. In an attempt to educate Canadians on the amount of fees they are charged, the statements are only required to show a portion of the fees. And the amount shown on the annual statements is usually a smaller portion of the actual fees paid. Obviously, it’s not an attempt to clearly educate Canadians on the total fees that they pay. “
My uh, suspicion was that Canadians would be confused by the statements. Now we know thanks to that research. Ya thanks for making that wild guess Captain Obvious.
Captain Obvious and his bit of obviousness (above) made me remember a wonderful quip made by a friend as we sat in the kitchen at the cottage on a scorching Summer Day.
Wow, it’s hot in here, it must be the heat!
True story. I mean, who could write that?
And you’d think that the regulators that came up with CRM2 regulatory mandates would be feeling the heat right about now. But no, they’re likely sitting in nice air conditioned offices and they’re not surprised at all. They must have conducted their own research before putting CRM2 into action.
Are regulators feeling the heat?
They likely had the same results as the research released on Monday.
Ultimately, the research finds that annual fee reports fail BIT’s so-called “flip” test.
“In the flip test you put a communication face down then flip it over. If you can’t understand the purpose within seconds of flipping it over, it has failed the flip test,” the report explains.
Dang the CRM2 statements failed the flip test. They also fail the Stare At The Statements Until Eternity Test as well. It’s doesn’t matter how long you stare at those statements – the missing fees are not going to show up.
I re-posted the Investment Executive report on Twitter, follow me here.
A few advisors and former advisors were kind enough to shed more light on the ‘piling on factor’ as unscrupulous behaviour from advisors and mutual fund sales arms add insult to the fee-reporting injury.
Yes, we could go on. It’s not pretty out there on the sales front. And I know from my conversations with mutual fund advisors at the big banks and the sales arms of the mutual fund companies – they are are not allowed to offer and sensible low fee investment options that might be on the shelf (hiding somewhere). Well these advisors COULD offer the the low fee options; these advisors would then be offered the door to the street.
How do we show investors the fees that they pay?
Well that might be obvious. We’d offer them a statement that shows them the total fees that they pay. That’s what is supposed to happen with CRM3. I won’t hold my breath, that would have a tragic ending. But from IFIC President and from that CRM3 article link.
“Canada has one of the best investor-centred disclosure regimes in the world,” says Bourque. “Full disclosure of the MER would make Canada the world leader.”
More comedy. Wow, now I feel sorry for the rest of the world. And I just can’t wait for Canada to be a world leader on the fee reporting stage. 🙂
It’s up to you and those that care.
As you can tell, we’re alone on this, but we’re not alone.
Yes, they’re sharing a drink they call loneliness, but it’s better than drinking alone. – Billy Joel
As Larry Bates reminds us in Beat The Bank, there are good guys and there are bad guys. There are investment companies and advisors that want to do the right thing. As Larry puts it, there’s Old Bay Street and New Bay Street.
There are many writers and bloggers and readers who help spread the word. It’s a ground game and we’re starting to win. ETF sales are now greater than high fee mutual fund sales. That’s quite an accomplishment when we can take on the sales arms of the big banks and the massive mutual fund companies and the regulators.
Congrats. Keep up the great work. We’ll get ’em one investor at a time.
In a related post Rob Carrick of the Globe and Mail tells the story of Ken Kivenko who works tirelessly as an investor advocate. From that article …
The polar ice caps will melt before we see meaningful reforms that put investors ahead of the investment industry’s imperative to keep increasing profits and dividends for shareholders.
Unfortunately this has been a fun post to write. After all, the regulations are a joke.
Your comments are more than welcome.