Investment statements to lay bare how portfolios are faring, adviser costs

OTTAWA – Changes are coming to investment statements that are intended to help Canadians better understand how their portfolios are faring and how much they have paid for their financial advice.

As of Friday, companies will be required to provide people with an annual report that spells out in dollars what investment dealers and advisers have been paid.

That is one of several changes that are the final step of amendments that began in 2013 under what securities regulators have called the Client Relationship Model Phase 2, or CRM2.

Brent Vandermeer, a portfolio manager with HollisWealth, says the new measures are important because they improve transparency across the investment industry.

“Especially in an era of low interest rates, low yields, sometimes weaker investment performance, it’s really important that a client is getting value for the cost they are paying,” he said.

Vandermeer said the dollar figure paid to advisers may come as a bit of a shock for investors who may not have considered it in those terms before.

“I think good advisers will have had that discussion with people,” he said.

“And those who haven’t, I think rightfully are going to be forced to have that conversation and really show whether they are in the right portfolio and how they are or not providing value.”

People will also receive an annual investment performance report that covers deposits and withdrawals from their accounts and the change in their value. It will also show the percentage returns for the previous one, three, five and 10 years.

Vandermeer said it is a good step forward, but there are still more improvements that could be made.

While the new statements will show how much investment dealers or advisers are paid, they will not include the management expense ratio, known as MER, for investment funds.

That information is included in the fund fact sheet that must be given to investors, but Vandermeer says it should be all in one place to make it easier for investors to understand their full costs.

Tea Nicola, chief executive and founder of WealthBar, an online investment firm, said financial advisers need to add value for clients to justify the fees they charge.

“When an adviser presents an invoice for a monthly bill to a client, it’s that constant reminder that you have an adviser, that you can ask them questions, that they are supposed to add value, they’re supposed to give you service,” she said.

Nicola said the changes are an opportunity for WealthBar as investors look for lower fee options.

“There will definitely be advisers out there whose clients won’t even flinch because they are getting value,” she said.

“But there will be a portion of the people who are not aware how much their adviser is getting paid for their own account.”

The Canadian Securities Administrators announced late last month that it was preparing to take the next step in its examination of mutual fund fees.

The organization, which includes the provincial and territorial securities regulators, said it is looking at the issue of embedded commissions or trailer fees and considering banning them. Britain and Australia have banned the fees.

The CSA plans to release a consultation paper later this year.