New transparency rules for advisers coming

What matters is what you do with the new information

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From the September/October 2014 issue of the magazine.

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Illustration by Sébastien Thibault

Illustration by Sébastien Thibault

It’s been 15 years in the making, but a new set of rules will finally force advisers to disclose exactly how much you pay in fees on your mutual funds.

Fund companies already include information such as a mutual fund’s management expense ratio (MER) on their fund sheets. But the new regulations from the Canadian Securities Administrators (CSA) will mandate new “Fund Fact” sheets that also include a clear explanation of the risks investors are taking on when they invest, as well as a clear breakdown of initial and deferred sales charge options in both percentage and dollar terms. “The regulators have fought very hard to take it all down to dollars and cents,” says Tom Bradley, president of low-fee mutual fund company Steadyhand. “That’s why I’m encouraged.”


      Play: Stefania Di Verdi outlines the new rules on 680 News’ with Mike Eppel


Armed with this improved transparency, investors will have a better idea of how much they are paying their advisers, so they can decide whether they’re getting good value for their money. Currently, a typical mutual fund holder pays about $2,500 a year in annual fees on a $100,000 portfolio.

50%

Canadian mutual fund investors who don’t know the basic cost of holding their funds (Source: Angus Reid  Forum, 2013)

New regulations also mandate that advisers must verbally tell you in advance what fees apply to every fund bought or sold, and whether they receive trailing commissions. However, they don’t have to give you the new Fund Fact sheet before you buy, says Ken Kivenko of the Small Investor Protection Association, so be sure to ask for it or look it up at www.fundfactspos.ca.

Even bigger changes are on the horizon. Starting in July 2015, advisers will have to provide enhanced quarterly statements recapping the market value and cost of each security. And by July 2016, they’ll have to provide an annual report detailing all fees paid out by the account holder in dollars and cents, as well as a personalized rate of return over one-, three-, five- and 10-year periods.

These changes put the onus squarely on investors to move out of under-performing funds. Like Kivenko says, “You can lead a horse to water but you can’t make him drink.”

Get a preview of the new adviser reports here or download our iPad or iPhone edition. It’s FREE for 60 days if you download our app by Sept. 15, 2014.

3 comments on “New transparency rules for advisers coming

  1. It will be interesting to see how people react to finding out how much they are paying.

    Reply

    • It will probably be even more interesting to see statistics on how many Canadians will swap out funds (and loose even more money) because they see the better performing fund du jour. Hopefully I am wrong but people do jump ship at the wrong time and for all the wrong reasons.

      Reply

  2. how can a foreigner not living in canada investt in canadian mutual funds? how much is the minimum for initial investment and succeeding investments? what is the best performing mutual funds in canada? hope you can answer me. many thanks 😉

    Reply

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