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.”
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.
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.”