CDA Essentials 2016 • Volume 3 • Issue 6 - page 38

RonHaik
MBA,CFP®,CIM®,
FCSI®,CIWM®,TEP
Vice-President,
InvestmentAdvisory
Services,
CDSPIAdvisory
Services Inc.
1-800-561-9401,ext.6859
rhaik@cdspi.com
Most investorsareawareof theManagement ExpenseRatios (MERs) that arecharged
by investment fundcompanies, even if theydon’t fullyunderstandwhere that
moneygoes.Whileyoudon’tpay theseexpensesdirectly (they’rededucted from
the fund’sassetsbefore its returnsarepublished), theycanhavea significant impact
onyour funds’ returns. Similarly, some investorshavedifficultyunderstanding the
performanceof their investments from the reports they receive.New securities
regulationsnow require investmentdealers toprovideaddedclarity toboth
management feesand fundperformance reporting.
TrailerFees
A significantportionof the fees included inMERsare trailer fees,whichare the
ongoing fees that arepaid to thebrokeragecompaniesandfinancial advisorswho sell
the funds for the services theyprovide. Theyareappliedeveryyear to the fundsyou
hold for as longasyouhold them. Theycan range from0.25% to1.5%of thevalueof
your investment, but are typicallyabout 1% for equity fundsand0.5% forbond funds.1
Itmay seem sensible topayanadvisor’s fee for the serviceofdistributing fundsand
providing investment advice; however, there isapotential problemwithobjectivity.
Since trailer feesvary from fund to fund, an investormight reasonablyquestionwho is
benefittingmostwhenaparticular fund is recommended.
Benefitsof IncreasedTransparency
In response to theseandother concerns, newdisclosure regulationswere recently
implementedby theCanadianSecuritiesAdministrators (CSA). Called theClient
RelationshipModel, Phase2 (CRM2), the regulationsgiveclientsamuchclearer idea
of howmuch investmentdealers stand togainoneach transaction they recommend,
and theyallowclients toweigh thecostof adviceversus the real ratesof return that
accrue from their investments.
WhatYouCanExpect
Investmentdealersarenow required toprovide two reports to investors: an annual
reportonchargesandcompensation, andan annual reportonperformance. Since the
thirdandfinal phaseofCRM2beganon July15, 2016, investmentfirmshaveuntil
Julyof 2017 toprovideenhanced feeandperformance reports.However,manyof
themareexpected tobase reportson thecalendar year, soyoumay receive them
early in thenewyear. This iswhat youcanexpect to see in thenear future:
• Theannual reportonchargesandcompensation. Thiswill compriseanumber
ofdirect and indirect costs related toyour account, including theamountsyou
paid for:
1. general administrationof your account,
2. specificpurchases, salesorother transactions,
3. trailer commissionsandother feespaid toprovide servicesonyour account.
NEWRULES
Increase Investment Transparency
38 | Volume3 Issue6
Supporting Your Practice