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Dale Jackson

Personal Finance Columnist, Payback Time


A decade-long effort to make investment fees more transparent has apparently left investors more confused than ever.

A new study by J.D. Power finds that a year after the implementation of new reporting and disclosure rules, known as CRM2, 79 per cent of investors are still unaware of the measures. Among other things, CRM2 requires wealth management firms to express fees in dollar amounts in addition to the normal practice of expressing them in percentages.

The industry had been dragging its heels on the move since the early 2000s over concerns retail investors might be shocked to see exactly what they pay. As an example, a typical annual management fee, or management expense ratio (MER), of 2.5 per cent on a $500,000 mutual fund portfolio might seem harmless. But investors would probably go into shock to find they are paying $12,500 per year. 

The J.D. Power 2018 Canadian Full Service Investor Satisfaction Study also finds that among the few investors who are aware of the changes, only 49 per cent have noticed any changes in their own portfolios.

The study’s authors suggest advisors be more proactive and regularly discuss fees and performance with their clients.       

Here are the key findings from the study:

Millennials take charge: The role of the financial advisor as well as client expectations are changing, depending in part on the investor’s age. While 15 per cent of baby boomers consider themselves “delegators”— those who cede all decisions to their financial advisors — only 10 per cent of millennials do the same. Meanwhile, 39 per cent of millennials consider themselves “validators” —  those who consider their advisor more of a sounding board for their own ideas, compared with just 24 per cent of boomers.

Mobile is lagging: Seventy-seven per cent of investors have not used or have only tried using their wealth management mobile app once. Those who have used the mobile channel rate their experience significantly lower than other channels such as phone and online, suggesting that firms have significant work to do to improve the mobile user experience as well as driving engagement.  

Millennials embrace robo-advisors to save on fees: While awareness of robo-advisors is comparable among boomers (43 per cent); gen X (45 per cent); and millennials (48 per cent), it is millennials  who are much more likely to adopt the technology. Twenty-two per cent of millennials have used a robo-advice service, compared with only nine per cent of gen X investors and three per cent of boomers. Fifty-two per cent of millennials using robo-advisors attributed their usage to a desire for lower fees.

In terms of overall satisfaction, Edward Jones ranks highest for a sixth consecutive year. Assante Wealth Management ranks second, while HollisWealth and National Bank Financial rank third in a tie.