Dale Jackson

Personal Finance Columnist, Payback Time

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ANALYSIS: Canadians pay the highest investment fees in the developed world. With the implementation of the third and final phase of new regulatory initiatives known as Client Relationship Model, or CRM, they will continue to pay the highest fees in the developed world. 

After more than a decade of blowing smokescreens and dragging its heels on true fee reform, the investment industry has tossed investors a bone - and thrown their advisors under the bus.

There are many marginally significant twists and turns in CRM but at the core are changes in the way performance and fees are disclosed at the dealer/brokerage level.

The bone thrown to investors comes in the form of fees disclosed in terms of dollars in addition to percentages – a revelation that could come as a shock to many investors. The implementation comes into effect this month and firms are required to comply within a year.  

The new fee-in-dollars rule applies to all securities including mutual funds, which is how most Canadians invest for retirement.

It only applies to dealers and portfolio managers – not fund companies. That means the $25,000 annual charge to an investor with a $1 million portfolio of mutual funds with a typical annual fee (MER) of 2.5 per cent will only be disclosed as a more digestible percentage.

Instead, mutual fund investors will see a much smaller dollar figure that only includes the fees paid to the advisor firm. That includes a long list of potential charges including front and back end loads on mutual funds.

It also includes the annual trailer fee baked into that typical annual fee (MER) of 2.5 per cent on mutual funds. Trailer fees, which are collected by the mutual fund company on behalf of the advisor, are typically one per cent of assets invested - which comes to $10,000 a year on a $1 million portfolio of mutual funds. So, only $10,000 of the $25,000 annual fee on that $1 million mutual fund portfolio will be disclosed in dollars.       

The new disclosure rules don’t even apply to notoriously high-fee segregated funds – mutual funds wrapped in an insurance product. Since the principal invested in a segregated fund is guaranteed, it is considered an insurance product and not within the scope of CRM. The exclusion has prompted concerns advisors will be tempted to steer clients toward segregated funds to avoid having to disclose their fees in dollars.   

It’s important to note that client/advisor relationships have always thrived without regulatory intervention and many advisors already provide the required services. Many advisors secretly loath CRM because it generates mountains of paperwork – putting them behind the desk and not out front with their clients.

In the meantime, Canadians still pay the highest investment fees in the developed world with no relief in sight. 

Dale Jackson is BNN's Personal Investor. Follow him on Twitter @DaleJacksonPI