New fee disclosure rules for Canadian investments (CRM2)

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Last July, long-awaited changes to the way fees on investments are disclosed came into effect. Under the auspices of securities regulators and the Mutual Funds Dealers Association, CRM2 finally rolled out. CRM2 stands for Customer Relationship Model 2.

This new model is primarily aimed at mutual funds and exchange-traded funds (ETFs).

the goal of crm2 is to provide better clarity on the cost and performance of investments, but does it really?

Here is what is changing:

some fees will now be disclosed in dollar amounts instead of percentages

Under the new rules, investors will know the dollar value of trailing fees, annual fee-based charges, commissions and administrative fees. Trailing fees are commissions a broker receives for as long as an investor holds a mutual fund or ETF.

This is interesting for D.I.Y. investors. Many banks now offer “low-cost” mutual funds, on the basis that self-directed investors do not ask or receive advice. Yet, they are still paying for it!

performance will be calculated using the money-weighted method

The money-weighted method is more encompassing as it includes all contributions and withdrawals as well as dividends and capital gains. The time-weighted method only looks at the length of time the money is invested. It is the financial industry’s preferred method, as it is a good indicator of a fund’s performance. This method does not give an investor any indication as to how their own portfolio is doing.

Statements will also need to show returns for previous years.

unfortunately, this is only half of the story. crucial info will still not be disclosed

Mutual fees and ETFs -the latter to a lesser extent- both cost money to manage. This is known as Management Expense Ratio, M.E.R. The ratio encompasses various expenses such as professional fees, administrative fees, advertising , accounting and legal fees…etc. These expenses are paid regardless of the fund’s performance.

The new rules do not require fund companies to give a detailed breakdown on the M.E.R. This is where CRM2 is lacking, as it is the most important piece of information! The M.E.R. has the biggest impact on a fund’s return.

investors won’t know how much their ADVISER is paid

The fee disclosed is the one paid to the firm not to the adviser. It is a lump-sum.

CRM2 does not address the elephant in the room

Although it is a step in the right direction in terms of transparency, Canadian investors are still largely kept in the dark when it comes to the true cost of having mutual funds and ETFs.

Most importantly, Canadians pay the highest fees on their investments. CRM2 fails to address this.


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