Fee Transparency: Know What You Are Paying For
Historically, the lack of fee transparency in the wealth management industry has been one of the greatest causes of investor discontent.
Investment fees may include any number of costs associated with the use of financial products. They may include costs of an online investment platform, brokerage commissions, transaction fees, administration fees, account fees, and custodian fees.
In the past, these fees were mostly lumped together as one item, possibly labeled simply “investment fee”. With the greater regulatory requirements for fee transparency, investment fees must now be itemized.
It is important that you know what is included in your total investment fee to determine if you are getting value for what you are paying.
Types of Fees
Investment (Portfolio) Management Fees
This fee is usually applied as a percentage of your portfolio. For actively managed portfolios it covers the cost of the portfolio managers’ research required to make security selections and economic decisions specific to your portfolio.
Commissions are associated with the purchase of your investments whether they be individual securities by investment dealers or mutual funds/ ETFs sold by financial institution advisors.
Custodian (Safekeeping) Fees
Fees charged by the bank or trust company that holds your actual securities in your name or a fund’s name.
These are charged by some funds for advice, access, and services provided to you.
These can includefees for initially setting up your account and maintaining/producing your investor records and reporting (statements, tax slips etc.).
Fees For Service
Independent financial advisors may charge a specific fee for their advice and planning services that are not associated with your investment management fee.
Improving Canadian Regulatory Requirements around Fee Disclosure
Client Relationship Model 2 (CRM2)
CRM2 was implemented fully in mid-2017 to regulate greater transparency around investment fees and investment performance. It was intended to improve investors’ ability to determine how they are progressing toward their financial goals.
Total Cost Reporting (TCR)
As part of a global shift towards greater fee transparency the Canadian Securities Administrators (CSA) and the Canadian Council of Insurance Regulators (CCIR) have proposed an enhanced fee reporting requirement, Total Cost Reporting (TCR), that will require additional investment fee details, building on the CRM2 fund disclosure requirements implemented in 2017. These regulations will apply to all investment funds including mutual funds, ETFs, and segregated funds and are expected to come into effect in September 2024.
As stated by the CSA Chair, “We seek to enhance investor protection by improving investors’ and policy holders’ awareness of the ongoing embedded costs of owning investment funds and segregated funds, which include management fees and trading expenses.”
Why You Should Know What You Are Paying
- Fees impact the returns on your investment portfolio.
- Understanding the fees that you are paying will help you to evaluate the suitability and relative value of the investment advice and other services you receive from your investment professional(s).
- Knowing what you are paying will lead to better-informed investment management decisions.
To ensure that you are getting the best service for the fees you are paying, work with a registered investment professional such as a CFP, CIM, or CFA among others. They are required by regulations to act as fiduciaries, always putting the needs of their clients ahead of their own. By contrast, others may sell you unsuitable investment products to maximize their commissions and their employer’s profits.
Higher investment fees do not guarantee better investment returns or greater attention to your specific investment management needs. Don’t be afraid to ask what you are paying for. The recent CRM2 regulations and proposed TCR make fee transparency not only advisable but in most cases, mandatory.
Investing with Bloom Investment Counsel, Inc.
For over 25 years, we have specialized in one thing and strive to be the best at it—investing in income-generating investments, specifically dividend-paying stocks, which can help you generate income if needed, and growth from investing in the stock market.
At Bloom, we provide a personalized portfolio-building process that ensures that all of your long-term financial needs, objectives, and goals, as well as preferences and constraints on your invested capital, are met and accounted for. We provide detailed and transparent quarterly and annual statement packages in a timely manner while maintaining regular communications with you.
This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.