Help clients understand fees ahead of total cost reporting

You can read the full survey report on our website, but for the purposes of this column, I would like to highlight some results that stood out for us this year.

We were pleased to see that satisfaction with advisors remains very high at over 90%, and that the vast majority (85+%) of mutual fund and ETF investors said they are knowledgeable or very knowledgeable about investing in those funds.

With regard to statements, a majority of mutual fund investors (56%) and ETF investors (66%) said they receive and read their fee and performance statements, and both their satisfaction and their comprehension of the statements have risen since last year.

Eighty per cent of mutual fund investors and 81% of ETF investors reported that the statements are easy to understand, and 84% of mutual fund investors and 85% of ETF investors said the statements provide “all the information I need.”

On the subject of fees specifically, over 75% of mutual fund investors and 77% of ETF investors said their statements clearly showed the fees paid to the dealer firm, and over 85% of mutual fund investors and 84% of ETF investors said the statements clearly showed the rate of return.

These results are consistent with earlier surveys, such as one done in 2020 by the Canadian Securities Administrators (CSA) that showed that, at that time, a large majority of investors believed they had an “excellent” or a “good” understanding of the information included in the statements, including market value, overall rate of return, and records of transactions.

While we are encouraged by this year’s Pollara survey results for the most part, some findings point to an opportunity to improve investor understanding. In response to new questions added this year, there appears to be significant confusion about which fees are included in the statements. Despite the high ratings investors give to statements and the clarity of fees, only 21% of mutual fund investors and 26% of ETF investors were aware that some investment fees are not included in annual fee statements.

These findings indicate a disconnect between investors’ confidence in their understanding of fees and their actual understanding, which suggests there is work to be done to improve comprehension of fees before the transition from CMR2 to total cost reporting (TCR).

When the CSA’s TCR rules come into effect at the end of 2026, annual statements must include all fees paid, including the embedded costs of owning funds, in the form of management expense ratios and total expense ratios.

IFIC fully supports TCR, a file we have been very active on since 2017, successfully advocating for some important and key revisions to the CSA’s proposed rules, including:

• increasing the implementation timeline to three and a half years to ensure adequate time for managers, dealers, and service providers to make the necessary and complex system changes required to be in compliance; and
• limiting TCR to annual statements so as not to create an unreasonable regulatory burden on the industry.

IFIC has an active and engaged TCR task force that meets regularly to determine how the industry can best meet the challenges of operationalizing these system changes and communicating the changes effectively to investors. It’s extremely important that both investors and advisors become familiar with the new fee-disclosure regulations before they take effect.

In some ways, you can view this as an opportunity to establish a refreshed tone with your clients — to reassure them of the value of the relationship and commitment you have with them to safely steward their savings and achieve the results they need for a secure future. After all, part of what clients truly value in the relationship is transparency, simplification and explanation.

These conversations need to start happening soon, but you can rest assured that IFIC will provide resources for the industry to facilitate a smooth transition to TCR for all stakeholders.

Andy Mitchell is president and CEO of the Investment Funds Institute of Canada.