Canadian securities regulators are sticking to their guns and upping dealer disclosure obligations in finalized rules that establish new cost and performance reporting requirements.

Amid ongoing debates about fundamental aspects of retail investment regulation — such as whether financial advisors should be subject to a fiduciary duty, or if regulators should intervene to address concerns about the current structure of fund fees — the Canadian Securities Administrators (CSA) Thursday announced the final cost and performance reporting disclosure requirements that represent phase 2 of the so-called Client Relationship Model (CRM) reforms.

The new requirements are set out in amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

The first phase of the CRM reforms addressed relationship disclosure and conflicts of interest. These latest rule changes aim to further enhance investor protection by establishing new disclosure obligations concerning the costs of investing, and performance of client accounts.

In particular, the rules impose new cost disclosure requirements that will require firms to: set out the product and service costs investors can expect at account opening; disclose transaction costs, and any deferred costs, when a trade takes place; and, to provide annual reports setting out, in dollar terms, what investors were charged, and any other fees paid to the firm, such as trailing commissions and commissions on bond trades.

In response to earlier proposals, the industry had lobbied against some of these measures, such as being required to disclose the dollar value of trailer commissions. However, the CSA is standing by its original position, noting that investor research has shown that most investors aren’t aware of these costs, and yet they are the dominant form of mutual fund sales compensation. Therefore, it has concluded that it is “essential” that clients get specific disclosure of these costs.

The CSA also rebuffs suggestions that these reforms will create an unlevel playing field with other financial sectors, noting that it can only make rules for the securities sector, and that the fact that other sectors may impose lesser requirements is no reason to weaken securities industry disclosure. It also says it is raising the issue with regulators in other industry segments.

In terms performance reporting, firms will be obliged to provide investors with a new annual investment performance report that includes: position cost and market value; deposits and withdrawals during the year and since account opening; and, percentage returns over one, three, five and 10 year periods, and since inception. They also include required enhancements to account statements.

There was some debate over whether to require time-weighted, or money-weighted return calculations. The CSA has come down on the side of money-weighted returns, saying that it has decided this is the best choice for investors.

One area where it has changed its view is to drop the requirement that returns be shown against a simple benchmark, such as a five-year GIC; allowing that it has been persuaded that this may be inappropriate for some investors.

It has also maintained very generous transition periods to give the industry plenty of time to implement the reforms. The new requirements, which will apply to all firms registered to deal in securities or act as portfolio managers, take effect on July 15, but various aspects of the rules will be phased in over the next three years. It’s also expected that the self-regulatory organizations will introduce harmonized reforms for their members.

The CSA says that it’s taking these steps in light of research that shows that many investors currently do not receive this sort of information; and that it believes that more informed investors will be in a better position to make sound decisions about their portfolios.

“If Canadians have the right tools to better understand the costs and performance of their investments, they will be able to make more informed investment decisions,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC). “Under the new requirements, all dealers and portfolio managers will provide the same essential information to investors, which presents an opportunity to enhance their relationship with their clients.”