In Canada, the embedded-fee system has the Management Expense Ratio (MER) set at about 2.5 per cent annually, which covers various fees and the advisor’s cut (about 1 per cent). The problem is many investors, when they purchase a product, are in the dark about these fees and how they impact their pocketbook.
“I don’t think that they (embedded fees) have to be banned, but better disclosure (is needed), leaving it up to the public to decide whether the advisor is giving adequate service for the fee,” says Ian Black, a fee-only advisor with Macdonald, Shymko & Company Ltd. “Disclosure is still not as strong as it should be.”
Reacting to international criticism that the industry lacks regulation ensuring transparency and accountability to investors, the Canadian Securities Administrators (CSA) – the body responsible for the securities regulations of all provinces – will require advisors to provide a breakdown of fees and services to their clients on a quarterly basis as of July 2016. The OSC is also reviewing its fee system and associated services to establish whether increased regulation is necessary.
“(Advisors) try to make their fees transparent, but their hidden in a lot of jargon,” says Scott Sather, an investment advisor and financial planner with Sather Wealth Management. “It takes a lot of digging and it’s not easy for the average investor to find out whether they are paying too much.” (Continued on Page 3.)