Enhanced reporting regime will raise expectations on data and education, says Canadian ETF Association head
ETF providers aren’t anticipating much difficulty from new total cost reporting rules, but the head of Canada’s national industry association still sees sticking points ahead in how costs and fees are communicated to investors.
“It’ll be easier for the ETF industry, because ETF issuers will just have to create one data point per ETF, and we don’t have to do any more calculations,” Pat Dunwoody, executive director of the Canadian ETF Association, told Wealth Professional. “The issue is then we send that data point to the dealers, and then they have to calculate [the cost] for the client in terms of the buy and sell.”
ETF providers have long stood ready to support the launch of total cost reporting, Dunwoody says, but the industry also recognized the challenge it would present to dealer firms. To correctly report costs and fees at the individual investor level, they would have to take into account not just the MER of an ETF the investor held during the year, but also other factors such as how long they held it, and the number of shares of the ETF they held on any given day.
“We’ve always wanted clients to know the total cost of holding and selling an ETF in their portfolios. That’s the only real way they can, with their advisor, make a decision on what the appropriate product is for them,” Dunwoody says. “It’s not just about going for the cheapest product … it’s a question of being appreciative and understanding why one cost is higher than the other.”
The Canadian Securities Administrators and the Canadian Council of Insurance Regulators unveiled the enhanced total cost reporting rules last week. The amendments for securities aren’t set to take effect until January 1, 2026, with the first annual reports to clients under that regime covering the 12-month period going up to December 31 that year.
Until then, advisors who haven’t done so yet will have a chance to walk clients through the differences between active, passive, and factor ETFs, and why the costs may differ between categories and strategies. A lot of those conversations, Dunwoody expects, will be much more in-depth compared to those in the past.
“Advisors haven’t had the data to explain to clients that trading causes additional costs in the product. You can’t point to what that cost is, so it’s really difficult for them to even raise it,” she says. “Now, at least when advisors raise it, they’ll be able to show those costs and talk about why they still chose that product.”
After roughly 10 years of investors and policy holders getting the cost and fee information on financial products on a staggered basis, Dunwoody sees a definite win from the new total cost reporting regime’s coverage of mutual funds, ETFs, and segregated funds. With substantially harmonized rules around how to present the cost and fee information presented for those three product categories, which includes both percentage and dollar figures, she said many advisors have to level up their ability to explain what it all means.
“On the education side, my real worry is that in terms of the TER [total expense ratio], there’s no deduction on the client account. As an investor, this is what you’re paying for – this is part of the NAV,” she said. “Regulators will allow flexibility to the form, so firms can customize their disclosures to make it understood. But I don’t think it was clear in the example form regulators sent that these costs have already been taken into account when you see your price.”
That lack of specificity, Dunwoody argued, could create an unlevel playing field between DIY investors and advised investors. Without an advisor to tell them, investors on digital brokerage platforms may not realize that on top of the actual deductions on their statements, there are some costs deducted at source that are also taken from the dollars they pay to buy or sell an ETF.
“I think tweaking some of the words on the form would help. … That’s really hard to explain to a client,” she said. “The mutual fund side will probably have to figure out a document to explain that long before the TCR enhancements are implemented so advisors can start explaining what’s part of the NAV, what’s not, and why you see all these costs, but see only one line as a deduction on your account statements.”
