Do CRM2 disclosure rules make it hard to compare advisors?

Increased transparency rules may not go far enough in leveling the advisory playing field

Do CRM2 disclosure rules make it hard to compare advisors?
Newly implemented CRM2 disclosure rules aim for transparency in fees and account performance, which should allow investors to properly evaluate their advisors. But the disclosure rules’ coverage is limited, making advisors who report costs more fully seem comparatively expensive.

Most advisors are IIROC- or MFDA-licensed, and they typically get commissions for their clients’ investing in certain securities or funds, according to a report from the Globe and Mail. While these commissions used to be embedded and therefore effectively hidden, the new disclosure rules require advisors to declare them, in clear dollar terms, to clients.

But typical mutual fund fee arrangements include other fees, most notably those that go to the fund provider. Since there’s no requirement to declare them, most advisors will not report those costs, which add up to a multi-billion dollar payoff for Canadian providers every year.

Some advisory firms – including Steadyhand Investment Funds, Leith Wheeler Investment Counsel, and Mawer Investment Management – voluntarily disclose management fees. Firms that comply with the bare minimum required by CRM2 will not show such fees, making them seem less costly by comparison to the average investor.

Portfolio managers or discretionary managers, who are authorized to make investment decisions for their clients, also stand to receive unfair judgment. They work under a fiduciary standard, which requires complete transparency through full disclosure of fees. “There are no secrets there,” said Lester Asset Management Chief Investment Officer Stephen Takacsy. “That represents 100 per cent of what they’re paying.”

The average advisor, meanwhile, is held to a lower suitability standard, which provides them leeway to make less-complete disclosures. That’s another distinction that the average investor may not understand.

“[CRM2’s disclosure rules are] a step in the right direction,” Takacsy said. “But we’re not quite there yet.”

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