Investor advocate backs MFDA cost-expansion proposal

The group supported and suggested moves that would help investors make more informed decisions

Investor advocate backs MFDA cost-expansion proposal

Nearly two weeks after the Mutual Fund Dealers Association of Canada (MFDA) released its consultation on expanded cost reporting, investor advocate group Kenmar Associates has submitted its comments on the proposal.

“We applaud the MFDA for its proactivity in advancing the issue of mutual fund investing cost reporting,” the group said. “Ideally, what investors need is a breakdown of the total investing costs per account with a specific breakout of the amount they are paying for personalized investment advice.”

Commenting that certain IIROC dealers admitted to double-billing and overcharging after the implementation of CRM2, Kenmar said expanded cost reporting could similarly prompt fund dealers and salespersons to seek out lower-cost funds and products for their clients.

“The added reporting would provide the total cost of investing and thus investors would be able to make more informed investment decisions,” the group said, emphasizing that fund salespersons should go beyond reporting and have meaningful conversations on costs with clients. It also urged other related initiatives to amplify the value of better reporting, including reforms on titles, a best-interest standard, and increased proficiency requirements.

Responding to a question about the possibility of expanded reporting for investment products other than mutual funds, the group asserted a need for enhanced pricing disclosures on bonds — a major component of RRIFs and RRSPs — as well as embedded commissions on GICs and PPNs. It also recommended the inclusion of mutual fund trading costs, cited in the submission as the TER, along with any interest costs that are expected for investors who have been advised to use leveraging.

Commenting on the cost reporting examples provided by the MFDA, Kenmar suggested that tables should include cost breakdowns for ETFs, which are expected to increase in popularity among MFDA dealer accounts. And while it responded positively to plain-language explanations of services provided in the examples, the firm recommended that MERs be expressed in dollars per $1000 rather than percentages.

Kenmar also called for standardized terminologies in describing costs, which it said would help achieve investor comprehension.

“When assessing CRM2 disclosure, the MFDA Bulletin 0740-C found some firms used different terms for trailer commissions, which impedes clients’ ability to make comparisons between firms,” the firm said. “Firms that are truly in the wealth management business should not find providing this basic information to clients a huge burden.”