The regulatory group is looking at ways to provide a more complete cost picture to investors
CRM2 was a significant step toward fee transparency, but because it doesn’t require disclosure of all costs associated with investments, investment advocates say that Canadian investors still have an incomplete awareness of the costs they pay. Others have argued that it creates an uneven playing field as firms will still have different degrees of disclosure.
The Mutual Fund Dealers Association of Canada (MFDA) found indications of such inconsistencies in a review of integrated members last year. The majority of integrated members included in the review only estimated the amount of commissions that they would have received had they acted at arms’ length; a few disclosed the total costs paid by clients to invest and hold mutual funds.
To address this and other related concerns, the MFDA has released a discussion paper on the possibility of expanding cost reporting among its members. In it, the group provided some example reports and recommendations to improve cost disclosures for investors.
One section suggested that account statements include an accounting of fund management expense ratios (MERs) to better remind clients of the ongoing costs related to fund ownership.
“Investment Fund MER generally represents the largest component of costs associated with owning an Investment Fund,” the MFDA said. “However, clients receive this information for each fund separately [via the Fund Facts document] and there is no mechanism for clients to receive regular MER reporting of all their Investment Fund holdings.”
Commenting on the MFDA-mandated Report on Charges and Other Compensation (RCC), the paper proposed several enhancements to inform clients of other ongoing fund ownership costs aside from trailing commissions. It also recommended the inclusion of certain transactional costs, such as redemption fees and short-term trading fees, as well as operating costs like custodial or intermediary fees taken directly from a client’s account.
However, the MFDA acknowledged certain hurdles with respect to the RCC. “Registered firms that only sell proprietary funds may be able to access the relevant cost data more easily, but this data is not readily available to registered firms who transact in third party funds,” it said.
The association also explored options in reporting costs by fund and fund company, but found that they “became increasingly cumbersome” in cases where multiple fund companies and third parties were involved. It added that any proposal to expand cost reporting should be flexible enough to reflect how compensation is paid or earned by registered firms and fund managers with differing business models.