The financial industry is promising Canadian investors clarity on fees, though the new reporting won't entirely clear the haze.
Many Canadian investors will soon receive their first statements under the Client Relationship Model Phase 2 (CRM2), which will disclose how much they pay to their financial advisers and their firms.
Given the widespread lack of fee awareness, the price tag is sure to come as an unpleasant shock to many.
But even that figure falls well short of the total costs of investing for the average investor. Among the fees and commissions required on CRM2 compliant statements, the bulk of fees Canadian investors pay on mutual funds will not be found.
The Canadian mutual fund industry manages about $1.3-trillion in assets, and it's not uncommon for fund managers to get paid 1 per cent. That means several billion in fees Canadian investors pay to fund providers each year will not appear on the new statements.
"Our regulators are doing their best to move our industry in the right direction," said Rick Annaert, president and chief executive of Manulife Securities. "But over the longer term, I think full cost of ownership should be the objective. The cost of advice is not enough."
After years of consultation, Canadian regulators implemented CRM2 to help investors understand what's going on in their own portfolios.
Canadians have consistently shown themselves to be woefully uninformed of the fees they pay.
"Anecdotally, I hear investors claim that they don't pay any commissions. They think it's free," said Christopher Davis, director of research at Morningstar Canada.
At the same time, Canadian mutual funds have long carried some of the highest fees in the world. Canada has ranked dead last on fee levels in four consecutive Morningstar reports on the global fund investor experience covering the past eight years.
The last report in 2015 pegged the average asset-weighted management expense ratio (MER) on Canadian equity funds at 2.4 per cent, and on fixed-income funds at 1.5 per cent.
The combination of high fees and investor blindness to them can in part be blamed on how the financial industry has traditionally disclosed the costs of investing.
The variety of embedded commissions and fees on investment products have largely been hidden from the average investor.
And fees reported as percentages have not proven meaningful for the investing masses.
CRM2 now requires many of those fees to be expressed in dollars, most significantly in many cases the trailing commissions investors indirectly pay for financial advice through most Canadian mutual funds.
"Translate that into a dollar figure, and that's going to shock a lot of people. For some people, its tens of thousands of dollars they're paying to their adviser every year, and they've never written a cheque for that amount," said David O'Leary, managing partner at Eden Valley Partners in Toronto.
And that dollar figure doesn't even include the larger portion of mutual fund MERs paid as management fees, which won't be disclosed under CRM2.
The typical equity mutual fund in Canada pays a 1-per-cent trailing commission. But the larger portion of the MER goes to the fund manager. Investors will still have to calculate that cost themselves by consulting fund facts documents.
"[CRM2] leaves investment managers off the hook," Mr. Davis said. "But just because it's not perfect doesn't mean it's not an advancement forward."
Mutual fund management fees were excluded from the new statements as they were not part of the core mandate of CRM2, according to Susan Silma, one of the originators of the new disclosure rules.
A former director at the Ontario Securities Commission, Ms. Silma is now a partner at the firm CRM2 Navigator, which provides advisers and firms with guidance on managing client relationships in the CRM2 era.
"One of the key questions CRM2 was designed to answer is: 'What does the client pay for advice?'" she said. "The regulators didn't want to confuse that with what they consider product costs."
With CRM2, the regulators have addressed the most important deficiency in Canadian fee transparency, said Tom Bradley, president of Steadyhand Investment Funds.
"Sometimes you have to go in stages," he said. "But the next step has to include all costs, including management fees. They can make a very big difference."
In the meantime, investors might get the impression that CRM2 represents full and complete disclosure on all fees associated with their portfolios.
"That does worry me," Mr. Bradley said. "I don't think the industry has been forthright in the past. So I think there will be brokers that will use that number on the annual report as being total fees. There is a still a window for abuse."