Investors wanting to know exactly how much they're paying in mutual fund fees still have to wait more than a year before they'll get this disclosure from Canada's wealth management industry.
Strict new regulatory requirements were announced in 2012. But the sweeping administrative work that needs to be done – and the unprecedented level of collaboration that's required from both government and industry participants – means a prolonged and arduous process.
The changes, known as the second phase of the client relationship model (CRM2), will provide investors with greater transparency in the fees they pay for financial advice. Investors will also receive annual performance reports on their investments, including rates of return for one-, three-, five- and 10-year periods, and since inception.
As of July, 2016, financial advisers will be required to provide these numbers directly to clients in dollar figures.
It hasn't been an easy road. During the first phase of the client relationship model, which included product suitability for clients, provincial regulators clashed with the Mutual Fund Dealers Association of Canada and the Investment Industry Regulatory Organization of Canada. Individual regulators had their own ideas for reforms and timelines.
Getting the wheels in motion was a huge effort for the industry, including input from regulators, industry associations, distributors and financial firms. Over the past two years, several industry associations have set up task forces and working groups to tackle the implementation of the new rules, including the Investment Funds Institute of Canada (IFIC) and the Investment Industry Association of Canada.
"The biggest thing for the task force was getting everybody focused on it at the same time," says Patti Best, chair of the IFIC's operations CRM2 task force, which has 57 financial companies working together. "We had people from different areas and from different firms, all receiving different amounts of information. We had to make sure everyone understood the rules and get the interpretation aligned."
Working groups were set up to examine smaller segments of the regulatory changes, including the rate of return calculation, the fees and compensation that will appear on client statements and whether there should be an industry standard for cost reporting that would include either "book cost" or "original cost" on account statements. The industry standard has yet to be agreed upon. (The original cost is the amount a client pays to buy a security, including transaction costs. Book cost is the original cost of a security, adjusted for reinvested contributions, return of capital and corporate reorganizations.)
Once industry standards are set, it is up to the financial firms to have the systems in place to implement those standards.
Investors Group began working on their reporting system several years ago to include rate of return in their annual statement, before CRM2 made it a requirement. As a result, the firm will be adding a summary of a fund's performance in June, 2015, almost two years before they are legally required. Investors Group is still holding off on the compensation reporting until the deadline.
(While CRM2 will be fully implemented by July, 2016, firms don't have to report until their first annual fund performance, which for some could fall into 2017).
"The rate of return is one of the most significant issues for clients," says Murray Taylor, president and CEO of Investors Group. "This is going to be a real 'go-to' place for investors. If markets are up, or if markets are down, you can look at the different yearly rates for comparison."
Manulife Securities Investment Services Inc. is now focusing on producing plain language terminology for client statements. The firm has spent the past four years preparing for CRM2 changes including updates to its back office, reporting standards and educating financial advisers.
"We have been encouraging all of our advisers to start having fee discussions with clients as they do their semi-annual meetings," said Rick Annaert, president and CEO of Manulife Securities. "Investors not only need to know how advisers get paid, but also be given an idea of what they are paying in commissions."