You're living in a state of investing ignorance.
But if Canada's securities regulators have their way, that's over. On Wednesday, they issued proposals to have investment dealers and advisers show you two crucial pieces of information that you have too long and too often been denied. One is the actual dollar cost of the fees and commissions you pay for the investment products you own. The other is a meaningful summary of your personal rate of return.
We live in the age of information, yet the investment industry acts like the Kremlin in the way it dispenses the facts you need to know. Oh, the dodges the industry has used over the years. We don't have the technology to show personalized fees and returns. Our "legacy" computer systems can't handle it.
Bull. If our financial industry wanted the CN Tower in Toronto moved 10 centimetres to the left it would be done. The real reason why this information hasn't been provided is that it's not good business. Investors who see precisely what they're paying and what they're making are much more likely to get out of bad products and ditch bad advisers.
Now, the Ontario Securities Commissions and its counterparts in other provinces are working together to force the issue. They've issued proposals and invited the investment industry to make comments until Sept. 23.
After that, the industry will have a chance to respond, final rules will be issued (no firm deadline on that), and the industry will have a two-year phase-in period.
"We believe that this initiative on cost and performance reporting will go a long way to giving investors the information that they need and, frankly, empowering them to make informed decisions about meeting their investment goals," said Susan Silma, the OSC's director of compliance and registrant regulation.
Whether you invest in mutual funds, exchange-traded funds, wrap accounts, stocks, bonds or most other products, the new rules would apply to your investment dealer or adviser. Online brokers are covered just like full-service dealers
Look At Your Statement
If you want to get the full sense of what regulators are proposing, find the most recent account investment statement you've received. There are some good firms out there, but most work on a you-don't-need-to-know basis. Here's how much money you had one quarter ago, and here's what you have now. Over and out.
The new proposals would require all firms to annually show things such as the total amount of money you've invested over the years, the most current account value, and your personalized rates of return over various periods going back to the day you set up the account.
There would also be an annual report on fees that is going to open a lot of eyes. Fee disclosure in the investment industry usually means showing investors the percentage of their holdings they're paying, but the actual dollar amount matters, too. So does the sheer number of fees investors may pay, all of which would be inventoried on the annual cost reports.
Provincial securities regulators consulted the investment industry before issuing the proposed new rules and they already know the objections being raised. Adding the new information will require costly technical changes that could be passed onto investors. Regulators can live with that.
"We believe we are on the side of the angels here," Ms. Silma said. "We believe that we, and the industry, have investors' interests at heart."
Note to the investment industry from its clientele: Go ahead and charge us more to tell us how much we're paying you, and how well you're doing with our money. If you're so technologically impaired that you can't produce this info with a few tweaks, then we'll pay the bill because it's worth it.
In developing its proposals, regulators commissioned a survey of some 2,000 investors to gauge their level of understanding and expectations on cost and fee disclosure. Only 47 per cent said they wanted more detailed reporting on their investments than they're getting now, while 42 per cent were happy with the status quo, 10 per cent wanted less detail and 2 per cent weren't sure.
This is what happens when you seal investors into an information vacuum: They don't even know what they don't have. Just wait until these new reporting rules come into effect. Things are going to be a lot different around here.
Let the sun shine in
Here are fees that would be disclosed to investors annually in dollar amounts under proposed new rules for the investment industry from securities regulators:
- Total commissions on stock trades
- Advice fees in the case of fee-based accounts
- Trailing commissions paid by mutual fund companies to advisers and their firms from the fees they take off the top of fund returns
- Administrative fees for registered accounts
Also included:
- Notification of any mutual funds that might be subject to a deferred sales charge if sold
- Notification that charges were added to the price of any bonds you bought or sold
Source: Ontario Securities Commission
Rob Carrick