Dale Jackson

Personal Finance Columnist, Payback Time

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CIBC is in hot water with the Ontario Securities Commission after admitting to overcharging customers at three of its investment divisions for up to 14 years.

Amounts and details of compensation are not yet known but some investors in CIBC mutual and exchange traded funds are said to have paid double the regular fees.

CIBC is not the first investment firm to come before the OSC in relation to overcharging clients. In the past few years, Scotiabank, CI Investments and TD Bank have also had to compensate clients who overpaid.

In most cases they relate to fee-based accounts where costs to the investor are embedded. That means they are expressed as percentages of the total amount invested and automatically withdrawn from the client account each year.

The most common form of embedded fee is a management express ratio (MER). A typical MER of 2.5 per cent translates into $2,500 on every $100,000 invested each year.

Fund companies automatically collect the MER, so it’s not surprising surveys show many investors aren’t even aware they pay embedded fees.

A portion of the MER is usually returned to an advisor who sells the fund as compensation, but new disclosure rules require that portion – and any other advisor fees – be presented to the client in dollar amounts.

Investment firms that provide the funds, however, are not required to tell clients what they actually pay in dollars.

Until they are forced to be more transparent on fees, investors are stuck behind a fee smokescreen.         

Dale Jackson is BNN's Personal Investor. Follow him on Twitter @DaleJacksonPI