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Dale Jackson

Your Personal Investor


The Investment Funds Institute of Canada has advised the country’s regulators that its members are “ready to discuss a plan” for extending the recently-implemented CRM2 disclosure requirements to a new stage.

The initiative is called Client Relationship Model Three or CRM3 and will require disclosure of the full management expense ratio (MER) of investment funds. It comes on the heels of its predecessor, CRM2 – which took effect in July - requiring only investment advisors to disclose their fees in dollar amounts.

CRM3 would require the mutual fund companies to express their cut in dollar amounts as well.

Normally, annual fees are embedded and expressed as a percentage of the amount invested. It’s not hard to see why the industry has long clung to the embedded model. A typical MER of 2.5 per cent on $300,000 in mutual funds, for example, is $7,500 each year. Billing investors $7,500 each year has a much bigger impact than an embedded fee that the investor never sees.

Right now, CRM2 only requires the advisor firm that sells the fund to disclose its portion of the MER in dollar amounts. That portion is typically one per cent of the amount invested. Using the example of $300,000, that’s $3,000 a year – less than half the total amount.

In the case of higher-fee segregated funds, neither fee is required to be disclosed in dollar amounts because they are considered insurance products.

The whole initiative is a response to complaints going back to at least the 1990s over high fees.

According to both Morningstar and the Ontario Securities Commission Canadians pay the highest mutual fund fees. Considering it took this long to mandate partial disclosure of the MER in dollar amounts and the industry is now only “ready to discuss a plan” to disclose the full amount in dollars, don’t hold your breath waiting for lower fees.