Investment

Investment fund charges should be included in fee summaries: report – Investment Executive

Published

3 years ago

July 26, 2021

While more than two-thirds of Canadian investors review portions of their fee summaries, most don’t come away with a strong understanding of what they’re actually paying, the report found.

“In a rigorous experiment, we found that only 23% of investors correctly identified their total cost of investing when they were given a status quo fee summary with an additional disclosure that some fees were not included,” the report said.

“Overall, we found that expanded cost reporting that specifies investment fund charges can significantly increase investors’ understanding of their cost of investing.”

The MFDA has looked at expanding the fee summaries required under the Client Relationship Model (CRM2) to include costs related to the management and operation of investment funds. The organization published a consultation paper on the topic in 2018.

Monday’s report looks to behavioural science for ideas about how additional reporting should look.

The report said most investors struggle to understand their investing costs, with more than four in five failing to identify the types of costs included in their fee summaries.

“Even experienced investors struggle to understand key terms and how their choices influence the type and amount of fees they pay,” the report said.

The report blamed the low level of comprehension on “the inherent complexity of investment fees and how they relate to investor choices” but also behavioural factors such as limited attention, disengagement when faced with complex information, and the tendency to neglect relatively small amounts — including the “exponential growth of the impact of fees over time.”

It also found that the limited reporting requirements limit investor education. In an experiment testing three cost reporting formats in addition to the existing framework, the authors found that the three formats that included investment fund charges increased investor comprehension relative to the status quo.

“We found that providing a short preamble noting the impact of fees, consolidating amounts paid to dealers and to investment fund companies in a single table, and more clearly defining key terms can increase investor comprehension,” the report said.

“We further found that defining fees directly in the cost of investing table and explicitly linking fees to investor actions may further facilitate comprehension.”

The results suggested that including the management expense ratio (MER) for each fund within the account holdings section of account statements doesn’t improve overall comprehension of the annual fee summaries. However, the report said that showing the MER may help investors identify certain actions to reduce their cost of investing or to improve the value of the service they receive. For this reason, including the MER in summaries “may have a small positive impact on investor comprehension.”

The MFDA said the research supports regulatory proposals to expand cost reporting to include investment fund charges. The fee summaries should clarify certain terms, make key information more salient and “describe fees in ways that help investors understand which choices engendered those fees.”

The report also noted the limits of additional reporting. Fee summaries are necessary but insufficient, it said, and not a panacea. Investors will still need help deciding how to reduce investing costs.

It also warned against overloading investors with information. While survey data indicate that Canadians want expanded cost reporting, the report noted that people may say they want more information than they can actually use.

Behavioural Insights Team also conducted research for the Ontario Securities Commission on CRM2 in 2019, which found investors don’t understand what they’re paying or what to do about it.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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