Canadian investment and insurance regulators are proposing new rules that would require investment fund managers to disclose the total cost of owning investment funds and segregated funds as part of a client’s annual investment statement.
The Canadian Securities Administrators (CSA) – an umbrella group for all provincial securities regulators – and the Canadian Council of Insurance Regulators (CCIR) published proposals on Thursday to improve the way fund managers report the cost of investing to clients who own mutual funds, exchange-traded funds and segregated funds, which are funds that have an insurance component to them.
“We seek to enhance investor protection by improving investors’ and policyholders’ awareness of the ongoing embedded costs of owning investment funds and segregated funds, which include management fees and trading expenses,” CSA chair Louis Morisset, said in a statement.
The proposal follows years of industry debate around the transparency of fees and the cost of financial advice. In 2016, regulators approved a first set of rule changes to investment statements.
Since July, 2017, regulatory changes – known as the second phase of the client relationship model, or CRM2 – required all Canadian financial companies to provide annual statements that highlight how well investments have performed in dollar amounts, as well as the dollar figure an investor has paid for financial advice.
But regulators excluded one of the main costs an investor pays: the management expense ratio, also known as an MER.
CRM2 only focuses on the amount paid either directly or indirectly by an investor to an investment firm. This includes trailer fees – commissions paid out to investment advisers for the length of time an investor holds a fund. But for mutual funds, it does not include the amount paid to the investment manager – the MER. CRM2 also does not include trading expense ratios, known as TERs, which cover the costs of trades executed by manager overseeing the funds.
Now, the CSA and CCIR are proposing clients receive statements that will show the full cost of owning segregated funds and investment funds – including both the MER and TER. For securities investors, current account statements would be expanded to include the fund expense ratio as a percentage for each of the investment funds a client owns.
Additionally, annual cost and compensation reports – which are typically sent out to clients at year-end – would now include the total dollar cost of owning the investment funds over the past year.
For segregated funds – which currently do not send out annual reports – a new annual report would be created to report similar information.
Mr. Morriset said in a statement he “strongly encourages” investment companies and insurers to consider reviewing their systems and conduct advance planning “as soon as possible” to have everything ready to implementif provinces approve the proposal.
The proposal,which is out for public comment until July 27, 2022, is expected to be approved by the end of 2024.
“Consumers will better understand the cost of advice and asset management and be able to assess and compare the performance of segregated funds and investment funds,” CCIR chair Robert Bradley said in a statement.
The Investment Funds Institute of Canada (IFIC), which represents investment companies that manage funds, has been advocating for the inclusion of MERs in cost reporting since 2017, following the implementation of CRM2.
“We have been publicly in favour of extending disclosure requirements to encompass the full management expense ratio of investment funds – and have been for quite some time,” IFIC chief executive officer Paul Bourque said in an interview.
“Now, with this proposal on the table, we are looking forward to the next step of the process which would be to sit down with regulators and ensure we have a realistic timeline – with milestones – for implementation of a new reporting system.”
Dan Hallett, vice-president of research at HighView Financial Group, has been part of industry conversations around full cost disclosure since 1997. While he is happy to see the issue “finally get the attention” it needs from regulators, he is concerned that securities and insurance regulators won’t co-ordinate on the initiative, which could lead to big gaps in standards.
“It is striking to me that this is still being discussed 25 years later,” Mr. Hallett said in an interview. “More than the decision to disclose will be what the disclosure looks like. A failing of CRM2, for example, is that the presentations I’ve seen appear intended to fulfill a regulatory requirement – not to leave end clients more informed … there needs to be an effort to make disclosure meaningful and informative.”
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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
