Newspaper article The Canadian Press

Stock Market Volatility May Awaken Investors to Scrutinize Account Fees

Newspaper article The Canadian Press

Stock Market Volatility May Awaken Investors to Scrutinize Account Fees

Article excerpt

How volatility may awaken investors to fees


TORONTO - A return to volatility on global stock markets in early February may be the catalyst needed to warn investors about the impact of fees on returns -- a feat that regulators haven't accomplished so far.

"Failing investment values tend to make people scrutinize everything more closely," Dan Hallett, vice-president of HighView Financial Group in Windsor, Ont., said in an interview.

He expects more attention will be paid to how fees affect portfolio returns "especially if they're negative on the year."

Tough questions about advisory fees had been expected to emerge after the second phase of enhanced disclosure rules, known as CRM2, became mandatory last year.

However, investors and their advisers had little cause for concern in 2017 as U.S. stocks continued a bull run that began in 2009 and continued into early 2018.

The rough patch that hit markets in February, when global markets fell by 10 per cent at times, may force investors to take more notice.

Research suggests CRM2's heightened disclosure requirements have done little to change investor knowledge about fees -- and, in some cases, have created confusion.

A 2017 study by the B.C. Securities Commission estimated only nine per cent of investors were familiar with the indirect fees paid by third parties to firms -- up from zero per cent before CRM2 was implemented.

Another 2017 study by Credo Consulting Inc. found that 62 per cent of investors surveyed thought they didn't pay for the financial advice they received -- down from 67 per cent of investors surveyed in 2016.

A Mutual Fund Dealers Association of Canada report in January 2018 found that fee disclosures used by some firms could lead to client confusion due to different terms used throughout investment statements as well as instances where required definitions weren't used at all.

The Ombudsman for Banking Services and Investments is expected to offer other details in a new survey to be released in early March.

But even CRM2 only tells half the story, since annual report statements still don't reveal the portion of management fees retained by the fund company. …

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