Regulatory changes coming this summer will improve the way financial firms disclose fees
TORONTO, ON – July 13, 2016
This summer, new regulatory changes coming to the investment industry will improve disclosure around fees, and according to a recent survey* by Tangerine Investments, these changes are much needed. The survey found that although the majority of investors surveyed (89 per cent) describe themselves as either “very knowledgeable” or “somewhat knowledgeable” when it comes to their investments, many were unaware of the associated fees; 36 per cent of those surveyed claimed they don’t pay any fees, and another 11 per cent were unsure if they pay fees at all.
This lack of knowledge around investing fees may help explain why Canadians pay some of the highest mutual fund fees in the world, and also why industry regulators have been phasing in a series of reforms called CRM2 over the past three years, designed to bring more transparency and disclosure to the industry. The most significant requirements of CRM2 come into effect on July 15, 2016 and will result in investors receiving two new annual reports from their investment dealer later this year. One report details the specific account charges and dealer compensation associated with their investments, and the other provides visibility to investors’ personal portfolio performance.
“Too many Canadians still believe they’re not paying fees for their investments or for their advisor’s services,” says David McGann, Director of Sales and Operations at Tangerine Investments. “We applaud these industry changes as a step in the right direction to ensure investors are more empowered with the type of information they need to make smarter decisions with their hard-earned money.”
When asked about CRM2, 83 per cent of the Canadian investors surveyed were not aware of these upcoming changes. However, once they became aware, 46 per cent said this new information will help make them a more knowledgeable and empowered investor, 49 per cent said their advisor will be more accountable and 41 per cent said it will give them peace of mind, even if they don’t use the information.
Of those surveyed with a financial advisor, less than half (47 per cent) are “very satisfied” with the services they’re receiving and another 47 per cent are only “somewhat satisfied.” When asked if they would be willing to go out on their own and buy investments like mutual funds directly (online) vs. through an advisor if it meant paying lower fees, a third (34 per cent) agreed they would.
“Our Funds have a Management Expense Ratio (MER) of 1.07%, which is about half the industry average**, and Tangerine Investments doesn’t charge some of the typical fees you see with other providers such as annual administration fees, transaction fees and Deferred Sales Charges,” says McGann. “We believe investors need an alternative to the traditional high-cost, actively managed mutual funds that try to beat the market, which is why we’ve opted for an indexing strategy designed to match market returns providing a smart, low-cost and hassle-free way to invest for the long term.”
With 33 per cent of survey respondents claiming they don’t use a financial advisor, what were the top reasons for managing investments on their own? The chart below breaks down the responses (respondents could select more than one):
|I’m confident I can manage my investments on my own and I like to have control||51%|
|Financial advisors take too high of a commission so I can generate bigger returns by investing on my own||34%|
|There is no transparency/ trust when dealing with a financial advisor so I’d rather do it by myself||24%|
|There are other solutions these days including simple and effective online tools and apps that can help me invest wisely||23%|
|I don’t know enough about financial advisors/never thought about it||19%|
Three Things to Know About CRM2:
1. You’ll know the exact dollar amounts you’re paying to your investment dealer.
Once a year, your investment dealer will send you a report summarizing compensation earned such as trailing commission(s), in actual dollars, as well other earnings such as Deferred Sales Charges or referral fees. This report will also provide a summary of your out-of-pocket charges like annual administration and transaction fees.
2. You’ll get a more complete picture of your return on investment.
Annually, you’ll receive a report that provides your personal portfolio performance for the previous year and since opening your account. Previously, firms only had to disclose the rate of return for the fund overall. This additional information will help you ensure your investments are aligned with your long-term goals.
3. You may not see this information right away.
It’s important to remember that although the new requirements described above come into effect July 15, 2016, most firms will likely provide the two new annual reports on a calendar year basis. This means most investors will start getting their reports in early 2017.
Learn more about CRM2 at tangerine.ca/forwardthinking/investing
From June 29 to July 4, 2016 an online survey was conducted among 1,003 randomly selected Canadian adults who are Angus Reid Forum panelists and who meet the following criteria: primary/shared decision maker for household finances and currently have investment accounts/mutual funds/bonds/stocks. The margin of error—which measures sampling variability – is +/- 3.1%, 19 times out of 20. The results have been statistically weighted on age, gender and region to the profile of Canadian adults who have investment accounts. Discrepancies in or between totals are due
**Source: Investor Economics (2016). Investor Economics Insight 2016 Annual Review.
About Tangerine Investment Funds
Tangerine Investment Funds are managed by Tangerine Investment Management Inc. (formerly known as ING DIRECT Asset Management Limited) and are available only by opening an Investment Fund Account with Tangerine Investment Funds Limited (formerly known as ING DIRECT Funds Limited). Both firms are wholly-owned subsidiaries of Tangerine Bank. With more than $2 billion assets under management, Tangerine Investment Funds Limited is the principal distributor of the Tangerine Investment Funds.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. All securities, including mutual funds present a risk of loss of capital. To understand risk better, you may also want to look at the specific risks for mutual funds and how they could affect their value. The principal risk factors for the Tangerine Investment Funds include Index Risk, Equity Risk, Foreign Investment Risk, Foreign Currency Risk and Fixed Income Investment Risk. For a full list of the funds’ risk factors and details about them, see the What Are the Risks of Investing in a Mutual Fund Generally section of the funds’ simplified prospectus.
Tangerine is a direct bank that delivers simplified everyday banking to Canadians. With nearly 2 million Clients and close to $38 billion in total assets, we are Canada's leading direct bank. Tangerine offers banking that is flexible and accessible, products and services that are innovative, fair fees, and award-winning Client service. From no-fee daily chequing and high-interest savings accounts, Credit Card, GICs, RSPs, TFSAs, mortgages and mutual funds through its subsidiary, Tangerine Investment Funds Ltd., Tangerine has the everyday banking products Canadians need. With over 1,000 employees in Canada, our presence extends beyond our website and Mobile Banking app to our Café locations, Pop-Up locations, Kiosks and 24/7 Contact Centres. Tangerine was launched as ING DIRECT Canada in 1997. In 2012 it was acquired by Scotiabank, and operates independently as a wholly-owned subsidiary. For more information, visit tangerine.ca