Revealing a portfolio’s hidden costs

It feels great when you open up a quarterly statement from your brokerage and see that the amount of money in your investment account has increased. But wait a second: how much of that increase is due to your own contributions, rather than to your investments performing well? And how much of your money was paid out in fees to mutual fund managers and to your adviser? Thanks to lack of clear disclosure from banks and investment companies, many investors in Canada don’t have a clue how their investments are really doing.

An initiative launched in June by the Canadian Securities Administrators (CSA) hopes to change that. The CSA, an umbrella group for Canada’s provincial and territorial securities regulators, wants to force financial institutions to provide clients with more in-depth reporting on their portfolios. In particular, they want the fees paid for products and services to be disclosed as a dollar amount, and a clear rate of return provided for investments. Seeing these results would encourage investors to seek out alternatives to high-cost funds and to financial advisers with poor results.

“We want to make sure that information is being provided to investors in clear and simple language so they can make more informed decisions,” says Marian Passmore of the Canadian Foundation Rights (FAIR).

Unfortunately, investors won’t be seeing this new information on their account statements anytime soon. First the policy needs approval from provincial regulators and finance ministries. Then the banks and brokerages would get a two-year phase-in period. Passmore says regulators have been sluggish in the past, but they are taking this initiative seriously. “Eventually it will get implemented.”