New Rules, New Reports

New Rules, New Reports – Potential Client Confusion

December 2016

Starting in January 2017 all financial firms will have to send clients new reports on their investment accounts. The new reports are mandated by regulatory changes. The reports will cover a few topics, however in my view the two biggest are fees and performance. I believe in transparency and think the mandatory disclosures are good for the industry and helpful to clients. However, like any change, the new reports may initially cause confusion.

For starters each of the new reports covers one account. If you have a RRSP and a TFSA, you will receive a rate of return report for each account and a fee report for each account. Both reports contain financial jargon that will likely be new and confusing to many folks, however I believe the report that might be the most confusing is the fee report. In my opinion clients want to know their total fee, the total amount of money that leaves their pocket. The new mandatory report does not disclose the client’s total fee. The objective of the new report is to disclose the amount of money the financial firm receives, this amount is listed on the report as a dollar figure and as a percentage of the client’s account. However this amount may not be the client’s total cost. Financial products often include buried management and administrative costs, which will not be disclosed on this fee report.

To help explain the report I like to use an analogy, imagine you are building a new home. You have picked a builder and you and the builder have agreed that your desired home will cost $400,000. The builder will not keep all that money, they will likely have electricians, plumbers and other sub trades to pay. The builder may only keep $250,000. The new fee report will show the amount the financial firm receives, or in my analogy the $250,000 the builder keeps. The report will not show the amount the sub trades received nor will it disclose the total cost of the home, it will not disclose the $400,000.

In my opinion, because the reports do not include the cost of what I refer to as the sub trades, the reports are not comparable. Comparing your fee report with that of your neighbours could be comparing apples and oranges. Each financial firm may have a different way of handling an investment portfolio. In fact often within a financial firm the investment approach can vary from account to account. Since the report does not focus on the total cost of your portfolio, I do not believe it is comparable.

I encourage folks to use these new reports to increase the dialogue with their advisor. It is your money, ask questions! If you find the report confusing or would like to know your total cost – ask.

Unfortunately there are firms in the financial industry that barely disclose any fees. Although these new reports are not perfect I am in favour of them. I believe enforcing a minimum level of transparency on financial firms will prompt clients to ask more questions and hopefully lead to a more open discussion.

Clinton Orr B.Comm(hons.), CIM, CFP, DMS, FMA  lives in Beausejour and is a portfoliomanager with National Bank Financial.


This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use, and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity.  As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. This commentary reflects my opinions alone, and may not reflect the views of National Bank Financial Group.