Making sense of your new CRM2 charges and compensation report

Now that millions of Canadians have received their year-end statements and investment reports, they may have noticed a new report called the Charges and Compensation Report included with their statements.

The purpose of the charges and compensation report is to disclose all fees, commissions and charges paid by an investor, and to disclose all compensation and remuneration received by the dealer (the advisor’s head office).

It is important to note that the report does not disclose advisor compensation which is only a portion of the dealer compensation disclosed on the report. Therefore, typically an advisor receives a fraction of the amount indicated on the report.

The report is divided into a number of sections and the listing is extensive: general administrative costs, purchase, sale or other transactions, amounts received from fund managers, amounts received from third party referral fees, and amounts paid to other parties. One section details the fees that are paid by investors for their fee-based portfolios. You may also see a separate fee schedule which lists transfer-out fees, supplemental registered account fees, nominee fees, non-sufficient funds fees, etc. Depending on the fees you paid, you may not see all of these categories listed on your statement if they don’t apply to you.

For mutual fund investors, I recommend paying special attention to the important sections that detail trailers (monies paid from the fund companies to the advisor’s dealer) and advisory fees.

Any problems with the new report? GIC investors may assume that the GIC commission numbers listed is what they paid to buy GICs. However, there is no such thing as GIC commissions that investors have to pay for GICs! More on this later.

Again a reminder, the report discloses commissions and other compensation received by the advisor’s dealer (the advisor’s head office) – it does not detail the specific compensation received by the advisor.

Feel free though to ask your advisor what percentage he really makes – he shouldn’t hesitate to tell you.

Now that advisors and investors have had time to review the new reports in depth, it’s time to look at it with a more critical eye and see whether there is room for improvement.

Some believe that not enough information is disclosed. I was disappointed to see that there were no percentages listed in this new report as all amounts listed are dollars only. Upon seeing just dollar amounts for the commissions and fees they are paying, investors would generally ask themselves the question – In relation to what? For the fees and commissions I am paying, is that amount 0.5% of my account balance, 1.0%, or 1.5%? It doesn’t say.

In my view, the report could be improved by expressing the amount of money investors are paying in both dollars and in percent so that investors can make better comparisons with other financial institutions.

I think it would be useful to have GIC dealer remuneration listed separately along with a footnote explaining what this remuneration is.

Industry commentators may also like to see more than just dealer remuneration – they may be interested in seeing the costs of the mutual funds included in the report. Also they may like to see early redemption charges from the sale of deferred sales charge (DSC) funds prior to the DSC maturity date.

To improve things further, I would like to see more visuals - a pie chart of the mutual fund’s total MER can show how much the fund costs, what the taxes were, how much was paid to the advisor’s dealer, etc.

SUMMARY

Here are some suggestions that might help to improve readability:

I think the biggest challenge of this report is that there are no percentages included. Dollars by themselves can have little value. For comparing and evaluating investments – percentages should be included.

I think visuals could go a long way in breaking down the total cost of a mutual fund. Although pie charts are sometimes criticized for their overuse, I think they would be of great value to illustrate mutual fund costs. Seeing just one total dollar amount here may not necessarily be meaningful unless it is accompanied by a percentage.

Although the regulators specify what must be reported, there is no standard template that must be used. For a more consistent experience, I feel using an industry standard template for reporting purposes can improve consistency.

Due to the unique nature of GICs, investors do not pay commissions for GICs but securities dealers do receive compensation for the sale of GICs from the banks. Some GIC investors are assuming they are paying commissions to buy GICs. This is not correct. A footnote describing what this remuneration is can certainly go a long way. Additionally, GIC commissions should have its own category and not be lumped in with stock commissions or mutual fund commissions, or lumped into a somewhat ambiguous category called “Amounts received from others.”

In the meantime, I would encourage all investors to bring their Charges and Compensation Report to their next portfolio review so they can discuss it in more detail.

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Glenn Szlagowski is a Financial Advisor at Assante Financial Management Ltd. in Kitchener, Ontario. The opinions expressed are those of the author and not necessarily those of Assante Financial Management Ltd. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances. Commissions, trailing commissions, management fees and expenses, may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.