Industry News

Advisors must inform clients of the fees they pay as a new survey finds that most Canadians don’t know their fees will be revealed in statements thanks to CRM2

By Tessie Sanci |

Almost two-thirds (63.1%) of Canadians don't know how much they pay in investment-management fees while a similar percentage (65.1%) of Canadians are unaware this information will be revealed in their account statements when enhanced performance and compensation reporting required under the second phase of the client relationship model (a.k.a CRM2) takes effect this Friday, according to a survey that Toronto-based robo-advisor Justwealth Financial Inc. released on Tuesday.

However, preventing "sticker shock" when clients see statements that specify what they have been paying in dollars, and not percentages, is still possible, according to April-Lynn Levitt, a coach with the Personal Coach in Oakville, Ont.

Although the new rule takes effect July 15, most dealers will not deliver those enhanced statements until January 2017; therefore, advisors still have some time to help their clients understand their fees and the services they receive in exchange for those fees.

One element of helping clients understand CRM2 and the new reporting requirements is telling clients more than once about what they can expect to see in those statements. Although many advisors are not having those conversations with clients, the ones that are approaching the topic are often doing so only once and think that that's enough, says Levitt.

"Like any message, [it probably] takes five to seven [conversations] before it sinks in for somebody who's not in the [investment] industry," she explains.

Advisors should also be explicit in explaining to clients what they pay in dollars to the firm and how much of that fee goes to advisors, Levitt recommends, and this effort should especially be made with high net-worth clients.

Additional information concerning CRM2 and how it will affect clients can be made available through newsletters as well as in client review meetings. Advisors can take advantage of resources such as videos and sample statements their firms have made available that can help communicate the message, Levitt suggests.

This is critical in keeping clients on board because approximately half (51.3%) of Canadians say that the costs related to investment services would be a key factor in considering a migration to an online investment platform, according to Justwealth's report.

Advisors must respond to any possible objections about price by communicating the tangible and intangible services they provide to clients, especially those that robo-advisors cannot be offer, says Levitt.

These services can include the development of detailed financial, estate or succession plans; helping clients stay invested during temperamental markets, when they might be tempted to pull out; and listening to clients talk about sensitive issues that concern them, such as their families.

Although survey participants were asked what would motivate them to choose a robo-advisor, more than 80% say they're still unfamiliar with the services these platforms provide.

This statistic would probably apply just as equally to advisors, according to Levitt, who finds that many are unaware of services and fees connected to online investment management platforms — a fact that advisors may want to change in order to stay competitive.

"[Advisors] should know [more about robo-advisory services] so you can position yourself against them if [the topic] does start coming up from clients," she suggests.

Justwealth's research was conducted in June and earlier this month through Google's consumer survey service. It uses the responses of a maximum of 700 Canadians who are 25 years old or older from all provinces and territories.

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