Although the majority of Canadian investors remain unaware that they pay for advice, the trend is moving toward correcting that ignorance. More investors are aware they’re paying for advice than before the rollout of the second phase of the client relationship model (CRM2) reforms, according to recent research by Mississauga, Ont.-based Credo Consulting Inc.

Specifically, 62% of investors whom Credo surveyed between July and September indicated that they don’t pay for the financial advice they receive. That’s down from 67% of investors surveyed between May and December 2016 who held the same belief.

This information was drawn from research conducted by Credo for the Financial Comfort Zone Study, an ongoing national consumer survey conducted in partnership with Montreal-based TC Media’s investment group. (TC Media publishes Investment Executive.)

“There’s little doubt that the proportion of investors who are unaware that they actually pay for advice has declined significantly [since the rollout of CRM2],” says Hugh Murphy, managing director with Credo Consulting.

Since July, investment dealers have been required to provide clients with CRM2-compliant reports, which include information about fees related to advice, stated in dollar figures, as well as performance data. However, most firms began delivering CRM2-compliant reports in the early part of this year so that they could give fee and performance data to clients on a calendar-year basis.

The implementation of CRM2 also has raised awareness among investors regarding how much they pay for advice. The investors Credo surveyed between July and September gave an average score of 6.42 out of 10 for the statement: “I know exactly how much my advisor is paid.” In contrast, investors surveyed between May and December 2016 gave this statement an average score of 6.13.

However, many investors remain in the dark regarding how exactly they pay for advice, the survey suggests. For example, when survey participants were asked if they paid trailing commissions, 26% indicated that they were uncertain. When asked if they paid for advice by a percentage fee on assets, 14% were uncertain.

Even though the implementation of CRM2 probably has had a positive effect on investor awareness of fees overall, the survey’s results also indicate that “there remain many substantial issues that must be addressed [to raise investor awareness],” Murphy says.

Nevertheless, the full implementation of CRM2 is in its early days, and the full effects of the new fee disclosure requirements might not be fully realized for some time, suggests Paul Bourque, president and CEO of the Investment Funds Institute of Canada (IFIC) in Toronto.

“No one thought there would be a significant improvement in six months,” he says. At this point, he adds, the industry “is monitoring, doing regular surveys, then adjusting disclosure accordingly.”

IFIC is undertaking research to gauge the early impact of CRM2 on investors’ knowledge and behaviour.

Part of the muted effect of CRM2 to date may be due to the relative calmness in the equities markets, suggests Sara Gilbert, founder of Montreal-based Strategist Business Development: “When people are making money, they’re OK paying fees. But when people are losing money, that’s when they begin comparing fees, challenging [their advisors about] fees and asking questions about those fees.”

Still, the investment industry has done much to ready itself and clients for greater disclosure regarding fees and performance.

“I wasn’t expecting a revolution or an uprising [with the rollout of CRM2],” Bourque says. “Part of that has to do with the very strong trend that we’ve seen toward fee-based accounts. [As well], many firms have been providing this kind of information [in advance of CRM2] and markets are good.”

Indeed, the results of Credo’s survey did not turn up evidence that investors had dropped their advisors in favour of do-it-yourself options as a result of the implementation of CRM2, Murphy says: “There was no change in the incidence of people claiming to be consumers of financial advice.”

John De Goey, portfolio manager with Industrial Alliance Securities Inc. in Toronto, says he’s not surprised that CRM2 has had only a modest effect on investors’ awareness of fees. He believes that to do right by clients, the answer is the elimination of embedded commissions, now under consideration by Canadian securities regulators.

“Disclosure is just another red herring that the status quo defenders use as a purported fix,” De Goey says. “The proof is always in the pudding: ‘Does [CRM2] change behaviour?’ If it doesn’t, we have to do something else.”

However, Bourque contends, the focus should be on providing investors with the information and tools necessary to make suitable choices, not on eliminating a particular type of compensation structure.

“You give investors the best information so that they can make the best decisions in their own interests,” Bourque says, “rather than taking an intrusive approach or adopting prescriptive rules to take away choice.”

The online Financial Comfort Zone Study has polled 25,000 Canadians thus far. The survey is meant to gain insight into the relationships among financial advice, financial well-being and overall life satisfaction in Canadian society. Canadians are polled monthly, and the number of survey participants will increase each month.

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