IAP calls on regulators to eliminate embedded compensation

Despite regulators’ efforts to highlight investor costs, investors need to learn more about investment fees, according to the initial results of a three-part research project from the B.C. Securities Commission (BCSC) designed to assess the impact of the new annual cost reports required under the second phase of the client relationship model (CRM2) reforms.

The first phase of the research, which Innovative Research Group conducted on behalf of the BCSC this past November and December, found that 28% of survey participants don’t know how their advisors are paid while 36% are not familiar with the types of fees they pay.

The survey also found that 51% of investors say they know what they paid in direct fees over the year, but just 34% know the impact of indirect fees on their investments. Furthermore, the research reveals that only 44% of survey participants understand that paying 1% more, or less, in fees will impact their returns.

“Some of the study results concern us. New securities regulations will be putting more information in the hands of investors to help them clearly see the fees they paid in the last year. We’re conducting this research to show us how ready investors are to use this information and what else they still need to understand,” says Pamela McDonald, director of communications and education at the BCSC, in a statement.

“Fees impact your returns over time. Fees are a fact of investing and we want to empower investors to discuss them with their advisors,” she adds. “This is why we created a number of new online tools, like our fee calculator, to help make this important information more accessible.”

The survey was carried out online, but as it was not a random probability based sample, a margin of error for the study can not be calculated, the report indicates.

The second and third phases of the research will circle back to the survey’s participants after they receive their initial CRM2 reports and, again two months down the road.

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