With five years of pre-sale delivery of Fund Facts and four years of CRM2 fee and performance statements behind us, recent findings from two important investor surveys reveal that, by a number of measures, investors are developing a better understanding of the fees they’re paying.
The Canadian Securities Administrators’ (CSA) CRM2/POS three-year tracking study, released in August, and IFIC’s Pollara Investor Survey, released in September, both ask questions about investors’ fee understanding and satisfaction with Fund Facts and CRM2 statements. Both surveys include baseline data to 2016, allowing for comparison of pre- and post-Fund Facts and CRM2 statements.
Both surveys reveal that investors have an increased understanding of fees. The CSA survey shows that 79% of investors in 2019 said they had a good understanding of the types of fees they were charged, up from 76% in 2016. Four in five investors reported a good understanding of how fees affect the return on their investments, which is up five points from the baseline. The Pollara survey shows similarly high numbers and an upward trend, with 83% of mutual fund investors in 2020 reporting confidence in understanding fees and commissions, up 13 points from 2016.
The CSA survey also shows that 72% of investors in 2019 knew the amount of fees paid to their investment firms in the past year, up from 60% in 2016. The survey shows notable increases in investor understanding about the amount of fees paid by third parties to their firm and awareness that fees on their account have an impact on their investment returns. However, it’s important to note that the investor base in the CSA survey included investors with a variety of fee arrangements and products, not all of them with embedded fee models.
The CSA survey highlights positive trends for investment performance understanding. In 2019, 85% of investors reported that they felt confident about monitoring changes in the value of their investments over time, up from 80% in 2016. Eighty-two per cent reported confidence in assessing whether or not their investments were helping them reach their financial goals, up from 76% in 2016.
Looking at the Fund Facts documents, the CSA survey shows a positive trend. In 2019, 69% of investors reported that advisors used Fund Facts to explain the features of mutual funds before making a purchase, up from 58% in 2016. Investors rated every section of the Fund Facts document as important for making an investment decision, with the importance attached to each section ranging from 84% to 98%. Investors also reported a high-level understanding of most elements of Fund Facts, especially risk rating (82%) and past performance (84%). The Pollara survey shows that 81% of mutual fund investors recalled receiving Fund Facts at the time of purchase, up from 71% in 2016.
In the Pollara study, investors were also asked about the quality of information received and, in 2020, 89% reported that the Fund Facts document provided the necessary information and 82% reported that the information was easy to understand.
The CSA survey shows that a large majority of investors continue to report that they have an “excellent” or “good” understanding of the information included in the statements, including market value (72%), overall rate of return (71%) and records of transactions (76%). However, for understanding of direct and indirect fees paid, a notably smaller proportion — 58% — stated they had an “excellent” or “good” understanding. Consistent with the CSA survey, the Pollara survey shows higher satisfaction with the performance section of statements, 84% in 2020, compared with the fee section, at 50%.
The results of the research show that the introduction of Fund Facts and CRM2 reports is achieving policy objectives, and both regulators and the industry should be encouraged by this progress. As always, there is still work to be done, and the industry will continue to support regulatory efforts with the end goal of enhancing the investor experience. As we seek to improve further, it will be important to be guided by behavioural economics, which show that simply adding more information might not be better in practice and can sometimes lead to undesired outcomes like decreased understanding or even avoidance.