This article appears in the May 2023 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
The latest example of regulators’ extraordinary patience for industry reform is the new total cost reporting (TCR) initiative. The project’s goal is simple: investors will receive meaningful, annual disclosure of the costs of investing in most funds, including mutual funds, ETFs and segregated funds.
But investors won’t get that insight until 2027.
For perspective, kids currently trying to decide where to go to university will be graduating from those programs by the time TCR requirements kick in. Babies born today will be in school before their parents are told what they’re paying in fund expenses.
As ludicrous as this sounds, it’s the cost of getting investor protection improvements over the finish line. A lot of work must take place behind the scenes before a number shows up in a report to clients detailing what they paid in management, trading and other fund expenses. Systems must be programmed and procedures developed to ensure that newly required information reaches clients.
The industry could implement these changes more quickly if there was a clear profit motive. But the costs of enhanced investor protection are private, even if the benefits are shared. A well-informed investor is better off, but the gains from their increased knowledge don’t necessarily accrue to the company providing the added disclosure. Once investors understand what they’re paying, they might begin shopping for a better deal or rethink what products are held in their portfolios.
Given the certainty of the cost and the ambiguity of the benefit, it’s hardly surprising that the industry is in no rush to adopt the new requirements.
Giving firms ample time to make the changes is worth the frustration, though. At the end of the process, investors will be better informed, and markets may become incrementally more competitive and efficient as a result. So, while a four-year wait isn’t a small price to pay, it’s a worthy one.
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