DESPITE THE FINANCIAL services industry’s long-standing resistance to reform, there are a few lonely voices within the industry who admit that clients need better disclosure on fees and investment performance.

For the past decade or so, securities regulators and the financial services industry have been waging a war over efforts to improve retail regulation. Even seemingly modest proposals from the regulators are routinely met with staunch opposition – all in an effort to derail, dilute or, at least, delay reform.

The same situation appears to be happening with the latest proposals from the Canadian Securities Administrators (CSA) concerning cost and performance reporting, which forms part of the client relationship model reforms.

These proposals seek to improve transparency for clients by requiring dealers to provide their clients with annual reports that spell out the dollar amounts those clients have paid to the dealer during the year, including trailer and fixed-income commissions, as well as provide personalized returns, among other things.

Predictably, much of the industry is reacting to the proposals with familiar rhetoric rebuffing the regulators’ plans. Critics claim that the proposals will give clients information they don’t really want, which will only serve to confuse them and will be very difficult and expensive for the firms to deliver.

However, amid the customary naysaying, a few voices are emerging in support of the regulators’ efforts. Comments on the proposals from a handful of firms openly contradict the prevailing industry narrative and endorse some of the stances the regulators are taking on behalf of investors.

For example, Vancouver-based Steadyhand Investment Funds Inc.’s comment letter explicitly expresses support for some of the CSA’s key proposals, backing the regulators “in anticipation of further comments and pressure from the industry.”

Furthermore, the Steadyhand comment sets out plain, practical reasons for the firm’s position. On the issue of reporting trailer fees in dollars, for example, the comment states: “Clients understand dollars. They don’t always get basis points. Advisors are compensated in dollars, not basis points. Putting the cost of investing in terms that clients can understand is a very important aspect of this reporting initiative.”

The Steadyhand comment also strongly supports the CSA’s plans for more transparency about fixed-income investing costs: “This is a mystery area that has to be cleaned up.”

The only real complaint in Steadyhand’s comment is that the CSA is being too permissive with the proposed transition period, giving firms three years to comply. Citing investor advocate Ken Kivenko, the Steadyhand comment notes that firms seem to be able to retool their systems very quickly when the objective is to generate new business.

Indeed, some firms say that they are already employing some of the CSA’s proposed measures, which suggests those measures do not pose an insurmountable challenge. For example, a small portfolio-management fir m , Heat hbr idge Cap it al Management Ltd. of Toronto, reports that it has given its clients both absolute dollar and time-weighted returns for the past four years – and that the practice has been well received by clients.

It’s not just small firms taking these supportive positions. Toronto-based Invesco Canada Ltd.’s comment indicates that the firm “fully supports” the requirement to provide investors with personalized rates of return.

Invesco’s comment notes that the firm already offers personalized returns within some of its programs, as do other firms. Says the Invesco comment: “As such, we are skeptical that such a lengthy transition period is necessary.”

Moreover, a couple of firms are suggesting that the CSA consider measures that go beyond its current proposals.

The Invesco comment suggests that the CSA consider requiring firms to break down the trailer commission split between reps and dealers: “If the client understands that the representative is getting $800 and the dealer $200, they may have a different reaction than if the representative is getting $500 and the dealer $500, depending on the level of service they perceive they are getting from the registered representative.”

Similarly, the comment from ING Direct Funds Ltd. supports disclosing the value of trailing commissions in dollars, and also suggests that merely reporting a trailer commission total is not sufficient and that the CSA should require firms to report the commissions paid for each fund a client owns – along with the dollar cost of the rest of the management expense ratio.

The ING comment adds that the current method of disclosing trailer commissions as a percentage of fund assets “is not helpful to investors, and that dollar figure reporting is more meaningful.”

The ING comment also suggests “presenting data on a fundby-fund basis could spur dialogue between dealer and client to determine the most suitable series and class of a fund instead of encouraging the client to switch dealers.”

The Heathbridge comment recommends that annual cost-reporting requirements be broadened to include new-issue commissions too, which, it suggests, is a cost that many clients probably don’t know about.

This comment notes that disclosure of foreign-exchange and interest rate spreads should be contemplated, too.

Regardless of whether the CSA adopts any of these suggestions, it is a bit of a revelation to see some firms in the financial services industry recognizing the underlying purpose of what the CSA is trying to achieve for investors – and supporting those efforts.

© 2012 Investment Executive. All rights reserved.