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New Investment Reporting: What You Should Know

Over the next few months, you’ll likely be hearing more about the new disclosure rules that went into effect on July 15, 2016.

The new rules require the investment industry to provide more clarity for investors on the fees and compensation that financial firms collect, and on individual investment performance.

There has always been a cost to investing, and investors pay it through an embedded fee called the “management expense ratio.”

To help illustrate the transparency issue, let’s compare an account statement to a pay stub.

Imagine if your pay stub only showed your take-home pay and nothing else. Then imagine that new rules came in, stating that the employer must disclose the gross pay, all the deductions and then the take-home pay.

Your take-home pay hasn’t changed. The difference is you can now see how much you earned before the deductions.

What’s changing

While a pay stub must show every deduction, the new disclosure rules do not require the investment industry to provide you with the total cost of your investments.

Here is what financial firms must show (in dollar terms)—and what they don’t need to show.

        Must show  Don't need to show
Investment fees
  • Amount paid to the investment dealer (known as the trailing commission). This is considered to represent the advice portion of recommending the fund, as well as the ongoing service, advice and reporting.
  • Amount paid to the fund manager for managing the fund
  • Administration, legal and operating expenses
  • Amount of compensation that the financial firm receives from the fund company
  • Amount that your advisor earns
Investment performance
  • Your personal rate of return. This allows you to track your own investment performance against your goals. It also accounts for large inflows and outflows in your personal accounts.
  • Your investment performance against benchmarks

All in all, the new rules aim to make it easier for Canadian investors to understand how their investments are performing, and how much their investments are costing them.

How MD is going beyond the new disclosure rules

MD Financial Management is going beyond the minimum reporting requirements.

Beginning in January 2017, MD will disclose not only the amount paid to the investment dealer but the total cost, which includes the amount paid to the fund manager for managing the fund as well as the administration, legal and operating expenses.

Regarding investment performance, MD will show the personal rate of return as well as how an investor’s returns tracks against the benchmark.

For more information about MD and the new rules, please contact your MD Advisor