BCSC study confirms investors need to learn more about fees

As new fee reports begin arriving, many investors remain unware
of how and how much they pay their investment advisors

VANCOUVER, Jan. 23, 2017 /CNW/ - Just in time for RRSP season, many investors will receive new information about the fees they pay for investment products and advice, and the British Columbia Securities Commission (BCSC) wants to ensure that investors are ready to "Take a Look" at that information.

The BCSC launched its Take a Look campaign in October 2016 to encourage investors to pay attention to the fees they pay for investment products and advice. And according to a recent study conducted by the BCSC, B.C. investors still have some significant gaps in fee knowledge. Of investors surveyed, 28 per cent do not know how their advisor is paid and 36 per cent are not familiar with the types of fees they pay for the investment products they own. Only 44 per cent of investors agree that paying one per cent more or less in fees will make a difference to their returns.

"Some of the study results concern us," said Pamela McDonald, Director, Communications and Education, BCSC. "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."

Beginning in January and February, investors will start receiving charges and compensation reports from their advisors as part of securities regulations called the Client Relationship Model, Phase 2 (CRM2). The BCSC is conducting a three-part longitudinal study to measure how well B.C. investors understand the fees they pay and how the new charges and compensation reports will affect investor knowledge and behaviour.

According to the BCSC's study, while 83 per cent of investors said they know whether the value of their portfolio went up or down over the last year, only half (51 per cent) know the total of amount of direct fees they paid in the past 12 months. And only a small group of investors, 34 per cent, know the impact of the indirect fees they pay from their investments.

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

The BCSC released new tools as part of the Take a Look campaign, including a fee quiz, fee guide, and investment fee calculator. Available on the BCSC's investor education website InvestRight.org, the fee calculator allows users to directly compare different fees and see their impact on investment returns.  

The BCSC's Investor Readiness for Better Investing study was conducted by Innovative Research Group Inc. in November and December 2016. For more information on the research findings, visit BCSC InvestRight.

About the British Columbia Securities Commission (www.bcsc.bc.ca)

The British Columbia Securities Commission is the independent provincial government agency responsible for regulating capital markets in British Columbia through the administration of the Securities Act. Our mission is to protect and promote the public interest by fostering:

• A securities market that is fair and warrants public confidence
• A dynamic and competitive securities industry that provides investment opportunities and access to capital

Backgrounder

Research Highlights

Many B.C. investors do not know how or how much they pay their advisor

• 28% of investors are not sure how their investment advisor is paid while 36% are not familiar with the types of fees on their investment accounts.
• Most investors surveyed (83%) said that they know whether the value of their portfolio went up or down over the last year. However, only 51% of investors said they know the total amount of direct fees they paid over the last 12 months and only 34% said they know how much their advisor has received in indirect fees from third parties based on the products they own.
• Generally speaking, there are two broad categories that fees fall into: direct and indirect. Direct fees are fees paid by you to your advisor to operate and administer your account. Indirect fees may include fees that your advisor receives from other companies for the investments you hold. These are taken from your investments and thus reduce your returns.

Investors with portfolios under $50,000 (20% of people surveyed) tend to be less informed, less satisfied and less likely to communicate with their advisors.

• Investors with these smaller portfolios are more likely to not know how their advisor is paid (50% vs. 28% overall).
• These investors were also less likely to be satisfied with their advisor relationship – 62% reported being satisfied vs. 79% overall.

Investors under 35 years of age are a conflicted group:

• Young investors appear more aware and more involved in their investments. 79% of male investors and 57% of female investors (the largest percentages in their respective gender groups) said they were familiar with the fees they pay on their primary account.  
• However, young investors are the most likely to agree that a 1% increase in fees would not make much difference to their returns over time – 45% of men and 34% of women agree with that statement.

The Investor Readiness for Better Investing Study is a three-part longitudinal study conducted by Innovative Research Group Inc. on behalf of the BCSC. The BCSC commissioned the study of B.C. investors who hold securities and invest through an advisor to understand and explain the impacts of new information provided through the Client Relationship Model, Phase 2 (CRM2) on key knowledge, attitude, and behaviour measures of investors.

CRM2

The Client Relationship Model, Phase 2 (CRM2) is an initiative by the Canadian Securities Administrators designed to provide investors with information to allow them to make informed decisions and to know the cost and performance of their investments, as well as their advisor's compensation.

Under CRM2, advisors must provide to their clients:

• enhanced relationship disclosure information,
• pre-trade disclosure of advisor fees and other charges,
• expanded account statements,
• annual reports on investment performance, and
• annual reports on charges and compensation.

The annual reports on investment performance and on charges and compensation are the most recent requirements to come into effect. Many firms will begin sending out their reports in January and February 2017. All firms have until July 2017 to provide their clients with the new reports.

Campaign Tools

The BCSC launched the Take a Look campaign in October 2016. To help investors better understand investment fees, the BCSC created new tools, which are available on its investor education website InvestRight.org:

• Investment Fee Quiz – the quiz was designed to test investor knowledge of investment fees and dispel some common misconceptions about fees.
• Investment Fee Calculator – the first tool of its kind, the calculator is a user-friendly web page that makes it fun and easy for investors to compare different fees side by side and see their impact on returns over time.
• Fee Guide – the eight-page guide explains key information, like the types of fees and when your advisor should discuss fees, and provides a sample of the annual charges and compensation reports that investors will begin receiving this year.

Learn how to protect yourself and become a more informed investor at www.investright.org

SOURCE British Columbia Securities Commission

Media Contact: Alison Walker, 604-899-6713; Public inquiries: 604-899-6854 or 1-800-373-6393 (toll free), [email protected]