Planning for retirement is not what it was. Gone are the ‘job for life’ company pensions, confidence in assistance from the government and knowing that come your 65th year, you can retire.
Worryingly, around 50% of Canadians are concerned that they will not have enough income to be able to live comfortably in their retirement. 3 in 5 people have no idea about how much money they will need to live on and 47% of those aged 55-64 have no company pension provision. This is a ticking time bomb.
If you have invested for retirement, the chances are you will find that your investments aren’t yielding the returns required to live comfortably. Why? you may ask. Because your gains have probably been considerably reduced by hidden fees and costs. Most Canadians are generally unaware of what fees and costs they are paying and are often shocked and upset when they discover exactly how much their retirement nest egg has been reduced.
In 2016 the Canadian Securities Administrators (CSA) introduced the CRM2 regulation to force mutual fund companies, providers and financial dealers into showing investors exactly what they are paying in fees each year. This will help to you have a greater understanding of how your investments are working for you, and ultimately will allow you to take control of your financial future.
What fees am I paying?
The fees you have been paying are usually hidden in the small print in mutual fund fact documents and prospectuses, and hidden behind financial jargon like ‘embedded trailer fees.’ The ‘trailer fees,’ put simply, are commissions paid to sales representatives by mutual fund managers in return for recommending their fund to you.
These funds usually have some of the highest fees in the world, so this practise clearly does not represent the best interests of the investor. The sales representatives will often say they are independent, but their licences are usually sponsored by an insurance company, bank or dealer and they are incentivised to sell their products, so it’s not strictly true. The problem is that most people will trust those with ‘financial planning’ designations so they don’t tend to ask questions.
What does CRM2 mean for you?
Every year, your investment dealer or advisor must send you a report detailing the exact fees you will be paying and how much compensation you’re paying them. Whether you pay $100 or $10,000, you will know the exact amount.
Also, you will receive an annual report that gives a clear picture of how your investments are working for you. The report will detail your personal portfolio performance for the previous year and since opening your account. Before CRM2, firms were only required to provide you with information on the rate of return you could expect overall. This annual information will help you make sure that your investments are aligned with your best interests and long-term financial and personal goals.
Even though the regulation was introduced in the summer of 2016 , you may not be able to get the information right away, as most firms will most likely produce the reports on a calendar year basis. Most investors should expect to be able to access their reports from early 2017.
What does CRM2 mean for the financial industry?
It may seem like CRM2 puts pressure on financial dealers and advisors to prove that they are worth the fees clients are paying for their services, but aside from the requirement for enhanced reports, we should not lose sight of the fact that financial professionals should be helping clients understand their investments right from the start.
Advisors need to align their services and advice with their client’s goals. These goals are increasingly geared towards meeting personal non-financial life objectives. It’s all about forming strong relationships with clients to help them achieve their financial dreams. There needs to be a clear line drawn between offering a client advice that is going to work in their best interests, and merely selling them a financial product.
Most financial plans are a sales pitch disguised as advice. Someone knows what they want to sell you, and the financial plan will have the desired outcome; for them, not you!
If you are fed up about being kept in the dark or of being misinformed, contact me, I can help you!
The philosophy here at Your Net Worth Manager, is ‘plans before products.’ I will work with you to set goals for your financial future, help you to figure out a solution to your problems, and above all, tell you the truth. That is what makes me different. There’s no conflict of interest or hidden fees, just the right advice for you, when you need it.