PMAC is pleased the two have finally aligned to bring disclosure standards for segregated funds up to the same level as those for investment funds, while recognizing the differences in both products and distribution channels. PMAC believes cost transparency will benefit investors and policyholders.
But, Paris said disclosure is “only one piece of the puzzle and focusing on cost alone really ignores the importance of obtaining investment advice.” She noted that investment advisors need to explain the cost of various products to investors and provide the context about the relationship between the product’s cost and performance. “Disclosure alone will not provide investors with all of the information they need. They really need to have that dialogue with their advisor.”
Paris said the proposals provide investors with information about their investments’ full cost, which includes the funds’ embedded costs, whether they are mutual funds, ETFs, or other funds. But, PMAC believes that information should be presented as a combined, or aggregate, percentage of the client’s assets rather than a dollar figure, so investors have a true percentage comparator that can be applied across all products as a dollar value could fluctuate with the markets.
“A percentage would provide a more constant metric to measure the costs, and some of our members already report costs that way,” she said. She contrasted that to clients who may own different securities, including mutual funds and ETFs. “They may not realize that, in addition to the fees they pay to the dealer, the funds they own also have embedded costs that are not listed on their annual cost report. So, they may pay separate trading and administration fees and then pay embedded costs that are currently invisible in the funds.
“So, if you’re trying to compare the cost of investing with a portfolio manager versus the cost of investing with a dealer, there’s no way to make that apples to apples comparison because you don’t see the overall cost you’re paying. That’s what we’re hoping we can achieve: a metric that will be comparable between different products and different distribution channels, so clients have all the information they need to make that comparison between the products and services they receive.”
