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Fees you pay in a CAP aren't disclosed

Do investors have the right to know how much they pay in fees? Apparently not!

For many years mutual fund investors and Capital Accumulation Plan (CAPs) members have been kept in the dark about the amount they pay in advisor, record keeping and fund manager fees. These costs are automatically deducted from their accounts but the dollar amount is not disclosed.

Account holders are given the investment management rates (IMFs) but then cheekily told if they want to know what they paid to “figure it out yourself". As a result there is no effective way to determine how much was actually paid or, if you have been incorrectly charged.

Over the long term the fees have a significant negative impact on savings accumulations. Complaints about the high Canadian investment fee rates and reluctance to disclose the annual costs have been going on for years with only a half baked response from the industry.

Mutual Fund Industry

In 2016, after two decades of ‘investigation’, the Canadian Securities Administrators (CSA) introduced the Client Relationship Model Phase 2(CRM2). This requires disclosure of certain, but not all costs, paid by the clients. The costs reported include: front end commissions, commissions paid to the dealer and advisor and trailing commissions. Fee disclosure now only requires disclosure of the amount received by the dealer firm as direct and indirect fees but not the amount paid to the advisor. Itemization of costs, is needed but is left to the dealer’s discretion.

Many mutual fund investors assume they now know their annual cash costs. They have been are wrong: disclosure does not include the amount paid to the investment fund manager which are often the largest portion of MER. The Canadian equity fund weighted average fee was 2.4% and it is higher for foreign equity funds. Therefore, a key component of the cost is not being disclosed.The individual cost elements are also not required to be disclosed under CRM2.

While the CSA should require full disclosure of total dollar costs paid by investors the fear is that investors would challenge the high costs of fees given the services provided.

While CRM2 is a step in the right direction it is misleading and simply adds to investor confusion. Legislation should be introduced requiring full disclosure since the industry is reluctant to address the problem.

Capital Accumulation Plans (DC and RRSP Pension Programs)

The financial and legal risks associated with Defined Benefit (DB) plans have lead many sponsor to replace DB programs with Defined Contribution (DC) plans or RRSP’s. DC plans are registered pension programs that fall under provincial or federal pension legislation. A RRSP is a savings vehicle falling under the Income Tax Act. Pension legislation however primarily focusses on DB plans: there is very little in federal or provincial legislation or regulations specific to DC plans.

The federal and several provincial governments have also promoted a DC/CAP type program called a Poold Registerred Pension Plan (PRPPs). PRPPs are intended to encourage small businesses to provide pension programs but are also available to large companies.

Insurance and other companies are often the record keepers for a CAP pension program. A record keeper provides account information and reporting, education and other program information. Sponsors also often use an advisor to assist in selecting investment funds and overseeing the CAP pension program. In some cases, advisors will even provide CAP members with investment advice.

Members pay for these services via an investment management fee (IMF) which includes the record keeper, advisor and fund management fees. As in the case of mutual funds the IMF is automatically deducted from member CAP accounts each month. IMF rate is usually disclosed but the members are kept in the dark about much money is taken out of their account: members pay for their pension program but do not know how much they are paying.

DB plan members who transfer to a DC program are usually not aware they will bear the bulk of the cost of administering the DC plan fees. They are also not told that the fees will increase once they retire and are transferred to the record keeper LIRA or RRIF program.

With the exception of BC and Alberta provincial and federal legislation does not require fee disclosure. In the case of BC, Section 30 of the PBSA Regulations requires an annual reconciliation of the balance in DC accounts at the end of the year. This includes contributions, any interest credited, and “… any administration expenses deducted and any other payments, transfers or withdrawals made...”. The withdrawals from member accounts for record keeper, advisor and fund manager fees would qualify as ‘administrative expenses’ or, as ‘other payments’. The requirement to disclose these costs as a reconciling items however is not being enforced.


Both mutual fund investors and DC plan members are not told what they pay monthly or each year for fees. Since Canadian fees are “some of the highest in the world” it is clever of sponsors, record keepers, advisors and fund managers not to highlight these costs: if investors knew the cost they may demand lower fees or higher employer contributions.

The mutual fund industry should require full fee disclosure. It is questionable whether RRSP and DC pension program employers, administrators and pension committees are acting in plan members’ best interest with respect to fee disclosure if they are not insisting on full fee disclosure. The lack of fee disclosure is an area of potential conflict of interest legal and fiduciary perspective for pension sponsors and CAP service providers.

Regulators need to step up to the plate by adding fee disclosure requirements or enforce the existing regulations.

Gerry Wahl, Managing Director, The PensionAdvisor

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