Big changes have landed for investment reporting

Derek Shevkenek - Mar 02, 2017

You’ve heard the saying, “the one constant is change.” I’ll now highlight a few recent investment reporting changes.

As of last year on May 30, investors are being provided with a “Fund Facts” document before mutual fund purchases.
It’s a handy snapshot of each mutual fund, written in plain-language that provides information such as mutual fund objectives, investment mix, risk rating, performance and total fund expenses and fees.
Five years ago in this column we looked at how mutual funds were reported on investment statements on a “net” basis. This means after total fees, as disclosed in the prospectus document for each mutual fund, had been deducted.
As of December 2016, the “trailing commissions” component of total fund expenses is now being reported on an ongoing basis on investment statements.
These commissions are paid by mutual fund companies to your investment dealer for the investment advice and ongoing services provided to you. The investment dealer keeps some, and some is paid to your advisor.
When you buy Guaranteed Investment Certificates (GICs), the interest rate you see is what you get.  And as of December 2016 statements, GIC commissions are now reported separately.
Say you buy a $100,000, 5 year GIC at 2.0% compound interest per year. Assuming commission is 0.25% per year of the GIC, you would see a commission of $1,250 reported in the year of purchase. This commission is not deducted from your 2.0% interest – it was already factored in to arrive at that rate.
The “time-weighted” investment returns that have been used to date show how your investments performed based on market conditions and decisions made by the investment manager(s). Now, “money-weighted” investment returns will appear on statements. These returns are specific to your own situation, based on the timing and amount of account additions or withdrawals.
For example, if you make a withdrawal after markets pull back only to see them rise again, your own returns will be lower. Or, if you make an addition to your portfolio before a rise, that will help your returns. If there are no additions or withdrawals, there is no difference between time or money-weighted returns.
Overall, I see these as positive changes.
Inquiry welcome at Opinions are those of Derek Shevkenek and may not reflect those of BMO Nesbitt Burns Inc. The information and opinions contained herein have been compiled from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. BMO Nesbitt Burns Inc. is a Member - Canadian Investor Protection Fund. Member of the Investment Industry Regulatory Organization of Canada.