Investment firms are required to provide to each client an annual summary of all fees paid the previous year for services and advice. These requirements result in greater transparency about what you are paying, either directly or indirectly, for investment advice and other services.
Where to find your fee information
Investment firms can choose how they provide this information to you. Depending upon the investment firm you use, information about your fees may be provided separately from your investment statements – for example, in a document called Report on Charges and Compensation, or Fee Report, or something similar. Or the information may be included in your year-end accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition statements.
Your fee information will be provided by mail or online, depending how you have chosen to receive statements from your firm. The way the information is presented will also vary from firm to firm.
Not all Fee Reports contain the same information either. For example, some firms provide more detail than others and may use different terminology. While this may make line-by-line comparisons difficult, the overall categories of fees should be consistent (even if they have different names).
Your fee information is usually provided separately for each of your investment accounts. However, it is possible to receive consolidated reporting of different accounts. If you have more than one account with your firm and would like to see the fees for all your accounts reported together, ask your advisor if this option is available.
Types of fees
Your advisor and their firm receive fees for the services and advice they provide, either (1) directly from you or out of your account, or (2) indirectly.
The fees are paid to the firm, and your advisor receives his or her shareShare A piece of ownership in a company. A share does not give you direct control over the company’s daily operations. But it does let you get a share of profits if the company pays dividends.+ read full definition from that. Each of these types of fees is set out, in dollar terms, in the summary of fees paid for each account.
1. Direct fees
These are fees you paid directly. They may be paid by cheque, electronic funds transfer, or other similar manner, or they may be deducted directly from your account (sometimes by selling one or more investments).
While the language that different firms use varies, these fees include:
- Operating charges. These are fees associated with maintaining and using your account, such as administration fees, safekeeping fees, and transfer fees.
- Transaction charges. These are charges for buying and selling investments in your account, including transaction fees, switch or change fees, performance fees, short-termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition trading fees and sales charges or redemption fees.
- Management fees. These are fees, usually calculated as a percentage of your account value, for all of the services associated with managing your investments. The fees compensate the managers for their time and expertise.
2. Indirect fees
Indirect fees are not paid from your account, but rather by third parties in connection with the investments in your account. Prior to the introduction of these requirements, these fees were often not disclosed specifically. While you don’t pay these fees directly, they affect you because they reduce your returns.
Again, while the terminology varies between firms, these fees include:
- Trailing commissionsCommissions What you pay to a broker or agent for their services. Often called a “sales commission”. For example, you pay a fee to someone who buys or sell stocks or real estate for you.+ read full definition. Most mutual funds and some exchange-traded funds pay a trailing commission (or trailer fee) to your advisor and their firm. It is an ongoing fee, payable for as long as you hold the fund. This fee is how they are paid for the services and advice you receive related to that fund.
- Other fees paid by third parties. These fees include: referral fees or finder’s fees (paid for referring a client), and success fees (paid on the successful completion of a transaction).
Most investment products, such as mutual funds and exchange-traded funds, charge fees for choosing and monitoring the investments held by those funds. These additional fees (often called product fees) are not required to be included in the fee summary you receive, although some firms have decided to include them.
Product fees can vary considerably between investment products. Ask your advisor for information about these fees so that you may make an informed decision when purchasing a fund.
Scholarship plan fees
Scholarship plans often have enrolment fees payable in instalments over the first few years of making an investment in the plan. If you have a scholarship planScholarship plan A type of Registered Education Savings Plan (RESP) that pools together the money of many investors. An investment manager invests the money for you, often in lower-risk, fixed-income investments such as bonds and GICs. Enrolment fees are often high and there may be strict rules.+ read full definition, the fee information you receive will include the unpaid amount of any enrolment fees, in addition to the other fee information.
Other information you receive
In addition to information about your fees, your investment firm is required to send you information about the performance of your investments. In general, you will find that information in the same document as your summary fee information, or together with your Fee Report.
- Use the information about what you paid for the services and advice you receive from your advisor and their firm to help you determine the value you received for the fees you paid.
- If you don’t understand the fees set out in your annual summary, be sure to ask your advisor to explain them.