What is total cost reporting and how it will work?
When you investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition it’s important to know what fees you are paying. The fees you pay to your firm for its advice and services have an impact on the overall performance of your 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. Total cost reporting will make it easier to see embedded fees you pay on your investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition funds.
On this page we answer
- What is total cost reporting?
- What is an embedded investment fee?
- How do embedded fees impact your investments?
- What are the benefits of seeing embedded fees?
- How would the cost of embedded fees be calculated?
- What would a report with all your investment fees look like?
- What can you do with this information?
What is total cost reporting?
Most investments have fees associated with them. Some fees are more obvious, such as the transactionTransaction The process where one person or party buys goods or services from another for money. Examples include taking money out of an account, buying something with a credit card or taking out a loan.+ read full definition costs when you make a purchase. Other fees, like embedded fees, are harder to see.
Total cost reporting enhancements will make it easier to see the fees you pay for prospectusProspectus A legal document that sets out the full, true and plain facts you need to know about a security. Contains information about the company or mutual fund selling the security, its management, products or services, plans and business risks.+ read full definition-qualified investment funds. All your investment costs would appear in one place — starting with enhancements to your annual reportAnnual report A financial report that a company prepares for its shareholders each year. Includes a balance sheet, financial statement, auditor’s report, and information about the company’s operations and financial situation.+ read full definition on charges and compensation for the year 2026.
Mutual funds and exchange-traded funds (ETFs) are, together, the most common way Canadians invest in securities. It’s a good idea for investors to review disclosure documents that you receive when you buy these funds to be aware of embedded fees. But like many people, you may overlook regularly reviewing these documents. And you may not be fully aware of the embedded fees you are paying as an ongoing expense for as long as you own a fund.
Total cost reporting enhancements will add the missing piece to the annual report on costs and compensation you receive. It will show the embedded fees you are paying on your mutual fundMutual fund An investment that pools money from many people and invests it in a mix of investments such as stocks and bonds. A professional manager chooses investments that match the fund’s goals for risk and return. You can redeem your fund units at any time.+ read full definition and ETF investments.
It is designed to improve transparency and investor awareness of total fees and costs paid by mutual fund and ETF investors, as well as segregated fundSegregated fund An investment product sold by life insurance companies. They are individual insurance contracts that invest in one or more underlying assets, such as a mutual fund.+ read full definition holders. The Canadian Securities Administrators, the Canadian Investment Regulatory Organization (CIRO), and the Canadian Council of Insurance Regulators (CCIR) announced total cost reporting enhancements on April 20, 2023. It will be implemented over the next three years.
Your annual report on charges and compensation, from your dealer and adviser, already includes a lot of information. But total cost reporting enhancements add the price you pay to investment fund companies as an ongoing cost of owing mutual funds and ETFs.
There is a distinction between generic cost information in existing disclosures and personalized cost information under total cost reporting. Currently, you must hunt down generic information and then do the math to work out how those percentages translate to dollar costs of the actual investments in your account.
Both securities registrants and insurers will have to deliver the first annual reports that incorporate total cost reporting enhancements for the year ending December 31, 2026.
You can look forward to seeing total cost reporting on your annual report on charges and compensation on a report you would receive in mid January 2027.
CIRO consolidates the operations of the Investment Industry Regulatory Organization of Canada (IIROC)Investment Industry Regulatory Organization of Canada (IIROC) National self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada.+ read full definition and the Mutual Fund Dealers Association of Canada (MFDA). CIRO oversees all investment dealers, mutual fund dealers and trading activity on Canada’s debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition and equityEquity Two meanings: 1. The part of investment you have paid for in cash. Example: you may have equity in a home or a business. 2. Investments in the stock market. Example: equity mutual funds.+ read full definition marketplaces.
The OSCOSC See Ontario Securities Commission.+ read full definition and its counterpart securities 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 in the rest of Canada, continue to directly regulate portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition managers, investment fund managers and exempt market dealers.
What are embedded investment fees?
There are different types of investment fees, with different degrees of visibility. Some investment fees you see when you buy an investment and cover the cost of various services your firm provides.
Mutual funds and exchange-traded funds (ETFs) have embedded fees. These are fees paid to the fund company that issues them — not to the dealer or adviser who distributes them. (Although some of it often ultimately find its way back to the dealer or adviser in the form of trailing commission).
Total cost reporting adds transparency around embedded fees — the cost of owing these investment funds.
Embedded fees include what you pay for:
- The costs of managing the fund, paying for expert stockStock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions.+ read full definition-pickers (management expense ratio – MER).
- Trading commissions for the stocks they buy and sell for the fund (total expense ratio – TER). etc.
- Plus, in many cases, trailing commissions paid out to compensate the dealers and advisers who distribute the fund to investors like you (also part of MER).
How do embedded fees impact your investments?
Investors need to be aware of, and understand, the costs they pay to invest in order to assess the value they receive in return and to make informed decisions.
Studies suggest that investors do not fully understand the costs they pay to hold investment funds and segregated fund contracts. Some investors may overlook embedded fees after their initial purchase. And these fees can be confusing.
While fees may seem small expressed as a percentage, they can add up considerably over time. Even a fraction of a percentage can have a significant impact on the long-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 value of your account.
Fees reduce the value of your investment. You also miss out on the compound growth the fee would have earned if it remained in your account.
What are the benefits of seeing the embedded costs associated with your investments?
Better understanding of fees, through total cost reporting enhancements, should lead to better investment decisions over time. That’s because you will be better equipped, as an investor, to assess the value of the advice you receive.
Greater fee transparency may also lead to increased price competition which could lead to lower fees for you and other investors.
You may also consider looking at other investment products when you can easily see costs. If you know mutual funds and ETFs (and segregated funds) have ongoing costs of ownership, you may be able to better weigh that against the up-front commissions to buy stocks and bonds.
You might also look into a fee-based account. An investor in a fee-based account typically pays a negotiated flat fee directly to their dealer or adviser. There are generally no trailing commissions on mutual funds used in these accounts because the advisor is being compensated based on the rate negotiated with the investor. As a result, these special series of mutual funds generally have a lower management feeManagement fee A charge that you pay for having an investment professional manage an investment fund. The fee pays the managers for their time and skills. It may also cover things like communicating with investors and doing all the paperwork needed to run the fund.+ read full definition than the ones used in other kinds of account.
While fund factsFund Facts A user-friendly guide that provides key information about a mutual fund including fees and performance. Mutual fund companies are required to give investors a copy of Fund Facts before they decide to purchase a fund.+ read full definition and ETF facts documents required to be delivered at the point of sale for some investment funds, as well as other continuous disclosure documents, contain certain disclosure concerning the ongoing costs of ownership of those funds, those documents are not tailored to the individual’s holdingsHoldings Shares or other interests in a business. Also refers to investments in a portfolio.+ read full definition or required to be delivered on an ongoing basis.
Finding, collecting and calculating up-to-date information for all the funds an investor has owned during the year is complex, time-consuming, especially for ordinary retail investor. It is not considered to be sufficient that investors be directed to ask questions to their representatives, who may not have access to this information.
Currently, all dealers and advisers are required to provide two annual reports to investors to help them make informed decisions about their investments:
- Annual report on investment performance – a report that reviews how much you’ve made or lost in your account over specific periods of time.
- Annual report on costs and compensation (ARCC) – a report that details the charges and fees that you have paid to your firm. Currently, the ARCC includes:
- What your dealer or adviser directly charges you for the services they provide in respect of your account, such as operating charges and transaction charges.
- Any other amounts related to your account that they get from other sources, such as trailing commissions.
How would the cost of embedded fees be calculated?
Total cost reporting would add embedded fees as an aggregate amount for the whole account in dollars. It would be calculated using a formula based on:
Fund expense ratio (FER) = management expense ratio (MER)Management expense ratio (MER) The yearly cost of a fund investment, whether it makes or loses money. It covers investment management, marketing, administrative costs, and fees to salespeople (called trailer fees). It’s written as a percentage of the fund’s value, such as 3%.+ read full definition + trading expense ratio (TER).
This would be done for each investment fund in your account. The FERs would be expressed as percentages, so you, as the client, could make comparisons.
Also, you could see any direct investment fund fees (e.g., short-term trading fees or redemption fees) to complete the picture.
What would a report with all your investment fees look like?
Most people get overwhelmed by too much, overly complicated information. That’s why prototype documents were created and tested based on behavioural research.
The goal was to find an easy-to-digest format — so you could easily see the fees you are paying.
Below is a sample of an annual cost and compensation report. It provides an idea of what you might see when your annual report on cost and compensation arrives in January 2027. It is not a prescribed form that dealers and advisers must use. But it provides a starting point for dealers and advisers considering how to integrate the new total cost reporting information into their ARCCs.
*Note: Grey shading in the sample indicates the new content added with total cost reporting enhancements.
Dealer ABC Inc.
|Your Account Number: 123-4567|
|Your Cost of Investing and Our Compensation|
|This report shows for 2023|
|Your Cost of Investing|
|Costs reduce your profitsProfits A financial gain for a person or company. Equals the money left over after you subtract your costs from the money you made.+ read full definition and increase your losses|
Your total cost of investing was $815 last year
What you paid
|Our charges: Amounts that you paid to us by withdrawals from your account or by other means such as cheques or transfers from your bank.|
|Account administration and operating fees – you pay these fees to us each year||$100.00|
|Trading fees – you pay these fees to us when you buy or sell some investments||$20.00|
|Total you paid to us||$120.00|
|Investment fund company fees: Amounts you paid to investment fund companies that operate the investment funds (e.g., mutual funds) in your account, and in investment fund related fees.|
|Fund Expenses1 – See the fund expenses % shown in the table below||$645.00|
|Redemption fees on deferred sales charge (DSC)Deferred sales charge (DSC) See Back-end Load.+ read full definition investments2||$50.00|
|Total you paid to investment fund companies||$695.00|
|Your total cost of investing3||$815.00|
|What we received|
|Total you paid us, as indicated above||$120.00|
|Trailing commissions4 paid to us by investment fund companies, included in the fund expenses above||$342.00|
|Total we received for advice and services we provided to you||$462.00|
- Fund expenses: Fund expenses are made up of the management fee (which includes trailing commissions paid to us), operating expenses and trading costs. You don’t pay these expenses directly. They are periodically deducted from the value of your investments by the companies that manage and operate those funds. Different funds have different fund expenses. They affect you because they reduce the fund’s returns. These expenses add up over time. Fund expenses are expressed as an annual percentage of the total value of the fund. They correspond to the sum of the fund’s management expense ratio (MER) and trading expense ratio (TER). These costs are already reflected in the current values reported for your fund investments. The number shown in the table above is the estimated total dollar amount you paid in fund expenses for all the investment funds you owned last year. This amount depends on each of your funds’ fund expenses and the amount you invested in each fund. The total fund expenses reported may not include cost information for newly established investment funds. Please refer to the table below for additional details about the fund expenses for each fund you own.
- Trailing commissions Investment funds pay investment fund companies a fee for managing their funds. Investment fund companies pay us ongoing trailing commissions for the services and advice we provide you. The amount of the trailing commission for each fund depends on the sales charge option you chose when you purchased the fund. You are not directly charged for trailing commissions. They are paid to us by investment fund companies.Information about fund expenses, MERs, trading expenses and other investment fund company charges, as well as trailing commissions, is also included in the prospectus or fund facts document for each fund you own.
Fund Expense Ratio for Investment Funds You Owned During the Year1
|Fund Expense Ratio2|
|ABC Management Monthly Income Fund, Series A FE||1.00%|
|ABC Management Canadian Equity, Series A FE||2.00%|
|ABC Management Global Equity, Series A||N/A3|
- This table presents information about the fund expenses of the investment funds you owned during the year, including exchange traded funds, expressed as a yearly ratio. Please refer to note 1 – Fund Expenses above for more information about fund expenses. Please note that other products you may own or may have owned during the reporting period, such as exempt-market investment funds, labour-sponsored investment funds or structured products may have embedded fees that are not reported here. You can contact us for more information. This report includes information about the fund expenses and fund expense ratio of foreign investment funds. Please note that this information may not be directly comparable to equivalent information for Canadian investment funds, that may include different types of fees.
- Please refer to the prospectus or fund facts document of each investment fund for more detailed information about fund expenses and fund performance. Please refer to your latest account statementAccount statement A summary of the activity in your account over a period of time. This includes money that you put in and take out, investments that you buy and sell, and fees that you paid. Statements are typically provided monthly, qarterly or annually.+ read full definition for more information about the market valueMarket value The value of an investment on the statement date. The market value tells you what your investment is worth as at a certain date. Example: If you had 100 units and the price was $2 on the statement date, their market value would be $200.+ read full definition and the number of securities of the investment funds you currently own.
- The fund expense ratio of this fund is not available, as it is a newly established investment fund.
What can you do with this information?
You can take action by contacting your dealer or adviser to discuss the fees you pay to own the mutual funds and ETFs in your account. And, you can talk about the impact these ongoing fees have on the long-term performance of your portfolio and the value you receive in return.
If you are a self-directed investor, consider how fees impact the long-term performance of your portfolio, and possible ways to reduce those costs.
It’s important to know what embedded fees you may be paying for with your investments. Mutual funds and exchange-traded funds (ETFs) have embedded fees. These are fees are paid to the fund company that issues them — not to the dealer or adviser who distributes them. Total cost reporting will:
- Make embedded fees for your investment funds easier to see. All your investment embedded costs would appear in your annual report on charges and compensation.
- Apply to prospectus-qualified investment funds: mutual funds and exchange-traded funds (ETFs).
- Take effect on January 1, 2026. You would see your 2026 costs in a statement you would receive mid-January 2027.