menu

Anthony Layton MBA, CIM

Chairman & CEO, Portfolio Manager

Peter Guay MBA, CFA

Portfolio Manager
Contact
  • T514.875.7566 x 224
  • 1.800.875.7566
  • F514.875.9611
  • Place Alexis Nihon
  • 3400 de Maisonneuve Ouest,
    Suite 1501
  • Montreal, Quebec H3Z 3B8
November-04-16

Tony's Take: CIBC’s fee settlement reinforces need for advisor ‘Client Best Interest’

Embedded fees in mutual funds sold in Canada are already high, but when they are charged to clients within fee-based investment accounts, the situation goes from the sublime to the ridiculous.

As the country’s investment-advisory industry adjusts to new regulations for reporting investment management fees, disturbing news of substantial overcharging of clients by a major bank underlines the urgent need for full disclosure of all fees paid by an investor regarding the management of his or her investments. Last week it was announced that the Canadian Imperial Bank of Commerce has agreed to repay more than $70 million in excess fees charged to clients of its investment advisory operations. Here is a summary of this settlement and the regulatory backdrop:

  • More than one-half of the settlement agreed to by CIBC with the Ontario Securities Commission involves embedded fees in various mutual funds, structured notes, exchange-traded funds and closed-end funds that were incorrectly included in the calculations of the client’s overall account management fees. In some cases, this resulted in clients paying twice as much as they should have within their fee-based accounts.
  • The remainder of the overall settlement amount is to reimburse clients who were placed in mutual funds with high management expense ratios (MERs), even though the size of their investments qualified the for lower-cost versions of these funds.
  • The settlement was reached under the OSC’s no-contest policy, which allows alleged offenders to agree to repayment terms without admitting or denying allegations of misconduct. This is the most recent of six no-contest settlements between the OSC and financial institutions during the past two years, totaling $270 million in investor compensation.

These massive compensation payments underline the need for transparency between investment advisors and their clients. While new rules under the second phase of investment regulators’ Client Relationship Model (CRM2) require disclosure of all fees charged directly to an investor, the resulting new portfolio statements will not include mention of fees charged by fund managers, which form part of a fund’s MER and are subtracted from a fund returns prior to final amounts appearing on those statements.

At PWL, we believe full fee disclosure is necessary. We also believe advisors should have no conflicts of interest and no tied-selling conflicts. They should be required to clearly disclose when they are selling their firm’s own products or securities that their firm has underwritten. Moreover, financial advisors should have a fiduciary duty to their clients. This is not a requirement under Canadian securities law, and best-interest standards being proposed by regulators under a “CRM3” fall far short of what is needed.

As part of our commitment to acting in our clients’ best interests, PWL recently received certification by the Centre for Fiduciary Excellence (CEFEX)*. We are one of the first investment advisory firms in Canada to successfully complete the independent certification process.

PWL is also working toward establishing a Canadian chapter of the Global Association of Independent Advisors (GAIA). GAIA’s Fiduciary standards rise well above the limited performance reporting requirements governing today’s investment management industry.

*CEFEX is independent global assessment and certification organization that helps determine the trustworthiness of investment fiduciaries. Its certification recognizes PWL's compliance with a defined standard of practice, that PWL has demonstrated adherence to the industry's best practices, and is positioned to earn the public's trust.

By: Anthony Layton | 0 comments