There’s no free lunch in life. It’s an old adage, but one that has stood the test of time. One way or another you pay for what you get.

That’s certainly the case when it comes to your investments. You understand you have to pay for the advice, investment management and other services you get from your advisor. That’s fair.

What’s not fair, and what you should not accept, is excessive fees, hidden charges and conflicts of interest. Unfortunately, these problems are all too common in the Canadian investment industry.

The latest proof is settlements between regulators and a long list of big financial institutions. Those settlements have resulted in more than $350 million in compensation being paid to clients who were over-charged on their investments.

These settlements point to what’s wrong with the investment industry. I believe we can do better, much better.

Latest of several OSC settlements

The latest settlement was with Manulife Securities. Manulife agreed to pay almost $12 million in compensation to its clients. They were improperly charged fees embedded in mutual funds and other products, stretching back to 2005. Clients were also placed in high-fee mutual funds, even though they qualified for lower-cost versions of the same funds.

The Ontario Securities Commission has concluded similar so-called no-contest settlements with subsidiaries of the five big banks and a handful of other firms. In each case, the OSC has said the institutions reported the issues themselves and there was no evidence of intentional misconduct. The settlements allow the firms to resolve the allegations against them without admitting any wrongdoing.

Be that as it may, these cases do point to some very serious problems.

First, there needs to be full transparency about the fees investors are paying.

New disclosure rules for advisors

New rules, known as CRM2, require advisors to disclose the fees they are charging clients. But that’s only part of the story when it comes to mutual fund investments.

That’s because the rules don’t extend to the annual fees charged by the firms that manage the funds. Those fees make up the largest part of a fund’s management expense ratio. They typically amount to 1.5 per cent on an equity mutual fund, or $1,500 a year for every $100,000 invested. Every investor should know the dollar amount of how much they’re paying to their advisor and to fund companies.

Another issue is trailer fees. These fees are also embedded in the MERs of mutual funds and are used to compensate advisors. They do have to be disclosed to clients under the new rules. But the bigger question is whether trailer fees should exist at all.

I believe they and other embedded commissions should be banned. And industry regulators agree. They have proposed outlawing trailer fees and instead require advisors to charge transparent, transaction-based commissions, or fees based on assets under management. I couldn’t agree more. Unfortunately, the mutual fund industry is resisting this proposal.

Discuss compensation with your advisor

It’s important for you to fully understand how your advisor is being paid and how much in dollar terms. I encourage you to discuss these issues with your advisor and then consider whether you are getting full value for what you are paying for.

Canadian investors deserve world-class protection. The fee settlements with big financial institutions are just one more reminder we still have a long way to go. It’s time for the Canadian investment industry to stop dragging its heels and adopt the very best investor protection practices.