A few weeks ago, the MFDA issued a Discussion Paper on Expanding Cost Reporting as a follow-up to current CRM2 disclosure requirements. The paper highlights their belief that cost reporting to clients is incomplete and inhibits investor understanding of their total costs of investing.
Based on research I’ve done with investors and numerous other studies that have been conducted, I would agree.
Although CRM2 cost reporting has been a big step forward, many investors still find it confusing. They believe that the costs they see are all the costs they incur in investing. It would be good to provide clarity for investors, and correct these misconceptions.
My research has also shown that the way in which many firms have provided CRM2 disclosure in fact limits client understanding of their performance and fees.
While the regulators' goal with CRM2 (and with this initiative) is transparency, that goal has so far proved to be somewhat elusive in implementation.
The MFDA’s paper considers disclosure of the full Management Expense Ratio (MER) of investment funds and other transactional costs associated with owning funds, as well as the question of whether cost reporting should be expanded for other investment products. The MFDA has invited all stakeholders and interested parties to provide their comments on the Discussion Paper. While the regulators may not refer to this initiative as “CRM3”, many in the industry have adopted that phrase.
While I applaud the MFDA’s efforts to improve investor understanding of the full cost of investing, I have some general comments I’d suggest they keep in mind.
I look forward to hearing what other firms and interested parties think about the MFDA’s proposals in their Discussion Paper.
If you’re interested in hearing more about the insights we gleaned from our CRM2 research with investors and advisors, please contact us.