- Sticker shock , possibly anger,when all the fees and charges are added up and presented in one place.The changes to the detail, timing and requirements for disclosure through CRM2 will change how Reps communicate with their clients, what they talk to them about, how often and when.
- Return shock when the money-weighted return ( after fees) is presented in percent which can then be compared to a benchmark , a GIC or the target return based on the financial plan ( assuming a real one exists).
- The Reps most likely to be grilled will be those who did little more over the course of the year than send holiday cards in December , invite clients to “Free Lunch “ seminars and solicit RRSP contributions in February.
- Some investors will dump their current “advisors” on the grounds that they're not getting their money's worth in performance , communication or service.
- Fees and expenses will become an integral element of suitability criteria
- Greater transparency may prompt dissatisfied investors to seek lower-cost approaches to investing. Among them are fee-based advisors who employ low-fee indexing strategies. Other alternatives include technology-driven advice substitutes -- known as robo-advice -- offered through online discount brokers. Others may join an investment club, maintain an advised account and an online account and/or become Do-It-Yourselfers .
- The media , bloggers , investor advocates and maybe even regulators will write insightful articles on how to use the new information provided for more informed decision making.
- Regulators will be forced to act on at Rep proficiency and a Best interests standard as horror stories surface in the media and courts.The value of the true financial planner will be revealed.
- Many investors may ask Reps why low MER mutual funds, low fee ETF's , low-cost index mutual funds or hybrid mutual funds that invests in ETFs aren't being recommended or why a price break isn't offered on large accounts.
- Overall, the savings and retirement nest eggs could result in more money for investors ( if they read , understand and use the information ) and less complaints about dealer/ Rep abuse- the rudimentary beginnings of professional advice giving. Robust Regulatory enforcement is critical to making CRM2 a success..
ADDENDUM Some thoughts on disclosure effectiveness
Regulators and many in the industry believe that annual fee disclosure and performance reporting will allow retail investors to make better investment decisions and assess their dealer representative. Research however suggests this dream may not be accomplished. For instance ,when executive compensation disclosure was mandated ,the result was an increase in CEO compensation.One never knows for sure of unintended consequences.The mutual fund " Simplified prospectus" is another example of a enticingly good disclosure idea that went South and has since been supplemented with Fund Facts, a streamlined two page plain language disclosure document.
Disclosure effectiveness is linked to the level of investor engagement, the investor's financial literacy/numeracy , the amount of information to absorb and the investor's dependence on his/her Rep ( and the level of trust).The usefulness of disclosure is also dependent on the nature of the disclosure, how it is presented , when it is presented and the investor's ability to compare to reference data. Rest assured that Bay Street will not readily relinquish billions of dollars in fees via better disclosure without a well orchestrated counterattack
Here's some research on disclosure for you to peruse:
The unintended consequences of conflict of interest disclosure
The effect of fee disclosure on mutual fund selection