The Trouble With Fee Disclosure in DC Plans

money jarsFor many years mutual fund investors and Capital Accumulation Plan (CAPs) members have been kept in the dark about the total amount they pay for advisor, record keeping and investment manager fees. These costs are automatically deducted from their accounts but the dollar amount is not disclosed. Members are provided with the investment management ‘rate’ (IMFs) but if they want to know what was paid they’re told to “estimate the amount yourself”. As a result there is no effective way to determine how much was actually paid or, if you have been appropriately charged.

This is a critical issue because of the large negative impact fees have on savings accumulations over the long term. This was discussed a previous article (The Impact of Fees on CAP Members). It is concerning that the mutual fund industry and pension regulators have not acted to correct this situation: what is going on?

People voluntarily investing in mutual funds and employees forced into contributing to CAPs need to know total costs deducted from their accounts in order to properly manage their savings.

Mutual Fund Industry – CRM2 “half measures”

In 2016, after two decades of ‘investigation’ the Canadian Securities Administrators (CSA) finally enacted the Client Relationship Model Phase 2(CRM2). This requires disclosure of certain, but not all costs, paid by the clients. This includes: front end commissions, commissions paid to the dealer and advisor and trailing commissions. A fee disclosure (report) is also required but is only required to show the amount of money received by the dealer firm as direct and indirect fees but the amount paid to the advisor: itemization of costs is left to the dealer’s discretion.

As a result, many mutual fund investors are under the false impression they now know what their annual cash costs. In fact they have been misled since the costs disclosure do not include the amount paid to the investment manager which are usually the largest portion of MER. The Canadianweighted average MER for Canadian equity funds was 2.4%and is higher on foreign equity funds.

It is difficult to understand why disclosure of the total costs, including the fund manager fees, is not a requirement under CRM2. The CSA should require full disclosure of total dollar costs investors pay. Undoubtedly the fear is that investors would challenge the high costs of fees for the services provided if the cost was brought to their attention.

While CRM2 is a step in the right direction it likely misleads many investors with respect to what amount is deducted from their accounts. Legislation requiring full disclosure may be the best approach since the industry is reluctant to address the problem.

Capital Accumulation Plans (DC and RRSP Pension Programs)  

The risks and costs associated with Defined Benefit (DB) plans have lead many sponsors to replace DB programs with defined contribution (DC) plans or RRSP’s. The federal and some provincial governments have also encouraged a DC type approach to pensions through the introduction of Pooled Registered Pension Plan (PRPPs).

Sponsors usually hire insurance or financial institutions and advisors to manage their CAP programs (i.e. record keeping, education, reporting, fee administration, etc.). The sponsor however has a fiduciary responsibility act in the CAP members’ best interests by overseeing these service providers. However, CAP members pay an investment management fee (IMF) for these third party services which is automatically deducted from their accounts. As is the case with mutual funds, the IMF rate is disclosed but, the members are not told how much money is actually taken out of their DC account.

Given the negative impact of fees on a CAP member’s retirement savings it is odd that provincial and federal legislation does not require fee disclosure, except in the case of BC and Alberta pension regulations.

Section 30 (3) of the BC PBSA Regulations requires that DC members receive an annual reconciliation of the balance in their account at the beginning and end of the year. This reconciliation includes contributions, any interest credited, and “… any administration expensesdeducted and any other payments, transfers or withdrawals made…” (General definitions for “administrative expenses” and “payments” would appear to apply since these are not defined terms). The Alberta Regulations have a similar requirement.

However, the requirement to disclose these costs is not being enforced by the BC or Alberta regulators. Unlike the mutual funds where at least partial disclosure is required, BC and Alberta DC plan members do not know how much is actually taken from their accounts for fees.


Both mutual fund investors and DC plan members in Canada are not being given sufficient information with respect to fees which are a critical part of managing their investments and savings.

Since Canadian fees are “some of the highest in the world” it is probably to the advantage of sponsors, record keepers, advisors and fund managers not to highlight these costs.

The mutual fund industry, as is the case with other industries, should be prepared to tell their clients what they are paying for fees. Mutual fund investors have a responsibility to demand this type of disclosure. The alternative is legislation.

CAP administrators and pension committees have a fiduciary responsibility to act in the best interest of the plan members and should insist that fee costs be disclosed. Are they doing their job? Pension regulators should enforce the existing cost disclosure regulations or add a fee disclosure requirement.