01/29/2018 10:36 EST | Updated 01/29/2018 10:37 EST

Here's What To Know About Management Fees As An Investor

Most of you are paying more in total fees than your annual fee and performance reports would have you believe.

If you own investments you should probably take a moment to read this. It could save you thousands of dollars.

Last week, there was an article in The Globe and Mail that claimed Canadians are still in the dark about investment fees despite major changes to fee disclosure requirements by financial institutions. The major changes to disclosure relate to the implementation of Client Relationship Model II (CRM2).

Last year I wrote a blog that highlighted some of the reasons I thought that CRM2 was a poor solution to a very real problem.

It's no surprise to me that Canadians are still in the dark about investment fees, but what I was rather shocked to see was two different reports that appear to present two different conclusions.

Before I touch on the two apparently different conclusions, let me explain the information that most of you are, and aren't, getting.

If you have investments with any firm (other than a life insurance company) you should be getting a separate annual statement that is supposed to disclose the costs and performance of your investments for the previous year.

Depending on the type of investments you have, and the organization you're investing through, you may be getting a summary of all the fees that you pay, or a summary that outlines a portion of the fees that you pay. If you're investing through a life insurance company, you're probably not getting any of the annual fee information since CRM2 does not apply to insurance companies.

The problem is, there is zero consistency in what is being reported. This is causing significant confusion among investors who are under the impression that the new rules require full disclosure of all the fees that they are paying.

Let's say you have an investment account with a brokerage, not a bank branch or mutual fund advisor. Your investments include some cash, bonds, individual stocks and a few mutual funds or exchange traded funds (ETF).

To make our example simple, let's say your advisor charged an annual fee for service of 1.5 per cent on invested assets.

The fees that are being reported on your annual statement apply to the 1.5 per cent being charged by your advisor on the entire account. There is no requirement, however, for the management expense ratios (MERs) on the mutual funds and ETFs to be disclosed.

Depending on the mutual fund, the additional MERs could add over 1 per cent annually to the fees you're already paying for those specific funds. Essentially, you could be paying twice to hold a mutual fund and not even be aware, as the new CRM2 disclosure requirements do not require all of the fees that you pay to be listed. Similarly, ETF's have associated MERs, but are typically much lower than those of mutual funds.

If you're not working with an investment brokerage and you're working with a mutual fund advisor, you may or may not be receiving a full disclosure on the fees that you pay; this depends on who you are working with.

Some firms have taken what I consider to be the moral high ground and have chosen to disclose the entire MER. Most companies, however, have chosen not to disclose the entire MER and are instead only disclosing the fees paid to the advisor and/or the advisory firm. How can you gauge performance and make educated decisions about your financial future if you do not know how much you are paying? Why isn't there a requirement for all firms to disclose all of the fees that impact a client's financial future?

In other words, most of you are paying more in total fees than your annual fee and performance reports would have you believe.

If your investments are with a life insurance company and you own what is referred to as a segregated fund, then there are no requirements to disclose your annual fees. If there are not any fees disclosed on your segregated fund statement you are not getting a deal, you are simply being left in the dark. As mentioned, CRM2 does not extend to life insurance products.

Now, let's take a quick look at the results of the two studies mentioned in the Globe article.

The first report was done by global market research company J.D. Power.

The report found that only 24 per cent of investors say they fully understood the fees they are paying to their financial advisor. It also found that nearly one-third of investors said their financial advisor didn't explain fees at all, and even among those who did receive an explanation, complete understanding only increased to 35 per cent.

The second report was done by a research firm called Pollara, and was funded by the Investment Funds Institute of Canada. The Investment Funds Institute of Canada is an organization whose role is to "advocate on behalf of the industry and investors."

According to their report, a whopping 72 per cent of mutual-fund investors said they were confident they understood the fees they pay for mutual funds.

Is this even possible?

How can anyone say they understand the fees they are paying for their mutual funds if most of the firms have chosen to abstain from disclosing the entire cost of the investments?

Last year I was on CBC News and stated that no one, I mean no one, has the ability to calculate what the fees are for mutual funds (and ETFs) unless the firm gives it to you.

What you need to do is ask your advisor if there are any additional management or investment fees that are not being reported. Unfortunately, he or she will likely not be able to give you a clear answer. If you are able to actually deduce the costs associated with your investments, many of you would be shocked by the additional fees that are not being disclosed on your annual fee report. It's only with that information that you can make an informed decision about whether you're getting value for the money.

Many advisors and firms would prefer to hide behind CRM2 and only partially disclose the true cost of managing your money. Unfortunately, it is up to you as the investor to determine whether they are giving you all the facts, or just a portion of the facts.

Follow HuffPost Canada Blogs on Facebook