Total cost reporting’s (TCR) enhanced transparency is intended to ensure that investors see all their costs, on an ongoing basis, so they can make more informed decisions about their investments. The regulators also hope that harmonizing the requirements for investment funds and segregated funds will make it easier for investors to compare securities and insurance products. I provided an overview of the key changes required by TCR last month.
There will be more fee information in annual client statements. But will it lead to greater investor understanding? Should our goal be to teach clients how to read each of the different line items and understand all the terminology — including all the associated acronyms? How should we explain the differences in fees between CRM2 and TCR?
It is not realistic that all, or even most, clients will have the knowledge or patience for a detailed explanation of the different fees and ratios, or an itemized list of the differences between CRM2 and TCR fees. But that doesn’t mean that fee conversations are not necessary or helpful.
What can advisors do to prepare themselves and clients for the new TCR reports to land in early 2027, and why are fee conversations a good thing?
It’s widely acknowledged that discussing fees with clients is key to building a trusted professional relationship. Fee transparency demonstrates honesty and prevents unwelcome surprises. It also signals that the advisor considers and respects the impact of fees on client portfolios.
Trust is the cornerstone of a good advisory relationship. Conversely, an awkward or reluctant explanation about fees will serve to undermine that trust.
Shifting fee expectations
The proportion of Canadians using DIY platforms continues to grow, at the expense of advised relationships. Many are adopting a hybrid approach to investing: they have one or more DIY accounts, but still tend to turn to human advisors as their portfolio grows and their financial objectives become more complex.
DIY platforms usually tout lower fees as a selling feature. They also tend to do a good job explaining the fees clearly and plainly.
While avoiding fee conversations may be tempting, increasing client familiarity with DIY fees means advisors must proactively address fees in the advice channel.
Investors understand that professional advice has a cost, and they accept that human advice costs more than automated solutions. However, they demand a clear articulation of the value, service and expertise they receive for that higher fee.
As we move further toward the regulatory goal of fee transparency, client expectations have already shifted because of DIY platforms that prioritize simple explanations over complex, technical disclaimers.
Learning from CRM2
We learned three important lessons when CRM2 was implemented a decade ago.
First, fee-related discomfort led many advisors to either avoid the conversation or to rely on overly technical, jargon-heavy explanations. This approach failed to improve client understanding and hindered the trust that comes from a transparent discussion of value.
Second, advisors who mirrored the complex terminology found in CRM2 reports in their conversations unintentionally alienated clients. Instead of driving transparency, adopting this technical language hindered meaningful conversations.
And third, some advisors incorrectly believed that compliance required explaining the mechanics of the fees. This approach overwhelms clients and is not necessary.
Five suggestions for advisors:
- Have regular conversations about fees. While it will be difficult to have detailed advance conversations about the new TCR fee information, be sure to have periodic conversations with clients about fees in general. If you haven’t been having them, start now. That will make it easier to have a discussion next year about the additional fee disclosure.
- Avoid acronyms and overly detailed explanations. Clients don’t want (and can’t comprehend) all the complexity around how fees work in our industry. Rather, they’re looking for a general understanding of the fees they pay, and they are comforted when their advisor initiates the conversation. Focus on simple, high-level explanations, not exhaustive technical education. And assure clients you always keep fees in mind when making recommendations.
- Include value messaging. As part of the fee conversation, outline the value you provide. Clients are not averse to paying fees, but they don’t like to be surprised, and they want to understand what they get for those fees. Remember that your true value goes beyond products or returns. The real value you provide is more strategic: helping clients articulate their goals, developing a solid plan to meet them and behavioural coaching to keep them on track.
- Talk about improved transparency. I don’t recommend that you explain in any detail the difference between CRM2 and TCR fees — especially before the TCR fee reports arrive. It’s too difficult in the abstract. Instead, you could mention that there’s even more fee transparency coming. That, while there aren’t any new fees, it will capture fees that were previously not called out. Position it as good news — for everyone.
- Don’t be afraid of radical transparency. Rather than viewing TCR as a compliance hurdle, embrace it as a strategic opportunity to deepen client trust. By connecting fees to tangible outcomes, you turn transparent reporting into reinforced client value.
In the future, advisors may face more challenging questions about fees. Advisors should take this opportunity to redefine their value proposition and shift the conversation from cost-focused to value-focused.
