The Canadian Association of Pension Supervisory Authorities’ new plan sponsor guidelines surrounding investment fee transparency are a good first step, but require further development to make them more effective, says one expert.
“[CAP sponsors are] still trying to understand what this [guidance] means,” says Joseph Bevilacqua, associate partner in Aon’s wealth solutions practice. “Fees can be consolidated when it comes to operating expenses, such as fund management fees and the fees [that] a record keeper charges. We don’t have the transparency our friends in the U.S. have and that’s really due to legislation.”
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In its updated capital accumulation plan guideline, the CAPSA said CAP sponsors should provide members with information regarding the level of fees and expenses payable by the member or through the member’s account, including asset-based fees and operating expenses that are payable with respect to each investment option.
“This information should be provided or made available upon the introduction of the CAP, when there’s a material change to the fees and expenses and at least annually thereafter,” said the guideline.
According to the guideline, these fees include transaction fees incurred when investments are bought, sold/redeemed or transferred; costs associated with accessing or using any of the investment information or decision-making tools or investment advice the CAP sponsor arranges; investment management fees; operating expenses, including fund costs associated with administration, audit, legal, custody, financial statement and other reporting, filings, taxes, and transfer agency fees; and service provider fees and expenses, including account, trustee, brokerage, custodial and record-keeping fees.
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While the guideline alludes to the impact of fees on members’ retirement savings, Bevilacqua says more transparency is required in this area. “There’s some ambiguity in the guideline around the impact of fees on specific dollar amounts. We were hoping for a little bit sterner language, but it’s baby steps [and this may be] due to the fact that this [guideline] covers $1 billion dollar plans and $10 million dollar plans, so there has to be sort of that middle ground.”
Similar to other aspects of the guideline, fee disclosures could have a disproportionate impact on smaller CAPs, in terms of plan administration and governance.
“Considering the resources available to a $1 billion dollar plan compared to a $5 million plan, [CAPSA] can’t expect them to have the same administrative requirements or fiduciary responsibility,” he says. “I think for the smaller plans, it might require a look at their current governance structure, such as how can they maybe outsource some of this. But it’s also about understanding how that impacts the fees that plan sponsors are willing to bear and how much of that they’re comfortable with passing on to the members.”
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