On April 20, 2023, the securities and insurance regulators announced final changes to total cost reporting (TCR) disclosure for investment funds and individual segregated fund contracts. The changes for the securities sector are through amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and changes to the related Companion Policy (the Amendments).
The Amendments require annual reporting to clients showing the ongoing costs of owning mutual funds, exchange-traded funds and scholarship plans. This information will need to be expressed both as a percentage for each fund and as an aggregate amount.
Changes from proposals published last year
In response to comments made on the proposals published last year, a number of changes were made, including an extended transition period, revisions to mandated disclosure and sample documents, clarifications regarding calculation methods, and consolidation of all new cost information in a single annual report on charges and other compensation (ARCC). The joint BLG-AUM Law summary of the 2022 proposals is here and is being updated.
New securities disclosure requirements
Once the Amendments come into effect:
- Dealers and advisers will need to include the following information in the ARCC for all investment fund securities owned by a client during the year, excluding labour-sponsored investment funds and prospectus-exempt funds:
- the aggregate amount of fund expenses, in dollars, for all investment funds;
- the aggregate amount of any direct investment fund charges (for example, short-term trading fees or redemption fees), in dollars, for all investment funds; and
- the fund expense ratio, as a percentage, for each investment fund class or series.
- Investment fund managers will need to provide additional information to the dealers and advisers who distribute their products so that they can include it in the ARCC.
- Note – the calculation and reporting of the information will be prescribed.
What stays the same?
Existing exemptions for statements and reports provided to non-individual permitted clients will continue to apply.
Timing
The Amendments are expected to come into effect on January 1, 2026.
Impact
- Investors will first receive enhanced TCR disclosure in early 2027 in annual reports for the year ending December 2026.
- This gives dealers, advisers and investment fund managers effectively December 2025 (32 months) to implement the policies and procedures and system changes needed to operationalize the Amendments. However, before this deadline, they will need to complete the design and development of their system changes well in advance of the deadline to have time to test and resolve unforeseen issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.