You may not know it but 2016 marks a year of disruption for the financial services industry.

Fees

Regulatory change, specifically the initiative entitled ‘CRM2’, will require all mutual fund companies and advisors to disclose – for the first time – the full amount being paid to advisors for their services.

It will no longer be buried in percentage terms as part of the Management Expense Ratio that most Canadians don’t know they are paying. It will be shown in dollars and cents, and for those advisors who have been less than transparent, or worse, ‘sitting on their book of business’ collecting commissions and trailers for past product sales, it will be a tough year ahead.

As Canadians reflect on the annual fees they are paying – and they exceed $1,000 for most, and hit $20,000+ for many – the question of ‘value received for fee paid’ will become top of mind.

The full Management Expense Ratio (that averages 2.4% a year for Canadians) will not be disclosed, only the portion that is being paid to your advisor. The basis of those fees is not determined by hours worked, value or growth of your portfolio – it is based on an advisor-friendly and expensive business model that is as dated as the rotary-dial telephone.

Welcome to 2016 – There are more choices than ever before. Canadians are no longer tied to the antiquated and expensive mutual funds that dominated the investment market in the 1980s and 1990s. Low cost index funds and exchange-traded funds are the fastest growing category of investments, and for good reason.

Large institutional investors, small retail investors, sophisticated researchers, doctors, lawyers, and yes financial advisors’ personal portfolios are gravitating to these low cost options. The reason: the performance of index-hugging low cost funds beat their mutual fund counterparts 9 times out of 10.

I’ll get into the reasons why next time. In the meantime, pick up any Globe & Mail newspaper or MoneySense magazine or go to www.CanadianCouchPotato.com and start to read the latest trends in passive investing. You’ll be glad you did.