Former chief executive officer of RBC Dominion Securities Tony Fell is campaigning to require the Canadian financial industry to account for inflation in how it reports investment returns.Compounded across many years, even modest inflation can deal a powerful blow to a standard investment portfolio. And investors commonly underappreciate the threat.
Canadians with an investment account receive a statement at least once a year detailing how their investments have performed. For the most part, rates of return are calculated on a nominal basis, meaning they have no inflation component factored in. Still, he said he expects the investment industry will resist his proposal. “The mutual-fund lobby is so strong, and nobody wants to rock the boat too much.”
But the reforms left out one major component of mutual-fund fees. The cost of advice is there, but many investors still don’t see how much they pay in fund-management fees, which amount to billions of dollars paid by Canadians each year. The OSC said it agrees that retail investors need to be attuned to the effects of inflation, which is where investment advisers come in. “Professional advice requires an assessment of risk tolerance and risk appetite in order for an adviser to know their client, including the effect of the cost of living on achieving their financial objectives,” OSC spokesman Andy McNair-West said in an e-mail.Inflation often goes overlooked by the industry and investors alike.