Giving investors information they need to understand what an advisor will charge them is critical to their ability to protect themselves and comparison shop advisors, the Institute for the Fiduciary Standard told Massachusetts regulators yesterday.

The proposal “is an important step towards a complete reporting on all-in cost and fees and expenses as is now required in the EU,” the institute told the Massachusetts Securities Divisions at a hearing on proposed rule to require advisors to break out the fees they charge for services in a simple one-page disclosure form.

The hearing took place one day before today’s close of the comment period on the proposed MA fee disclosure proposal, which will require advisors registered in Massachusetts to provide clients and prospects with a table of fees for services in a simple, digestible format that will enable side-by-side comparison of investment advisers and facilitate more informed questions and conversations about services and fees.

The proposal is arguably a more concise, if not more aggressive approach to fee disclosure than the one taken by the Securities and Exchange Commission in its Regulation Best Interest customer relationship summary (CRS) proposal, due to be finalized this fall.  That fact is not lost on a vocal if small cadre of fiduciary and consumer advocates who are lobbying for actual fee and commission disclosures, rather than a menu of what consumers might be charged.

“With the information required by Massachusetts clients can engage in intelligent conversations with an investment professional and can better comprehend a firm’s value proposition and they can become better educated consumers,” Institute President Knut Rostad said in a separate comment letter. “This type of disclosure has long been a norm for other leading professionals and retail businesses, yet it remains elusive to many financial representatives.”

Secretary of State William Galvin, the state’s top securities regulator, said it is important for advisors and their clients to cut to the chase when it comes to actual fees, so there is no confusion.

“It is not uncommon for consumers to pay different types of fees for advisory services, including retainer fees, subscription fees, and third-party robo-advisor fees,” Galvin said.

The fee table is “intended to make fees and costs more understandable and to enable investors and savers to make informed comparisons between investment advisors,” Galvin said.

“It is no longer the case that advisors simply charge their clients a fee for assets under management,” Galvin said.

Investment advisors currently disclose information about the services that they offer and the associated fees and costs in a narrative format in Form ADV Part 2A.
The proposed amendments would require advisors to distill the information into a one-page fee table in a standalone document, that advocates hope will encourage investors to drill down into any potential hidden charges and conflicts of interest that may exist.

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