October 2023

In this month’s newsletter, we share research findings that reveal companies with more diverse boards and executive teams can be beneficial to investors. We discuss increasingly popular exchange-traded funds (ETFs) and how regulators are paying close attention to some of the complex ETF products being offered to investors. Also, we stress the importance of investors understanding their fees and the impact they have on their investments. Lastly, we’re happy to introduce two new team members at FAIR Canada!



The Value of Diverse Boards and Executive Teams to Investors

Do diverse boards of directors and executive teams benefit investors? Research suggests that they do.

Studies have found that diverse boards and executive teams may be associated with better financial performance by the companies they lead. Better financial performance results in better returns for investors.

Research by private equity firm The Carlyle Group showed that companies with two or more diverse directors had nearly 12% higher average annual earnings growth than companies with non-diverse boards. In addition, companies with diverse boards had earnings growth that was five times faster, on average.

Similarly, research by McKinsey & Company also suggests positive links between performance and companies with more diverse executive leadership. McKinsey found companies in the top 25% for gender diversity or ethnic and cultural diversity among their executive leaders were 25% and 36%, respectively, more likely to financially outperform than their peers in the bottom 25%.

In the RIA’s survey, 85% agreed that “Canadian corporations should

provide more leadership opportunities to qualified women and

qualified people of diverse backgrounds.”

Aside from the financial benefits of diversity in company leadership, investors are increasingly interested in responsible investing. A survey by the Responsible Investment Association (RIA) in 2020 found that 72% of respondents were interested in responsible investing. In addition, McKinsey reported that since 2019, there has been a fivefold increase in online searches for the term “environmental, social and governance” (ESG).

Board and executive team diversity is one of the ESG factors that investors may consider when deciding how to invest their money. In the RIA’s survey, 85% agreed that “Canadian corporations should provide more leadership opportunities to qualified women and qualified people of diverse backgrounds.” There were 76% that agreed with the statement “Canadian corporations should set goals to have more diversity in leadership positions.”

Regulators and governments are recognizing the value of board diversity. The Ontario Securities Commission recently convened an expert roundtable called Strengthening Diversity in Our Capital Markets. FAIR Canada’s Executive Director, Jean-Paul Bureaud, spoke to the investor perspective and the values they bring to investing and voting on governance measures.

The Canadian Securities Administrators (CSA) has consulted on proposed changes to the governance rules for companies listed on the Toronto Stock Exchange, regarding their diversity practices beyond gender. Read FAIR Canada’s comment letter on the CSA consultation. 

Exotic ETFs: What Investors Should Know

Exchange-traded funds (ETFs) have soared in popularity since the launch of the first ETF in 1990 (right here in Canada!). ETFs are investment funds traded on an exchange, many of which hold assets such as stocks, commodities or bonds.



ETFs are appealing because they allow investors to diversify their portfolios without buying individual stocks or bonds.

According to data from the Investment Funds Institute of Canada, in August 2023, Canadian ETF assets under management totalled $355 billion.

This is a marked increase from $299 billion in August 2022 and $186 billion in August 2019.

As the ETF market has grown, so has the variety of ETFs. You may be wondering about some of the more exotic-sounding ETFs you’ve heard about in the media, such as leveraged ETFs and inverse ETFs. These ETFs are complex financial products that you should thoroughly understand before you consider investing in them.

Leveraged ETFs seek to amplify the returns of an underlying index or benchmark. To do this, the fund borrows money or uses derivatives to increase its exposure to the index or benchmark. For instance, a two-times or 2x leveraged ETF aims to double the daily returns of its benchmark.

The ETF market has garnered attention from regulators worldwide. …In August, the CSA announced the launch of a review of ETFs

to ensure the regulations remain appropriate.

The goal of inverse ETFs, also known as short ETFs, is to provide returns that are the opposite of the performance of an index or benchmark. Simply put, when the underlying index or benchmark loses value, the inverse ETF goes up in value, and vice versa. Inverse ETFs are a way for investors to hedge against or profit from market downturns.

Keep in mind that leveraged and inverse ETFs are generally not suited for long-term investors. These ETFs are usually designed to achieve their performance goals over a one-day period. Over a longer timeframe, their performance may differ considerably from their daily results, which could expose you to significant losses. Additionally, for leveraged ETFs, both potential gains and losses are magnified. If you own a 3x leveraged ETF, for example, and the market moves against you, your losses will triple.

The ETF market has garnered attention from regulators worldwide. In May, the International Organization of Securities Commissions published a set of good practices relating to ETFs. The publication followed an extensive review of ETF markets, which concluded that there were no major gaps or structural issues. In August, the CSA announced the launch of a review of ETFs to ensure the regulations remain appropriate. The review will help the CSA decide if additional rules are needed as the ETF industry evolves and innovates. In the U.S., the Securities and Exchange Commission recently issued an investor bulletin about leveraged and inverse ETFs.

We are pleased that regulators are keeping their fingers on the pulse of the rapidly growing ETF market. ETFs play an important role in the investments of many Canadians and individual investors globally. Before investing in an ETF, especially a complex one, make sure you understand its strategy and the specific risks involved. Conduct research and consider consulting a qualified individual. Check out FAIR Canada’s resources on Choosing an Advisor and Working With an Advisor.

Understanding the Impact of Investment Fees

Did you know? Many investors don’t understand their investment fees

and the impact it has on their returns.

A FAIR Canada survey showed that 63% of investors report not understanding their investment fees, and only 28% felt very confident that they understood them. An astounding 77% were concerned they were overpaying in fees.

Understanding fees is crucial because they can reduce the returns you earn from your investments. While they may seem insignificant at first, over time, some fees can gradually erode a substantial portion of your returns. Having a clear grasp of what you’re paying in fees can empower you to make more informed investment decisions. This will help you choose better products to support your financial goals.

The complex world of investment fees is a key area of focus for FAIR Canada. On our website, we provide a resource that can help investors Understand Fees and Statements. Next month, we will be publishing an article in the November edition of Canadian MoneySaver magazine explaining investment fund fees.

We’ve also advocated for greater disclosure of the fees associated with your investments. Investors struggle to understand investing costs partly because, to the surprise of many, investment dealers are not required to disclose all the fees investors pay for their investments.

Regulators responded to this disclosure issue in April 2023 with the announcement of total cost reporting (TCR). TCR will take effect in 2027 and make it easier for you to see the total fees you pay for your investment funds. The rules include a prototype statement that will provide you with a total dollar amount for all the fees you pay and explain the various fees in an easy-to-read format. This improved disclosure will enable you to better assess the overall value your investment funds provide. See our June 2023 newsletter for more information about TCR.

A helpful tool that sheds light on the impact of fees over a lifetime of investing is the T-REX calculator. Developed by FAIR Canada Board member Larry Bates, the T-REX calculator generates a score showing how much of your investment returns you’ll actually keep. It allows you to experiment with different investment amounts, time horizons, rates of return and annual fees to see how your T-REX score changes in these various scenarios. Give it a try—you might be surprised!

You can also learn more about investment fees and statements on the Canadian Securities Administrator’s website or via your local securities commission. 

What’s New



Regulatory Review of Conflict of Interest Rules

The CSA and the Canadian Investment Regulatory Organization (CIRO) carried out a joint review of the conflicts of interest practices of 172 investment firms. The review relates to the Client-Focused Reforms (CFR), which were intended to protect Canadian retail investors. The review found deficiencies in many of the reviewed firms’ compliance with the CFR rules that require them to disclose conflicts of interest and resolve such conflicts in their clients’ best interests.

The joint report provided guidance for firms on how to comply with CFR rules around conflicts of interest. FAIR Canada will continue to monitor future compliance reviews.

You have a right as an investor to know if your investment advisor has a conflict of interest. For more information about your rights, see:

• FAIR Canada: Know Your Rights

FAIR Canada is Growing!

We are excited to announce that we have recently expanded our team.

Erica Young joins us as Head of Policy. Erica started her legal career as an advocate. Prior to joining FAIR Canada, Erica worked as senior policy counsel at CIRO (and its predecessor, the Investment Industry Regulatory Organization). As senior policy counsel, Erica developed, drafted, and reviewed investment dealer member regulations and guidance.

Julia MacKenzie joins us as Manager, Public Relations. She brings 10 years of experience in a broad range of public affairs and communications. Prior to joining FAIR, Julia spent five years in progressive roles at CIRO. Her career began in political communication and policy work while in the office of a Member of Provincial Parliament at Queen’s Park.

Please join us in welcoming Erica and Julia to FAIR Canada’s team. 

Remember to follow us on LinkedIn and X (formerly Twitter)!

To learn more about our advocacy for investors, visit FAIRCanada.ca