Jonathan Chevreau, personal finance columnist for The National Post, has highlighted a study that points out that mutual fund fees in Canada are the highest in the world. It is widely known that mutual funds domiciled in the United States are cheaper, but the fund industry has argued that there are economies of scale in operating in the United States. But the new study points out that the fees charged by the median fund in Canada is the highest among 18 countries covered by the study in every fund category.
The fund industry would no doubt spin the report, trotting out lame excuses as to why it is expensive to operate in Canada. But, the bottom line is that it will be tough for Canadian mutual fund investors to accumulate a decent nest egg for retirement while paying 2.36% for the median bond fund and 2.81% for the median stock fund in fees every year.
The Canadian mutual fund industry will not change its merry ways if investors are apathetic about the fees that come out of their pockets. As Mr. Chevreau writes in a blog post: “the only way fees would come down in Canada would be if consumers voted with their wallets for lower-cost funds.”
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13 responses so far ↓
1 Investorial // Aug 22, 2006 at 1:00 am
Sigh.. I’ve had to put Canadian brokerage comission fees, high tax brackets… and most recently credit card interest rates on notice.
I forgot about high mutual fund fees. Thanks for reminding me. They’re also not on notice!
2 Investorial // Aug 22, 2006 at 1:01 am
sigh.. I meant “now” instead of “not”
3 hepman // Aug 22, 2006 at 9:01 am
People are their own worst enemies. Great inexpensive funds from P,H & N, Mawer, Saxon,RBC O’Shaugnessey etc are available as well as TD e- fund index funds and iShares. If consumers moved on mass to these lower priced products, companies would have to lower rates to compete. It kills me that people will drive around town or go across the border to save a few bucks on some consumer purchases but won’t take the time to research how their money is invested or what companies/products offer the best value when it comes to their investments!
4 Alex Givant // Aug 22, 2006 at 9:41 am
I think those who care already vote with their dollars by putting money to lower MER fund (such as index funds and ETFs). Like they says: God willing to help to these who helping themself.
Another point: not every mutual fund with high MER is bad, we should see what is a return after all fee deduction (the only problem it’s hard for regular people like me to get through all of this financial mumbo-jumbo they put in prospectus).
5 Alex Givant // Aug 22, 2006 at 9:49 am
This guys (http://www.asldirect.com/) help you to get back trailer fee (that usually going to the broker that sold you fund as long as you stay invested in the fund - one of the reason why brokers discourage people to switch to other fund with may be lower trailer fee).
It’s good book called “Naked Investor” by John Reynolds (http://www.chapters.indigo.ca/books/item/books-978014301623/0143016237/Naked+Investor?ref=Search+Books%3a+’Naked+Investor’) where he is talking about different side of investment industry in Canada (high MER, fraud, etc). Worth to read.
Last word: I believe that main responsibility of each and every one who wants to invest it to take time for educating themself. Knowledge is power and more you know, less chances you’ll fall for some bad ideas coming from financial adviser (such as labour-sponsored funds which heavily pushed every January and February by too many so called “financial advisers”).
6 Ryan // Aug 22, 2006 at 10:44 am
I have been a subscriber to moneysense magazine for years in an attempt to increase my investment knowledge…I am admittedly very green in this area, but I am trying.
For years I have been reading about their ‘couch potato’ strategy and seen how it has experienced tremendous returns YOY. This strategy has always interested me as I am not the kind of person who wants to be checking up on my investments on a daily basis. I want to put my money somewhere I am comfortable with, forget about it for a year and then adjust every year…low maintenance being the theme.
So recently I have done just this and moved all of my funds out of RBC and CI where I was paying anywhere from 1.8-2.8 in fees. I opened up a TD Waterhouse trading account and purchased various E-funds that charge around 0.3-0.4% in fees and there is no charge for purchasing. The way I see it, even if these funds perform on average 2% worse than my old funds I am still doing just as well. I guess I will see over the next few years. Either way I cannot see how I can do worse as my old funds never did supply me with very good returns.
Just thought I would share my experience.
7 David Riehm // Aug 22, 2006 at 7:58 pm
Mutual funds are a bonanza for the financial “industry”. They wear suits, drive Jaguars and have carpeted offices - all from the fees. That’s why you see full page ads for funds. Wouldn’t you rather have that money invested and working for you? 2% or 3% doesn’t sound like much but when you look at how that cuts into your lomg term compounding, it is truly shocking. Some people have paid or forfeited half of their long term gains because of mutual fund fees. And the kicker???? More than 50% of funds don’t even keep up with the market!
8 The Dividend Guy Blog - One Guy’s Journey to Passive Income Through Dividend Investing » Way to Go Mutual Fund Companies in Canada // Aug 22, 2006 at 9:26 pm
[...] Way to Go Mutual Fund Companies in Canada By The Dividend Guy Canadian Capitalist [...]
9 DaveB // Sep 6, 2006 at 12:22 pm
Between the high Mutual Fund MER’s, the high banking fees, the high insurance premiums, the high credit card rates … you can either pull your hair out or look at it as an opportunity. The ologopolistic financial market in Canada with the very high barriers to entry and the demographic trends in my opinion make the following Index Fund very attractive over the long term:
http://ca.finance.yahoo.com/q?s=XFN.TO&d=t
I have held it for over four years now and smile every time some Canadian bank or insurance company announces record profits (again and again).
10 SidR // Sep 24, 2006 at 1:50 pm
Is there a list of Funds showing MER’s so a person can compare?
11 The Debate Over Fund Fees // May 9, 2007 at 8:01 pm
[...] Rob Carrick’s column in The Globe and Mail. James Daw’s column in The Toronto Star. The original study. The industry’s lame [...]
12 bill // May 17, 2007 at 11:18 am
Companies with charge whatever the public is willing to pay. When they start losing business, they will have to make whatever adjustments they need to make.
13 jerry // May 26, 2007 at 1:03 pm
It is unfair trade to by canadian mutrual fund as an individual.
bank or nutrual fund management take 2-3% or higher to a comsumer, on the table;
there are also many hiden rule of mutual time unloading, market call charge, etc, many , many of extral charge on top of the 2-3% charge;
there is no much choice for working class canadians, because rich one has insider benifit and goes to US to invest too. rich one contrals canadian finance and policy.
the best way for working class is to invest by themselves, into other country, into business or real estate. It is hard, but rich one don’t give a dim to working canadian.
it is a dark picture of this place, many bright side thou.
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