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moneysense.ca, 9/05/07
The Debate Over Fund Fees
The debate over how mutual fund fees in Canada are the highest in the world is being launched once again with the revised publication of a draft report originally released last year. The report says that Canadians pay the highest fund fees in all categories and predictably, the fund industry is disputing the claims. It seems to me that whether fund fees in Canada are the highest in the world or not is a largely academic question. The more relevant question is how can Canadian investors earn reasonable returns when they are shelling out anywhere between 2.5% to 3% in fees? If future returns are going to very modest (in the 5% to 8% range), paying almost half your returns in fees will be the difference between a comfortable retirement and simply scraping by.
Sadly, as Ellen Roseman points out in her column in The Toronto Star, unless Canadians vote with their wallets by opting to invest in low-fee funds, the industry will never change:
I doubt anything will change until investors realize what they’re paying for advice – and what they’re getting in return.
With the current system, advisers are paid handsomely to sell mutual funds. They have no incentive to mention – let alone recommend – low-cost strategies such as indexing or buying stocks directly.
Related:
The Wealthy Boomer’s blog post
Rob Carrick’s column in The Globe and Mail.
James Daw’s column in The Toronto Star.
The original study. The industry’s lame response.
moneysense.ca, 9/05/07
All this points to the open business opportunity to come in an offer fee-based service to the masses. Unfortunately you need to be an ‘insider’ in the industry to get started – most provincial regulators require experience as well as education. So the only way to change the system is to live it for several years… and take all those handsome fees in the interim. Sounds like the system is set up for the status quo to continue.
There’s always Phillips Hager & North. Low MER and no loads, but they do have a minimum of I think $10,000 to open an RSP and $25,000 for an investment account.
You’re on the money, CC, when you say the bigger issue is getting high returns after MERs. Still, it’s sad to see how much more we are willing to pay by virtue of being Canadian
Shortly after I started working in 1984, I decided to invest in mutual funds. I found an investment advisor who recommended a fund with a 9% front end load! I didn’t know
1) the load was negotiable
2) the firm was owned by the mutual fund company
3) there were hidden sales incentives like cruises
So I paid too much, got biased advice and poor investment returns.
For investors who are looking for low fees and prefer the Do-It-Yourself style of investing, do a Google search for Doug’s Charts. These charts are constructed to make it easier to pick the best performing funds.