The 411 on mutual fund fees – the news isn’t good

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It’s time to see if all the talk about decreasing investment fees has actually resulted in lower costs for those who own mutual funds.

Don’t get your hopes up. The news isn’t good.

To put mutual fund fees into proper perspective we should understand that mutual funds are very popular with Canadians. Strategic Insight reports at the end of 2017, 36 per cent of Canadians’ wealth was invested in mutual funds.

The President of the Investment Funds Institute of Canada said, “Canada is the highest country in the (Organization for Economic Co-operation and Development) in terms of household assets investing in mutual funds.”

There is an endless list of mutual funds to choose from but most of the money is channeled toward funds offered by the banks and large well-known mutual fund companies. Almost 40 per cent of mutual fund assets are held in the 100 largest mutual funds.

In theory that should be excellent news. Economies of scale allow businesses to be run more economically and as a result, the financial consumer should expect lower costs.

For some reason in Canada the normal realities of economics don’t translate to lower mutual funds fees. 

According to research compiled by the Globe and Mail and Fundata Canada, the cost of owning a mutual fund, which is referred to as the Management Expense Ratio, has only declined by five hundredth of one per cent in the last five years for the top 100 mutual funds in Canada.

Fees are important.

If you own a mutual fund with a high cost then your overall return on investment will be reduced. That could have a major impact on achieving your financial objectives.

I suggest you understand the amount of fees you are paying on mutual funds and then have a discussion with your adviser to see if there are other good, less expensive, options.

 

 

Peter Watson is an agent of, and securities products are provided by, Aligned Capital Partners Inc. (ACPI).  ACPI is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF).  The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Peter Watson Investments.