To the Globe and Mail
January 20, 2017
Re: Investor alert: New fee-disclosure rules leave out billions in costs
(January 19, 2017)
It’s time to put to rest the myth that Canada has the highest mutual fund fees in the world. The statement first appeared in a 2011 Morningstar report; however, Morningstar’s 2015 update acknowledged that a more accurate comparison would place Canada at: “the top half of lower fee markets” in the 25 countries that were studied.
The original analysis failed to recognize that expense ratios in Canada generally include the cost of advisor services. In the U.S. and several other countries, most investors pay an additional fee for advisor services. To properly compare expense ratios with Canada, the advisor fee must be added to expense ratios in other countries. On that basis, costs to advised investors on both sides of the border are almost identical: 2.02% (before taxes) in Canada and 2.0% in the U.S.
Predictions of investor “sticker shock” are largely exaggerated. The average MFDA account in 2015 was $46,000. For accounts with embedded commissions, the average dealer compensation is between 50 to 100 basis points, or roughly $230 to $460 annually.
Paul C. Bourque, Q.C.
President and CEO
The Investment Funds Institute of Canada
Submitted: January 19, 2017