To the Toronto Star on mutual fund benefits and costs
January 7, 2014
Re: “Five easy money moves to make this year” (January 6, 2014)
Robb Engen’s s advice to switch out of mutual funds is superficial and misguided.
Reducing investment fees by buying products without the benefit of advice does not automatically translate into higher returns. All credible research shows that having an adviser creates a savings discipline and thereby produces superior financial results for the investor — more than 2.5 times more financial assets than households that do not receive advice. This is after all costs have been taken into account.
Engen’s suggestion that Canadian mutual fund fees are among the highest in the world is simplistic at best. In the U.S., the majority of investors pay an additional fee over and above the U.S. version of the management expense ratio (MER) for their advisors’ services; whereas in Canada, all costs are included in the MER.
Recent research that took into account the different pricing models concluded that on a tax-adjusted basis (no HST in the U.S.), the asset-weighted cost (2.02 per cent) of owning mutual funds in Canada is virtually the same as the average cost (2 per cent) for a typical investor using an adviser in the U.S.
New Canadian disclosure rules, which are in the process of being phased in with full industry support, will provide investors with even clearer, plain language information to help them better understand the costs and strength of their investments.
Joanne De Laurentiis
President and CEO
The Investment Funds Institute of Canada
Submitted: January 7, 2014
Published: January 9, 2014