Dale Jackson

Personal Finance Columnist, Payback Time

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This is expected to be a year of discovery for mutual fund investors.

Regulators are forcing advisory firms to disclose, in dollars, all the fees clients pay for their services.

Up until now they were only required to express them in percentages. It’s not hard to see why the industry fought these changes: a one per cent annual trailer fee doesn’t seem like much but when you look at it as $1,000 each year on every $100,000 invested, it’s a bit of a shocker.

And it might get worse for some. Mutual fund advisors are compensated in other ways including loads, known as the one-time fees imposed when a fund is bought or sold.

Loads can range from four to eight per cent of the total amount invested or be a flat fee. A front-end load is a fee charged when the fund is bought and a back-end load is a fee when it is sold. A back-end load is based on any market gains the fund may have made, along with the original amount invested. Back-end loads are sometimes lower if the fund is held for a long time.

Responding to public pressure, many mutual fund companies have now cancelled loads. Of the 6,200 major mutual funds on the Canadian market, 4,000 are listed as a no-load fund.

Two hundred funds are listed as front-end loads, 1,000 are back-end loads and 1,000 leave the choice of whether to pay at the beginning or end to the investor.

Industry insiders will tell you that loads are meant to be negotiated away, but they are at the discretion of the advisor. Many investors may not realize they are buying a loaded fund, or that they can negotiate it away.  

The best advice is to look at the fund’s description and ask. If the fund charges a load, you should refuse to pay it, or find one of the 4,000 funds that don’t charge a load.