Jul 13, 2016
Personal Investor: Why Canadians are in the dark on investment fees
By Dale Jackson
ANALYSIS: It seems new regulatory rules to make investment fees more transparent couldn’t have come at a better time.
A new survey from Tangerine finds 83 per cent of respondents have no idea the changes come into effect starting this month.
It also reveals 36 per cent of respondents claim they don’t pay any fees. Of those who work with advisors, 24 per cent claim they don’t pay for that advice.
Of course, we pay investment fees. In fact, Canadians pay the highest investment fees in the developed world. The industry has probably gotten away with it so long because they are so proficient at hiding them.
Starting this month, advisor firms have a year to begin disclosing advisor fees to clients in dollars, as well as in percentage terms. Those fees could include deferred sales charges, referral fees, annual administration and transaction fees.
But the big eye opener will likely be trailer fees on mutual funds. Mutual fund companies collect trailer fees to reward advisors for selling their funds.
A trailer fee is hidden in the annual management expense ratio, which is typically 2.5 per cent of the money invested. Fund companies don’t disclose trailer fees but they are typically one per cent of the money invested. On a $100,000 portfolio of mutual funds that’s $1,000 a year.
Unfortunately, the new disclosure rules only shine a sliver of light on mutual fund fees. Mutual fund companies will not be required to disclose the entire MER in dollars.
By the way, that’s about $2,500 on every $100,000 invested – each and every year.
Dale Jackson is BNN's Personal Investor. Follow him on Twitter @DaleJacksonPI
