Many Canadians invest their retirement and other savings in mutual funds, frequently on the advice of “financial advisors”/mutual fund salespersons. Remarkably, a lot of these Canadians don’t know how much they are paying in fees, and even more important, how big a bite even seemingly small annual fees can take out of their savings. Canadian mutual funds charge the highest fees of any advanced country.
Over the 30 or more years that most people are expected to build up their retirement savings, 2-3% annual fees (usually called management expense ratios or MERs) can eat up a third to a half or more of their pension.
The Canadian mutual fund industry (the majority of which is controlled by the major chartered banks) and their “financial advisors” do not go out of their way to help people understand the fees they are paying.
The Ontario Securities Commission website (www.getsmarteraboutmoney.ca/tools-and-calculators/mutual funds) has a very useful calculator, called “How Much Do My Mutual Funds Really Cost?”
The calculator lets you look up all of the major mutual fund companies and select any of their funds. The calculator will automatically give you an estimate (based on past fund returns and the current fees) of how much of a return you will get on your investment and what fees you will pay, for an investment period of up to 25 years.
For example, if you put $1,000 into the Mackenzie Financial “Keystone Balanced Growth and Investment Fund”, after 20 years you could expect to end up with $1,352.17, an average annual return after fees of 1.52%. You would pay 2.44% a year in fees, for total fees of $565.33. Mackenzie would earn $565.33 on your investment, while you would earn $352.17.
If you have any money invested in mutual funds or are planning to invest, it is worth your while to use the calculator to look up the results. Take them to your advisor and ask him or her to explain why you are paying the fees you are paying for the results you are getting.