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Canadian MERs - An Outrage

Canadian MERs - An Outrage

February 28th, 2007  · stk

Canadian investors pay the highest mutual fund management fees of any country in the developed world. Not a little bit more - a LOT more. Find out why, the real cost to Canadian investors and what they can do about it

2008 Update

  • The IFIC responds.
  • Updated Report (Jun 2007)
  • Canadian Discount Brokers

read the update

Mutual Fund Management Fees Take Canadian Investors on an Expensive Ride

I have been investing in U.S. mutual funds since the early 1980's and have extensive experience with U.S. no-load mutual fund companies such as Vanguard, T.Rowe Price, Scudder, American Century & Janus, among others.

I recently had the opportunity to investigate Canadian mutual funds and what I saw, absolutely shocked me. Canadians pay more for their mutual funds than any other developed country. Not a little bit more - a LOT more! More than any of the other 18 industrialized nations that were the focus of a joint Harvard and London Business School study, published last year (Source: Mutual Fund Fees Around the World - Feb. 2006 Draft).

The study found that Canadians pay a TER of 2.68%. Compare this to U.S. investors, who pay 1.42%. The next closest country was Luxembourg, at 1.75%, which is still over 90 basis points less than the Canadian mean.

A 0.93% to 1.26% difference in management fees may not sound like a lot, but it's nearly 1.9 times more than what U.S. investors pay and the dollar value, over the lifetime of a typical RRSP, will add up - both in terms of direct fees and loss of investment return. It's an albatross around the neck of Canadian mutual fund investors.

To learn why Canadian investors pay the highest MERs of any country, see how much money this can cost them on a typical investment and what they should do to stop it ... read on.

Survey Says: Canadians "Happy" to Pay More

The IFIC held their 20th Annual Conference in Toronto in September of 2006. There, they released the results of a telephone survey done by Pollara Inc., in which nearly 2000 Canadian fund owners responded to various questions about their mutual fund investments.

A Microsoft PowerPoint presentation of the survey results (which can be downloaded here) was summarized by the IFIC as follows: "Mutual fund investors in Canada are confident in mutual funds' ability to meet their household's financial goals and comfortable with their understanding of their investment" (source).

84% of Canadians are comfortable paying the highest mutual fund fees in the world!

2006 IFIC Poll    

With regard to mutual fund fees, 84% were "comfortable" with the amount they paid in fees and 82% were "comfortable" with their understanding of where the fees went. It should also be noted that the majority of Canadian fund owners (85%), purchased their mutual funds through a professional advisor.

Not everyone, including me, is comfortable AT ALL with the management fees charged by Canadian mutual funds. Even industry insiders are complaining about the high MERs paid by Canadian investors. Known as "mohican', this British Columbia financial planner says that of the 3,783 mutual funds in Canada, 424 (11.2%) have an MER greater than 3.0% and that 1470 (38.9%) have an MER greater than 2.5%. Outrageous!


Why are Canadian Mutual Fund MERs so High?

The Globe and Mail article got it right: Canadian "Mutual Funds aren't bought, they're sold."

Hidden in the MER for most Canadian Mutual Funds, are "trailer fees" (which cover the expenses and commission for the "professional advisor" that 85% of Canadians utilize to buy their funds). These trailer fees are "fairly specific to Canada, which helps to explain why fees on Canadian mutual funds are among the highest in the industrialized world."

In the United States, I am used to having the ability to buy mutual funds directly from large mutual fund companies. In Canada, many of the leading mutual fund companies (by asset base) are associated with major banks (RBC, TD, BMO, CIBC and Scotia). (Source IFIC) The industry as a whole, employs over 90,000 people (2001 data from That's a lot of people and now, in 2007, it is probably a lot more.

Because it is tax season, there have been a lot of television and print ads (*cough*, which raises management fees) trying to catch RRSP investments. A recent RBC print ad states, "There's [a financial advisor] in every branch" (how convenient and EXPENSIVE). In the fine print, they explain who pays for them - "Royal Mutual Funds, Inc." A quick look at the RBC website shows 1,104 RBC branches in Canada and 1500 financial advisors (437 investment retirement planners and 1,063 financial planners). RBC mutual fund investors are pay for these advisors with their hard-earned savings.

An mutual fund watchdog group in Canada, cited a Toronto Star article in their January 2007 Newsletter, which relayed a quote by Karen Ruckman, professor of business at Simon Fraser University. She said:

They [Canadian Mutual Funds] can do this [charge more] partially because Canadian consumers know nothing about how low MER's should be and partially because they don't have to disclose what their trailer fees - the amount of fees paid to the broker – are. This is notoriously higher in Canada than in the U.S. but no one knows by how much because they don't have to disclose them.

There are other reasons for why Canadians pay the highest management fee in the industrialized world. Economy of scale is one (but that really doesn't wash, because Luxembourg has a smaller investor base than Canada and yet, manages much lower management fees). That mutual fund regulations are handled on the Provincial level, and not the National level, is another argument. This undoubtedly adds to the cost of operations, but only marginally so. The lion's share are the trailer fees.

Until the Canadian Mutual Fund industry reports the management fee break-outs, all anyone can do is conjecture about where the management fees are going. In the end, it's academic. The real problem is that Canadians are paying substantially more in management fees than anyone else in the world, regardless of how the money is spent. It's completely out-of-line with the rest of the world and needs to change. The end result is that mutual fund management costs are ripping Canadian investors off. They're taking money from Canadian investors and lining the pockets of the mutual fund management team, the very team that claims to be looking out for the investor's interest!


What do the Best-Paid Managers Provide Canadian Investors?

Only 20-30% of Canadian fund managers beat the S&P/TSX benchmark against which they're measured.

One of the arguments for higher management fees is the fact that you often pay for what you get, namely the erudite stock picking of the fund portfolio managers. The idea is that you should look at a fund's overall return and not focus solely on expenses. (Some of the best funds, with the highest returns, have high management expenses because they employ the best managers).

It's true, you should not invest in a fund simply because it has a lower management fee. In fact, in that same January 2007 Report, CanadianFundWatch listed 8 mutual funds with high MERs that have justified their fees with very solid pre-tax returns (page 6).

However, just how many great managers are there? Standard & Poor's SPIVA scorecard continually reports that most Canadian equity mutual fund managers fail to beat their respective benchmarks (indices) against which they are measured. For the Q01, Q02 & Q03 in 2006, only 30.2%, 19.8% and 26.7% of actively managed Canadian equity funds, respectively, managed to beat the S&P/TSX Composite Index. (SPIVA link).

Only 20-30% of actively managed funds do better than the index? With such horrible results, the argument for high management fees buying great managers, is very weak. You've got an 70-80% chance of paying high fees and not even beating an index. Yuck. :(

Take heart if you're invested in a Canadian small-cap fund, as about half manage to beat their index (the S&P/TSX SmallCap Index).

These percentages are not a one-off, they hold consistently for longer periods (3 to 5-year range) as well.


What's the Cost to Canadian Investors?

Based on SPIVA data, there is a strong argument for investing in index funds, which by design, have much lower management fees. In fact, a Canadian investor would have a 75% chance of outperforming all actively managed Canadian mutual funds that aim to beat the S&P/TSX Composite Index, if they just invested in a fund that tracked that index. Those are odds I like. (Index funds aim to track the performance of their respective index, eliminating the need for an active, stock-picking management team).

A Canadian investor can lose nearly 40% of their profit, over 20 year period, because of high management fees.

The problem I found, however is that the MER for many Canadian index funds, aren't substantially lower than many of the actively managed funds. Looking at the CIBC family of index funds, the lowest MER for any of their index funds was 1.0% and the highest was 2.0% (Source: 2006 Simplified Prospectus).

Say a Canadian investor wanted to invest in a European Index Fund, which tracks the MSCI Europe Index. The reported MER for that CIBC Fund is 1.2%. Compare that against the same index fund at Vanguard, in the United States, whose MER is 0.27%. They both track the same index and will yield a nearly identical return, for a given dollar amount invested.

Case #1 Vanguard/CIBC

Results for 'Two different funds'
Use 'My own numbers'
Show me 'All numbers'
I'll invest 20000
For 20 (years)
Type: International Equity Return (7.28)
Sales Fee: No-load Fund
MER: of 1.2% for fund #1
MER of 0.27% for fund #2
Other Fees: 0

Case #2: Canada/U.S. Mean

Change only the following:
Type: Canadian Equity (10.47)
MER: of 2.68% for fund #1
MER of 1.42% for fund #2

Using the Mutual Fund Fee Impact Calculator at the Canadian Investor Education Fund website, one can see calculate the impact of higher management fees has on investor yield. Assume both invest $20k and let it grow for 20 years. The U.S. investor will have a final investment value of $105,646.49, after paying $2,784.14 toward management fees. In contrast, the Canadian investor will have paid nearly four times the amount in management fees ($11,108.26) and end up with a much lower investment value, as a result ($88,276.95). The true cost of the fees, to the Canadian investor, will be $17,369.54, nearly 20% of their final investment value!! It doesn't take a rocket scientist to realize whose got the way better deal (and why I am so SHOCKED to see how high management fees were for Canadian mutual funds).

One might argue that comparing Vanguard (which is widely-recognized as having among the lowest management fees in the United States) and CIBC is not fair. OKAY ... just use the respective mean TER values of the aforementioned report, namely 2.68% for Canada versus 1.42% in the United States. The results are still as enlightening. The U.S. investor walks away with $115,516.44 (after $15,589.01 in fees), while the Canadian investor is taken to the cleaners, walking away with only $87,354.77 (after shelling out $24,832.41 in fees). Same investment return. The only difference is the difference in management fees.

This data should make more than a few a few Canadian investors sit up and take notice.

To add insult to injury, I don't think the "investment advisor" I met with at the local CIBC bank (a fellow in his early thirties, who used the word "awesome", probably 25 times over the course of an hour) adds much VALUE to any investment. In fact, for this U.S.-experienced investor, he seems more a hindrance to me (as I am used to investing directly with mutual fund companies in the United States, either via mailed checks or electronic fund transfers). To have to make an appointment and have a face-to-face meeting to open an account, exchange shares or withdraw funds seems incredibly archaic to me. (Especially when I had to wait for 15 minutes past my original appointment time).


What Can Canadian Investors Do?

At present, there seems to be very little hope for Canadian mutual fund industry reform. Consider: the size of the work force that is already dedicated to providing "investment advice"; the difficulty to obtaining agreement at a Provincial and Territorial level; the fact that the mutual fund industry is largely self-regulating (how silly is that?); and that banks are among the largest mutual fund brokers (we all know how banks like to crow-bar money from their customers).

Nope. I can't see any real change on the horizon, this despite how obviously out-of-step the Canadian mutual fund industry is with the rest of the world. (They've already got their best spin doctors working the case, but they're spinning in vain).

There is hope. First, a Canadian investor needs to realize that they stand a better chance of reaping a higher reward if they ditch their actively managed mutual fund and follow an index. If they can make that leap, then the next step is to move away the mutual fund company altogether. Canada ... vote for mutual fund reform with your feet. Buy Exchange Traded Funds (ETFs).

The Canadian investor can open a self-directed RRSP account with a discount broker and purchase ETFs as you would a stock. The MERs are very low, compared to Canadian mutual funds. You do have to pay a broker fee when you buy or sell, which is why you should use a discount broker and take a buy-and-hold approach.

I'll be putting my money where my mouth is, because this is the approach I'm recommending and using for our family's Canadian investments. While I have a couple of ETF's in the United States, I've been quite happy with the low MERs at fund companies like Vanguard and T. Rowe Price and haven't the need to purchase many. Not so here in Canada.

Next: ETFs, Discount Brokers and Moving RRSP money. (If there is enough interest in this article, my plan is to offer a step-by-step guide for Canadian investors who want to stop paying high MERs to mutual fund companies - largely banks - and keep more of their own, hard-earned money, for themselves. I'm following my own advice and voting with my feet!

2008 Update

It's not surprising that the IFIC would find the report "Mutual Fund Fees Around the World" distressing. After all, the world-wide comparison blatantly revealed that Canadian mutual fund investors were paying the highest mutual fund fees.
Updated Report - "Mutual Fund Fees Around the World" (July 2007)

Their only response was to debunk the study and that's what they tried to do (paraphrasing): "You excluded low-fee funds ... loads are not representative ... holding period is longer in Canada ... Canadians prefer an advisor ... the comparison is dated ... blah ... blah ... blah."

You can read the sour grapes response here.

The author's come-back amusing (paraphrasing): "Urm, we can understand why you find the results troubling ... but our study wasn't a U.S.-Canadian comparison ... a country on which you seem to focus ... we carefully did our work and regardless of differing approaches, the results are the same ... costs were higher in Canada than (list of all the other countries). We have no vested interest in the outcome of the report and make no value judgment about fees in Canada ... have a nice day."

The authors then go on to explain, point-by-point, how the IFIC complaints are unwarranted. Other countries have similar situations, they're handled on an egalitarian basis and the results are consistent. You can read the reply here.

The bottom line is that Canadian mutual fund investors are paying the highest mutual fund fees in the world. To avoid these outrageous fees and retain the benefit of diversification, Canadians should avoid mutual funds and invest their RRSP money in Exchange Traded Funds. Additional savings can be realized by purchasing ETFs through a discount broker, such as Questrade or TradeFreedom.

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1.flag TK Comment
You might consider shopping this to a few CA publications as a financial article, with the promise of more of the same. Who knows, it might lead somewhere.
2.flag stk Comment

Thanks for thinking enough of the post to think that a Canadian financial rag might wish to publish it.

I'm not sure I want this post to "lead anywhere", other than holding Canadian mutual fund industry feet to the fire. Such ludicrous managerial fees need to be justified. For this experienced U.S. mutual fund investor, they are not!

3.flag Byron Comment
I found this while trying to find out whether management fees cover brokerage commission or whether the price of purchasing and selling stocks are reported after commissions (i.e., I'm trying to find out if mangement fees are in addition to brokerage fees (they were costly at 3% on the buy and 3% on the sell - the stock would have to go up over 6% to cover the brokerage costs). The reason is to see whether I am better off investing through a stock broker or buying a well-managed mutual fund.

I heard that the U.S. reports mutual fund returns net of management fees (i.e., return to the investor) whereas the Canadian self-regulated industry uses the return before the fees. With the high 3% to 3.5 % fees, the return to the investor is actually 3 to 3.5% less than reported in their sales promos.

When taking Finance in University, the professor cited a study that found only 50% of mutual funds performed as well or better that the NYSE, 25% beat the NYSE for both the last 2 years and 12% the last three years. This was the same percentage as a monkey throwing darts at a wall to pick stocks.

I also read a report on salaries and the highest salaries (averaged $860,000 per year) were paid to the people receiving the management fees and that they were several times higher than the salary of the next highest profession (lawyers).

Also in my Finance course, we were told of a 40-year study that showed returns on the stock exchage index was 3% above the rate of inflation. Given this, it appears that the management fees gobble up half the return the mutual fund would have had. I think a 50/50 split for managing a person's money is, indeed, too high.


4.flag stk Comment

You've brought up several points and I'll try to address each one.

1) With regards to mutual funds, management fees are in addition to any front-end or back-end loads (which is why I always recommend buying no-load funds). Why pay any more than you have to?

If you're buying individual stocks through a broker, 3% is very high commission charge. I'm sure there are discount brokers in Canada that charge $30 or less, per trade (regardless of the number of shares or dollar amount of the transaction).

I'll be looking more into this, as I'll be finding a discount broker through with we'll be buying Exchange Traded Funds (ETFs).

2) AFAIK, I'm not aware of any reporting differences between the U.S. and Canada, but I'm not the authority. Investor returns should be after any/all management fees.

3) The dart-throwing monkey reference is from Princeton Professor Burton Malkiel. In his book "A Random Walk Down Wall Street", he states, "a blind-folded monkey, throwing darts at a newspaper's financial pages could select a protfolio that would do just as well as one carefully selected by experts."

4) The salary information is new to me and thanks for posting that. It doesn't surprise me, given the high percentages being charges to mutual fund owners, here in Canada.

5) Yes, the number of actively managed funds that outperform a given index, over time, is very dismal indeed. (Which is why I recommend bagging the actively-managed mutual funds AND index funds and opt for Exchange Traded Funds, in their place).

Get HIGHER returns, pay LESS in management fees ... it's just a no-brainer WIN-WIN!!

Thanks for taking the time to comment.

Hope this helps.

5.flag SB Comment
Great article. I agree with the first writer about getting it out there. I'm an investor here in the U.S. with a Canadian housemate I'm trying to get into investing. The lack of information on fees from Canadian websites and constant references to "investment advisors" was confusing until I google searched your article. Thanks for the clarification.
6.flag SSS Comment
I recently married a Canadian and I am from the U.S. I also was shocked at lookin at the mutual fund fees in Canada. Can you recommend good discount brokers to buy ETFs through?
7.flag stk Comment
SB - Thanks. I'll have to consider that. I'm glad you found the article helpful.

SSS - I haven't gotten to that step, yet. I'm waiting for my 3-month 2% redemption to expire on my Canadian mutual fund investment. (I invested in a CIBC Canadian Resources fund, which is up nearly 10% since I first invested - rising oil prices ;).

I will be looking for a Canadian Discount Broker, however, and writing an article about what I find, but it probably won't be till mid-summer.

I'd recommend a search for "Discount Broker Canada" on Google and try limiting the search to Canadian results.

Sorry I can't be of more immediate help. I'm still feeling my way around, up here. I do know that I'm not going to be paying outrageous management fees! ;)
8.flag CA Comment
I can't believe that I came across this article this evening. Earlier this week I was telling a coworker that I've had it with mutual funds because the companies, the fund managers and the advisors have been the only ones to make money. My 10 year compound return to December 31/07 for my well balanced portfolio was a mere 2%! Very sad! No wonder I'm not going to have enough money to retire any time soon even though I've put in my max for 30 years.
9.flag Goran Comment

Thanks for an insightful write up; it confirms my suspicions of many years. But I finally want to do something about it.

So can you share on how one goes about buying mutual funds directly from US mutual fund companies? I know that it's not straightforward, but I also know there is a way to do it.

Also, how does one make sure he doesn't pay taxes in the US? What about insurance? In Canada, investors are insured by IFIP up to $1m, and that the US has an equivalent insurance. But are Canadians/non-US residents covered by it?

Thanks very much,
10.flag stk Comment
Goran - Thanks for writing. Your answers, in reverse order:


There is no insurance for U.S. mutual fund holders. The U.S. FDIC does insure up to $100,000.00 USD, but only for savings & checking accounts held in member banks.

Likewise, in Canada, the CDIC protects up to $100,000.00 CAD for savings, chequing and GIC deposits for member banks.

However, there is insurance for Canadian mutual funds, but not through the IFIC (I'm not sure what "IFIP" stands for?) The MFDA in Canada provides insurance, through the IPC, in the rare event a MFDA-member mutual fund dealer goes bankrupt.

Buying U.S. Mutual Funds

I believe you are correct, that Canadians can buy mutual funds directly from U.S. fund companies. A quick search found this site, which is a tad dated (2001). You are also correct that it's not a straight forward exercise.

Why fight such complexities and face an uphill battle? I don't recommend it.

Canadian Discount Brokers & ETFs

I certainly understand your desire to do something, but I'd open a Canadian discount brokerage account and purchase ETFs. (ETF's generally have lower management fees and greater tax efficiency than most U.S. mutual funds anyway ... and opening a Canadian discount brokerage account is loads easier for Canadians than trying to buy direct from a U.S. mutual fund!)

Check out Questrade or TradeFreedom (two Canadian discount brokers I considered for my own Canadian investing).
11.flag Greig Scott Comment
It is my contention that going with a stock broker is not a good idea for retail investors. Fund managers have vast resources at their disposal to investigate and rate (ala Warren Buffet if it's the right mgmt team) individual companies for investment value. A stock broker at XYZ is flyin by the seat of his pants..throwin darts if you will. XYZ places sales quotas on him. It's 4:00 on the 25th of the month. He's gotta get on the phone to his clients and CHURN up some slaes and fees. Sell that, but this! PTOOEY!! Greig Scott CFP
12.flag stk Comment
LOL. Who said anything about a stock broker? ;)

For all the "vast resources" fund manager have, 75% of them can't beat their respective index. Better to go with a passively managed index fund with lower fees and a guarantee to beat 3/4 of the fund managers. (There's only 1 Warren Buffet).

I advocate self-directed RRSP (no sales hype), purchased through discount brokers (no churning, lower fees), invested in Exchange Traded Funds that track major indexes (avoiding rediculous Canadian mutual fund (mis)management fees, improving tax effeciency, getting built-in diversification & improving liquidity) and holding them for the long haul (avoiding trading fees & getting the long-term gains that the markets have historically yielded).

I retired at 39 years of age, in part b/c of my investment acumen. You say you're a Certified Financial Planner? Shame on you for not putting your clients first, but that's the reason I've never hired a CFP. No-one is more interested in my financial success than ME.

Investing isn't complicated. Save 10-15% of everything you earn, invest in diversified, low-cost mutual funds or ETFs, hold the course when the going gets rough, spend less than you make ... blammo ... in 20-30 years, you're retired and living the golden life.

I stand by the article, my success and my recommendations. :D
13.flag Gdawg Comment
First, it's two cents, not 'sence'! :)

I've been investing with an advisor for about 10 years now, in the 2.0-2.7% MER funds and I've had it. Sure, some returns on a couple funds have been nice, but it still underperformed the index. I could have saved piles by now. I should have tracked expenses each year so I could put a dollar value on what I though I was getting from my advisor in terms of advice, administrative duties, etc but I didn't. I knew exactly what I was paying, but I figured "you get what you pay for", even despite having read Mark Heinzl's book "Stop Buying Mutual Funds". Anyway, looking back, estimating the portfolio size, I can see that added up, I've paid *thousands* in MERs. Even though I like my advisor and don't like paperwork, I just can't justify paying that much for the services I've gotten. Actually, my advisor and the fund company should be acting as my mechanic based on how much I've paid!
14.flag stk Comment
Gdawg -

@ "Sence" - It's supposed to be an obtuse play on words ;) (1) See the "2¢ or non ¢" in the background of the text box? Don't worry ... it's me, not you! (Hmmm ... maybe it's better as "sense"?)

@ MERs - I can only hope that more Canadians rebel against the MER fees levied by most Canadian mutual funds. They are unjustified, outrageous and bordering on criminal, as far as I'm concerned. ETFs that track the indexes that these costly Mutual Funds can not outperform, will yield higher returns AND cost less! What's not to love, eh?
15.flag Marcelo Comment

Your article is very good. I am an autonomous professional and despite investing the maximum allowed in my RRSPs, I often see that their returns are consistently below the markets and did not know exactly what to do.
I wonder if you have any information about the ING Direct mutual funds. In their site they quote their fees as 1%, but I cannot find information about their performance.
I will try the strategy you suggested.

16.flag stk Comment
Marcelo - Thanks. It's interesting that you mention ING funds, as I had an interesting off-web discussion with a reader about some of their funds. (I'll find that email and sort through the relevant details, as *I think* you may find that 1% appears to be a savings, but in fact, isn't.)
17.flag Marcelo Comment
Thanks for your response.

If I can bother you a bit more. Do you know of a "guide" on how to invest on ETFs? I confess I have no clue of what they are and how and where you find them and select the ones that are worthwhile buying.
Thanks again
18.flag stk Comment
Marcello - I don't know of a "guide" per se, but it's fairly straight-forward. (It's a process I'm just going through myself. One of the key components is finding a reputable - but inexpensive - broker).

I've narrowed my search to two: TradeFreedom and Questrade, both back east and both very reasonable.

Now that foreign content isn't an issue in RRSP's, the Canadian world of ETFs is larger. Canada has a very limited number of ETFs on the TSX, but the United States has a quite a number. Most are underwritten by just a few companies. Barclays has "iShares", Vanguard has "Vipers" and Standard & Poor has "Spiders". I'm sure there's a bunch more (and probably a site that focuses on ETFs ... google is your friend).

One nice thing about Questrade, is that they offer the ability to hold US Dollars in your account, which means that you only have to exchange from Canadian Dollars once (going in) and any dividends and/or sales, remain in US Dollars (which saves oodles of $$ over the long-haul, as most brokers in Canada force a USD->CAD with each transaction/exchange).

If you want to keep everything in CAD, your ETFs opportunities are limited.

Here's a good primer on ETFs. Basically, ETFs trade like a stock (more liquid, intra-day prices, pay dividends, broker trade, etc.) but they're like a mutual fund (closed-end, diversification, lower MERs, etc).

One's worthwhile buying? I'd just concentrate on diversifying around the world, using large international, canadian and emerging markets ETF's. You don't need a lot of ETFs to buy in equal proportion to the global market capitalization. My thing isn't "finding the next best thing" (because, if you're wrong, you pay dearly). My thing is long-term investing, steady growth over a period of time.

Hope this helps.
19.flag Will Ashworth Comment
I came across your site while searching for some American mutual fund companies with low average MERs.

I liked your articles on high MER's. So much so, I thought I would ask your opinion about the ING Streetwise Fund that came out in January.

If you go to their web page you will see under the costs section that they compare their fund (1% MER for four indexes) to an MER of 2.6% (the average Canadian Balanced Fund). I have argued with them unsuccessfully, that they are making a misleading comparison that puts their product in an especially good light. I even posted an example on my blog comparing Streetwise to the equivalent ETFs. ING would have none of it. They believe there marketing is not misleading.

If you get a chance, have a look.

All the best - Will Ashworth
20.flag stk Comment
Will - I've read your article and at first blush, I agree. I think ING is simply capitalizing on excessive Canadian MERs by making an offering in a "more-reasonable" range.

However, I'd have to fully read the prospectus of each ING fund (to see which, if any Indices are utilized as a benchmark), then find similar ETFs to compare.

Are the "Streetwise" family of ING funds truly index funds? If so, an MER of 1% is high by index fund standards. Even for index funds, ETF's generally carry lower MERs (which is why I advocate ETF's over Index funds, in most situations ... ESPECIALLY in Canada).

Why argue with ING? Just stick to your best bet (ETF's) and broadcast the info on your website. There are many large banks in Canada (Royal, CIBC, Scotia and BMO, to list a few) that are really fleecing the Canadian public.

Let's face it, the Canadian public is "comfortable" with mutual funds and will flock to ING, thinking that they're saving money (and, in a sense, they are). However, what Canadian investors REALLY need, is education about (a) their place on the world stage regarding MERs (ouch); (b) ETFs as a viable and prudent alternative to the expensive mutual funds; and (c) that Index funds and ETFs achieve better results than 75% of the expensive, actively managed Canadian mutual funds.

Spread the word !!
21.flag Charles Comment
Thanks for this article. It is so true. where is the true competition? Also, ETFs are fine but aren't great for regular small monthly investing, since the returns get eaten up by the brokerage fees. We need a Vanguard!!!
22.flag stk Comment
Charles - You might want to look into

They're (a) a Canadian discount brokerage with very low commission rates, but more importantly (b) they're (currently) the ONLY broker in Canada that lets you hold $USD in your RRSP account. ;)

In short, this means that Canadians can put their RRSP money into a Vanguard mutual fund! (There are a couple of caveats: the first is that it costs a flat rate $30 per mutual fund trade; the second is that there's currently no automatic dividend reinvestment, dividends are paid, converted to $CAD and held in a MMKT account; the third is that one would be then exposing themselves to exchange rate fluxuations).

Still not good for monthly investing, but one could invest monthly, into an RRSP MMKT account and then make a single annual investment into their $USD Vanguard fund, which would accomplish re-investing dividends and dollar-cost averaging, with only a $30 per year commission + one $CAD->$USD conversion (on which you pay a modest 0.5% rate).

(I just got this information from a QuesTrade online representative. Click here to see the details of the session.)
23.flag Scott Comment
It really is unbelievable what canadians are willing to pay in mutual fund fees. One of the largest funds in Canada is the London Life Canadian Equity Fund with an MER of 2.94%

This is a fund that has constantly underperformed the index. You can buy the TSX index ETF which has an MER of 0.17% through a discount brokerage for under $10 commission. Assuming the London Life fund was able to achieve the same returns as the index ETF before fees you'd be doing 2.77% worse each year.

Let's put that into numbers:

If you invested $10,000 today for 20 years and both the ETF and the fund received the historical TSX average of 10.7%, you would have $76,375 with the ETF, or $44,581 with the London Life fund.

A difference of $31,794!!

Shocking isn't it.

24.flag GKK Comment
I'm wondering if you could update some of you data. I just received my statement from Credential Securities. I don't mind the loss - I signed up for that, but I now find that the administration fee has gone up from $50.00 to $125.00. At least this was up-front, but that got me thinking about MERs. Have they gone up, as the market has tanked and investors have left the mutual fund industry in droves?
25.flag stk Comment
GKK - MER fees aren't very time-dependent. Percentages don't rise and fall dramatically over the course of a year.

The focus of this post is to highlights the fact that, compared to the rest of the developed countries, Canadians pay statistically significant higher management fees.

One thing is certain. In an uncertain market, managers will pay themselves first and leave the investors with whatever is left over (including huge negative returns).
26.flag Dan Comment
I made up a comparison chart of the ETFs that trade on the TSX/TSE/TMX/Whatever they call themselves this week at the above link. I figured it'd be nice for people to have a comparison chart with the most important factor (the MER!) all in one place.

Certainly, Canadians can still buy US-traded ETFs, and that should not be forgotten.

I'm definitely echoing your discount broker + ETF way of doing things.

PS: Very nice site design (well, I'm not a huge fan of the colours, but nicer than my drupal theme ;) )
27.flag stk Comment
Dan - Nice addition. Thanks for your comment. ;)

(When I get some time, I'll link it in the article. It's shocking that ETFs can save people 2% in management fees. In this day and age of 3% interest rates, 2% is a huge deal.)

LOL @ colors. My mate refers to randsco as the "pastel palace". :p

I must admit, when we acquired the domain in 2004, I just ported over my geocities header from 2002. It's now 7 years old and sadly in need of a make-over! (Who's got the time?)
28.flag Dan Comment
Thanks for the quick response! One day I'll add in the TD E-Funds, maybe even to the same table.
They can be an appropriate choice for many situations where only broad coverage is desired.
29.flag Denise Comment
Tks for this article. This is the reason why I am using the service of a great Investment Counsel, Japa International from Ottawa. Their fees are extremely low. Their main source of income is their performance fee (20% on gain over 15%. Furthermore, their contract stipulates that no performance fee will be charged until the amount deposited in the account is safe and that with no time limit.

Thanks for your article. Good to tell about the ludicrous fees. Now, you should write an article about the cost of cars in canada vs the US....
30.flag Scott Comment
Here are some new numbers for everyone:

Using a screen on I found there are 62 open-ended mutual funds in canada that have MERs higher than 2.5%

As of February 28th 2009 only 1 fund has a better 3 year return than the ishares tsx index ETF.

61 had worse returns than the index!

I didn't include seg funds or closed funds in that screen, but if I do the numbers are even worse:

1 fund out of 301 Canadian Equity funds posted a better return than the XIU index ETF!

Those managers really earn their pay!
31.flag stk Comment
Scott - (Always weird to address someone with my name)

Where's the page on I'd be curious to replicate your findings.

I'm thinking of writing a letter to my fund manager at CIBC, telling him exactly what I think of his efforts for the past year! (Down over 50%). Think this will be the year I finally put my money where my mouth is and open that Questrade account (and move my paltry RRSP into an ETF). :p
32.flag Scott Comment
If you want to replicate my screen go to<br />
Under the globefund tab select “fund filter”

Under asset class choose Growth: “Canadian equity”

Then sort by 3yr returns.

Good luck transferring! You should be ok moving from CIBC, don't get me started about DSC fees! Can you believe some companies charge 7% just to give you YOUR money back??
33.flag Scott Comment
Oh, and what gives with my US flag?? I'm from Vancouver!
34.flag D Johnston Comment
could you give information on Invest Co's that charge a lot less for Mutual funds? I was told at one time that Phillips, Hager and North were much cheaper with their mer's, but it's my understanding that Royal Bank has now purchased that Co....too bad. If you don't have the info would you know where I could get the info from?

35.flag Joey Bean Comment
is the mutual fund from CIBC still charge high management fee this year?