Investors Gouged by High Fees
Good coverage in the Globe for the CLC’s calculations on the huge negative impact of high management fees on investment returns from RRSPs and the like, as opposed to the low cost CPP.
Does anybody out there find the investment fund industry response (we are providing good advice) convincing? If so, you will just love PRPPs!
And of course, you can avoid high fees by investing in low-cost ETF’s. That’s the obvious solution. Vanguard launched six Canadian ETF’s today and every one of them has a management fee of under 0.5%.
As I understand it a lot of ETFs are pretty risky since the seller does not always hold what are supposed to be the underlying assets. But good luck with them.
And you usually incur brokerage fees buying and selling ETFs
Andrew, you have to read the prospectus: some ETF’s are risky and some are not. Almost all iShares, Claymore, and Vanguard ETF’s hold the actual underlying assets – the synthetic ETF’s that you might be thinking of are bigger in Europe than in Canada or the US.
A $9.99 brokerage fee (if that, some brokerages now offer free ETF trading) on say a $2000 investment amortized over five years is 0.1%.
The “high management fee” talking point is getting old. Nobody has to pay high management fees. It’s pretty simple, and the CLC does itself no favours by mindlessly repeating it. I feel sorry for people in high management fee mutual funds, but their obvious solution is to switch to low-cost ETF’s.
On a strictly personal note, to avoid the paradoxes of self-contradiction, our savings are in held in the form of public debt sold here in Québec by the public provider “Épargne placement Québec” equivalent to canada savings bonds, difference being that their product line is much more complete, resembles what mutual fund managers and banks offer, and no fee’s. (they even have a stock index bond offer, tied to an index of 30 Québec based companies.) Anyhow, this personal solution keeps me out of mutual funds. But what I realized is that Épargne placement Québec does’t offer RESP’s, there is no public option for this type of savings plan, and a friend of mine who has a handicapped daughter informed me that the same goes for Registered Disability Savings Plan. Now both these regimes imply some level of public contribution to the savings plan, which in another way of looking at things given a 2% annual management fee is a direct 2% times X million $ to mutual funds and banks. Somebody should calculate this.
Eric, you don’t have to pay 2% per year. It’s really that simple. If you’re paying more than 0.5% per year, think about switching.
Not sure it matters what people have to pay. That kind of financial instrument functions as what the Dilbert guy calls a “confusopoly”, much like cell phone plans.
PLG, I don’t agree. Read this and see if you find it confusing:
(http://www.thestar.com/article/1097969–roseman-vanguard-comes-to-canada-to-cut-costs)
It’s not a cell phone plan. Lower MER on a broad index is unambiguously better than high MER on the same index.
Being on this subject I thought an article one of my FB freinds (Trish) posted today by George Monbiot – it kind dovetails into this subject. He cites a study that shows
“traders and fund managers across Wall Street receive their massive remuneration for doing no better than would a chimpanzee flipping a coin.”
Bottomline- I don’t know too many fund managers that are not well-off. At least starting at the middle of that food chain and on up. Whether it be fees, or other compensatory measures, investors get gouged for the services provided.
My favourite line in the piece is this little but massive tidbit- “If wealth was the inevitable result of hard work and enterprise, every woman in Africa would be a millionaire.”
http://www.monbiot.com/2011/11/07/the-self-attribution-fallacy/