What You Must Consider When Buying A Mutual Fund

Posted Friday, August 20th, 2010. Filed Under Financial Empowerment

I wanted to share with you and article that I received from my financial advisor on Mutual Funds. I just talked to him this morning and we both agreed FOR ME, I will not be investing in any more mutual funds. Why? The return on a mutual fund is less than the fees that your advisor charges to maintain it from year to year. There is often a yearly cost to “running” the fund and there is often a hidden upfront or back-end cost that if you want to get out the fund before a certain time frame you will be charged XX dollars.

What can you do, as an educated investor – ASK QUESTIONS — Is there a yearly cost to maintain this fund? If I want to cash out the fund because I need the money will there be a cost? How long do I have to keep it before it is clear and free? Often it is 7 years, before you can get your money without a “penalty cost”.

Here is the article printed in the Toronto Star. Note that other countries have decided to BAN Mutual Funds.

This article appeared in today’s Toronto Star. It is another article confirming my despise for the mutual fund industry. Canada continues to drag its feet while countries like the UK, Australia, and the US are steadily banning the use of mutual fund trailer fees …. Enjoy the article.


Financial advisers are watching nervously and defending their value to Canadians as three other nations prepare to outlaw or curb what is, for most, their primary source of income.

Earlier this year the United Kingdom moved to outlaw by 2012 the sales commissions that are embedded in fees for investment products. Australian regulators proposed something similar. Then, late in July, the U.S. Securities and Exchange Commission (SEC) voted to cap such fees for mutual funds at a quarter the 1 per cent fee included in some funds in Canada.

No caps or bans are on the horizon in Canada. Yet associations for the investment industry and advisers were caught by surprise by the SEC’s vote. So the potential ramifications are already a hot topic for discussion.

A lot of money is at stake. Carlos Cardone, senior consultant with research house Investor Economics, says about $2 billion was deducted from Canadians’ mutual fund assets in 2009 to pay advisers what are called trailer fees.

That compares with about $9.5 billion in the U.S., with ten times the population. The Canadian figure excludes what banks embed in their funds to pay sales and advisory staff. Bank funds hold roughly 30 per cent of total mutual fund assets in Canada.

Cardone predicts a decline in trailer fee revenue, with or without changes in the law on such fees.

“Trailers are likely to be the next frontier for the decline in (fees for expenses) for mutual funds,” he said Wednesday. He foresees banks’ with lower fees will sell more mutual funds, driving others to lower total fees. At the same time, there is a relatively small but rapidly growing trend toward paying separately for advice and buying low-fee funds online.

The cost of advice and management for mutual funds is at the heart of the debate over whether the federal or provincial governments in Canada should offer cheaper alternatives for saving for retirement.

So the mutual fund industry and adviser associations are fighting back. The are emphasizing the value of advice in promoting savings and responsible money management, and using consumer surveys to prove their point.

Cary List, president the Financial Planners Standards Council that accredits and monitors Certified Financial Planners, says his groups’ research has found that 80 per cent of consumers who pay for financial advice make use of registered savings plans.

That compares with only 37 per cent of Canadians who try to get by without professional advice.

A separate report released Wednesday by the Investment Funds Institute of Canada reports data that individuals who choose financial advice accumulate more assets and are better prepared, financially, for retirement.

“Advised households, where the head of the household was between 45 and 54 years of age had nearly three times the level of investable assets of non-advised householders,” according to the report. “Having advice is strongly associated with the accumulation of financial wealth regardless of income level or age of household.”

It’s possible, however, that higher level of savings came first and the desire for advice second.

But List suggests that including the cost of advice mutual fund fees helps to ensure more Canadians will get advice. ( He would prefer they get it from CFPs, who have a code of ethics that requires them disclose the fees and put the interests of clients ahead of their own.)

“There is more need for professional advice than ever before,” he argues, pointing to the worrisome decline in the rate of savings in Canada to a lower level than in the United States.

“Currently, we don’t see an environment where people are willing to pull out their cheque book to pay for advice,” he said. Only about a tenth or 1,500 earn a living without being licensed to sell financial products and earn embedded sales commissions.


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