# MER vs Yearly return



## frugalmini (Feb 19, 2011)

Hello, 

I have a question here about MER and Yearly return for mutual funds. 

Do they calculate yearly return after the MER or before? 

I read that it's better to select the fund with low MER, but what if the yearly return is after MER? 

Thank you,


----------



## HaroldCrump (Jun 10, 2009)

Mutual funds always report annual returns after MER but before taxes.
The returns reported on standard sources like Morningstar, Globefund etc. at least are.


----------



## slacker (Mar 8, 2010)

HaroldCrump said:


> Mutual funds always report annual returns after MER but before taxes.
> The returns reported on standard sources like Morningstar, Globefund etc. at least are.


The materials (glossy) provided from Manulife through to my work RRSP are displayed BEFORE fees and taxes.

"Gross rates of return are shown before investment management fees have been deducted."


----------



## frugalmini (Feb 19, 2011)

HaroldCrump said:


> Mutual funds always report annual returns after MER but before taxes.
> The returns reported on standard sources like Morningstar, Globefund etc. at least are.


Sorry, I know so little about the mutual fund. What do you mean by before taxes?


----------



## HaroldCrump (Jun 10, 2009)

frugalmini said:


> Sorry, I know so little about the mutual fund. What do you mean by before taxes?


You have to pay income taxes on the returns the fund generates unless you are holding the mutual fund in a registered account such as RRSP, RESP or TFSA.
The taxes are direct (i.e. on distributions the funds give you) as well as indirect (i.e. capital gains passed down by the fund).


slacker said:


> The materials (glossy) provided from Manulife through to my work RRSP are displayed BEFORE fees and taxes.


Just goes to show what a sleazy deceitful company MFC is.


----------



## andrewf (Mar 1, 2010)

I got the impression that the return before fees was the norm in the MF industry.


----------



## HaroldCrump (Jun 10, 2009)

andrewf said:


> I got the impression that the return before fees was the norm in the MF industry.


Not in Canada, I don't think. A quick Google search shows:
http://www.fcac-acfc.gc.ca/eng/consumers/faqs/qaview-eng.asp?id=342
Note the bolded text in the first para of that link.

And from the blog of our venerable moderator, CC:
http://www.canadiancapitalist.com/the-importance-of-mutual-fund-mers/

Note the second para.


----------



## warp (Sep 4, 2010)

Whenever I have seen "past performance" of mutual funds, there is al,ost always something at the bottom that says something like this:

Returns are before management fees and associated costs which may make your actual returns lower.

Heres a good tip:

DONT BUY any Mutual Funds period,,,and if you must, Dont buy any with high Mer's.
Stay absolutely aaway from any having DSC charges.....let your "advisor" know this in advance.( he makes the most from these and you are stuck without being able to sell and get your money for years without paying big penalties)


----------



## Belguy (May 24, 2010)

Just what sort of an advisor would sell his clients high MER, managed funds with deferred sales charges in the first place?

If this is what your advisor put you in, then fire him or her sooner rather than later.


----------



## slacker (Mar 8, 2010)

To be fair to MFC, their fee through my work RRSP range from 0.25% to 0.95%. So they have a pretty low rate for mutual funds.


----------



## Brian Weatherdon CFP (Jan 18, 2011)

Mutual funds and Segregated funds in some cases can be reported without the full MER. Returns are normally shown net of mer. However we can get institutional pricing and drive the fund cost down to </> 1%. Then identify advisor/dealer fee to get the full MER.


----------



## frugalmini (Feb 19, 2011)

warp said:


> Heres a good tip:
> 
> DONT BUY any Mutual Funds period,,,and if you must, Dont buy any with high Mer's.
> Stay absolutely aaway from any having DSC charges.....let your "advisor" know this in advance.( he makes the most from these and you are stuck without being able to sell and get your money for years without paying big penalties)


XD, thank you. A friend of mine told me the same -- do not by MF. Somehow I think MF is a little safer or cheaper than I do trade myself. But I'm not sure if that's true.


----------



## scomac (Aug 22, 2009)

Belguy said:


> Just what sort of an advisor would sell his clients high MER, managed funds with deferred sales charges in the first place?
> 
> If this is what your advisor put you in, then fire him or her sooner rather than later.


Most. They have to be paid some how and the vast majority of retail investors
in Canada have been programmed to expect advice for free; even when it isn't.

Just try and sell the average Joe on the idea of paying you for your advice. The typical response: "Why would I do that? I don't have to pay my current advisor anything; he is compensated by the company." The assumption is that the fee-based advisor is double dipping, getting something from the company as well as charging the client directly.

It is hard to overcome biases. The best cure of course is education, but the vast majority want to off-load the responsibility on someone else. Hence, you get the system we deserve.

In the grand scheme of things when only 1 in 3 make RRSP contributions and the percentage of available contribution room that is used is fractional, we have much bigger issues to concern ourselves with than the fee structure of the industry.


----------



## Brian Weatherdon CFP (Jan 18, 2011)

I hope people re-read Scomac. Forum isn't always aware there are different types of investors, and I hope we don't arrogantly put our own views on other investor types. 

The active investor, and investors where needs could change quickly, can avoid DSC fees: they may follow their own research or pay for advice. Inactive investors want a solid core position with few changes, and have no desire or need to pay separately for advice, and therefore a DSC can be appropriate for them.

The advisor can raise this with the investor and help them make the decision that best suits the circumstances. Then everything is transparent & agreeable.


----------



## the-royal-mail (Dec 11, 2009)

scomac said:


> Most. They have to be paid some how and the vast majority of retail investors
> in Canada have been programmed to expect advice for free; even when it isn't.
> 
> Just try and sell the average Joe on the idea of paying you for your advice. The typical response: "Why would I do that? I don't have to pay my current advisor anything; he is compensated by the company." The assumption is that the fee-based advisor is double dipping, getting something from the company as well as charging the client directly.
> ...


Very interesting post! Hard to disagree. I think a little education can go a long way for a lot of people. These days, people don't seem to save their money anymore, so they operate on very poor budgets. To ask this crowd to pay person x, when person y will do it for "free" would be a non-starter.

As I said, I was once part of the clueless crowd but not any longer. It may not be fair to blame the banks for my earlier apathy.


----------



## warp (Sep 4, 2010)

Belguy said:


> Just what sort of an advisor would sell his clients high MER, managed funds with deferred sales charges in the first place?
> 
> If this is what your advisor put you in, then fire him or her sooner rather than later.



BELGUY:

I think youd be amazed at how many "financial advisors" do exactly this to their clients.

From reading your posts I know that you are do-it-yourself ETF kind of guy.

thats good...but a lot of average investors are lost and unknowledgable.

Thats why these "financial advisors" can and do get away with this crap.

I long ago washed my hands of all of them....
I know there must be soem honest and good ones, but for my money, "financial advisors", in my mind, are at the bottom of the heap.
BELOW used car salesmen.


----------



## dogleg (Feb 5, 2010)

Warp : I'm with you . The only way I would own a mutual fund is if an investment advisor gave it to me and I'm not likely ever to be in the company of one. I believe it was Rob Carrick who told me privately that mutual funds were for the 'brain dead' ; his words not mine. I have found too that different funds and ETFs etc calculate the 'yields' in different ways. Morningstar I think described two or three differend formulas and timings used by different outfits so you can't always make valid comparisons without some investigation. When I posted this a few months ago someone on this board ( I forget who and don't give a damn) said I didn't know what I was talking about . Shoot the messenger I guess is still in play .


----------



## HaroldCrump (Jun 10, 2009)

So if different funds report results differently, then you must calculate it yourself using their reported historic unit values and distributions.
I'm sure all funds post their historical unit values and distributions going back to the inception date.
The TD funds that I have do.
So pick your start date, assume you bought 1 unit on that date.
Next, add up all the distributions from that date onwards.
Add the current unit value.
Split adjust if required.
Then use an IRR calculator or Excel calculation to figure out your before tax annualized returns.

Of course this method makes it hard to compare fund returns at a glance because you can't do this exercise for scores of funds.
Therefore, the simplest solution is don't invest in mutual funds


----------



## Belguy (May 24, 2010)

I keep thinking the same question. If financial services salespersons are generally honest and have their clients' best interests at heart, why then do they recommend high MER managed mutual funds when they must know full well that index products are the better and cheaper way to go over the long term?

And, if they don't know that, or truly believe that, a portfolio of high fee managed mutual funds will overcome those fees and outperform the indexes over the long term, then shouldn't they have to give up their jobs because of incompetence?


----------



## scomac (Aug 22, 2009)

Belguy said:


> I keep thinking the same question. If financial services salespersons are generally honest and have their clients' best interests at heart, why then do they recommend high MER managed mutual funds when they must know full well that index products are the better and cheaper way to go over the long term?


But, would index funds be better and cheaper if the compensation for advice was the same as managed funds?



> And, if they don't know that, or truly believe that, a portfolio of high fee managed mutual funds will overcome those fees and outperform the indexes over the long term, then shouldn't they have to give up their jobs because of incompetence?


Assuming the first assertion is true on an apples to apples comparison, then your conclusion is legitimate provided that the only reason for advisors to exist is to pick investments. Do you believe an advisors job description begins and ends there?


----------



## warp (Sep 4, 2010)

I think one truism,,,and one that many even seasoned investors miss or dont believe is this:


The Financial Industry, especially in Canada, is best at confusing investors to the point that you cant rely on ANYTHING or any figures they give you.

Propectuses are almost useless with all the legal mumbo jumbo in there.
You need a lawyer to figure them out...then another lawyer to make sure your first lawyer knows what he's talking about.

All "financial vehicles" that these people dream up to "help you reach your goals", are full of rules and regulations designed to confuse you and are ALWAYS to the benefit of the big companies issuing them.

They exist to make money......your money.

The best way to get around this has been said on this board many times:

NEVER buy any exotic investments anyone trys to sell you
NEVER buy into any investments you dont or cant understand.
NEVER buy high mer funds, and especially make sure you are not being sold
any DSC funds..( deferred service charges)

Use a "financial advisor" only if you dont feel comfortable doing it yourself, and then make clear you want to know how he is making his fees off your account

Keep your costs to a minimum, keep trading costs to a minimum, keep taxes to a minimum.

Also,,if you cant beat them... join them,,buy some bank stocks,,,buy some insurance company stocks,,,collect the dividends....

You ( hopefully), will be making money off the things that they do that you hate...but its better than losing money!


----------



## Belguy (May 24, 2010)

The advisors, who I have experience with, all claimed to offer an array of services but then spent virtually all of their time on a portfolio of high fee, managed funds, with deferred sales charges and that was pretty much the extent of their services to me. 

In other words, pretty much just salespersons of financial products.

Not much different really from used car salespersons.


----------



## larry81 (Nov 22, 2010)

Belguy said:


> The advisors, who I have experience with, all claimed to offer an array of services but then spent virtually all of their time on a portfolio of high fee, managed funds, with deferred sales charges and that was pretty much the extent of their services to me.
> 
> In other words, pretty much just salespersons of financial products.
> 
> Not much different really from used car salespersons.


in my humble opinion, they are worst than used car salesman since the whole relation is based on information asymmetry between the investor and the financial industry. The relation can be summarized which can me summarized as ''profitability through obscurity''.

A picture is worth a thousand words...


----------



## Belguy (May 24, 2010)

Funny, but I do not recall any of my advisors ever showing me a chart such as this!

Strange, isn't it!!!


----------



## larry81 (Nov 22, 2010)

Belguy said:


> Funny, but I do not recall any of my advisors ever showing me a chart such as this!
> 
> Strange, isn't it!!!


The last one i meet told me i would not be paying any dime for his 'services' ! He also churned money between class A and B to generate commissions.


----------



## warp (Sep 4, 2010)

Belguy said:


> The advisors, who I have experience with, all claimed to offer an array of services but then spent virtually all of their time on a portfolio of high fee, managed funds, with deferred sales charges and that was pretty much the extent of their services to me.
> 
> In other words, pretty much just salespersons of financial products.
> 
> Not much different really from used car salespersons.


Your words might be an insult to used car salesmen.


----------



## Belguy (May 24, 2010)

You're right to take me to task for this. I do apologize to all you used car salespersons out there for comparing you to financial services salespersons.

At least the used car salespersons do not charge you fees that never end and in fact which grow along with your portfolio and cost you thousands of dollars over a lifetime. 

Anyway, in either case, it is 'buyer beware'!!!


----------

