# Canada = highest mutual fund expense ratios in the world?



## jmrudow (Feb 26, 2013)

Just reading a Morningstar report - page 22 quote:

"Canada fails for Fees and Expenses. Among the 22 countries in this survey, Canada has the highest annual expense ratios for equity funds, the third highest for bond funds, and tied for the highest for money-market funds. These costs cannot be explained by pointing to unique features of the Canadian fund market."

Any theories on why Canadian expense ratios are so high?


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## avrex (Nov 14, 2010)

Why are the MERs so high? 
Because we seem to be willing to pay for them. 

Canadians sheepishly listen to their bank/investment adviser, who place their retirement savings into high fee MER funds.
We aren't educating ourselves or voting with our feet.

Assets under Management:
Mutual Funds $773 billion (94%)
Exchange-traded Funds (ETF) $49 billion (a mere 6%)

Are you invested in Mutual funds? Congratulations, you’ll now be working an additional 3 years.


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## gibor365 (Apr 1, 2011)

avrex said:


> Why are the MERs so high?
> Because we seem to be willing to pay for them.
> 
> Canadians sheepishly listen to their bank/investment adviser, who place their retirement savings into high fee MER funds. We aren't educating ourselves or voting with our feet.


That's true. I remember Anrew Hallam gave exact numbers in his latest book. And look at those ridiculous Seg funds with huge MER and bunch of different fees!!! They playing fear and Canadians buying it... for what? stupid promise to return 75% after 10 years holding?! If it's gonna happen, Canada will just print money and inflation will eat all those 75%. Those Seg funds guys making huge money and constantly paying for new developments to screw investors more and more. and Canadians continue to buy!
Another reason for such higher MER - huge number of immigrant coming every year who just doesn't know all options available. When we came to Canada in 1999 and went to TD to open RESP and RRSP (we didn't have such plans in previous country), "advisor" gave us 100 questions questioner that took us a couple of hours to finish, and then "advisor" said simply: "with your risk tolerance you have to invest into TD agressive portfolio"! That's it. And we had no idea that I can select different funds or open discount brokerage account...



> Assets under Management:
> Mutual Funds $773 billion (94%)
> Exchange-traded Funds (ETF) $49 billion (a mere 6%)


Where those numbers from? Just was wondering about trend , if ETF AUM increasing?


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## gibor365 (Apr 1, 2011)

btw, Canadian discount brokerages screwing us also with ETF :upset:
I read in one thread on seekingalpha.com that in USA TD Ameritrade allow to trade about 100 ETF without trading fees... Why here in TDW I should pay at least $9.99 for EVERY ETF transaction? :upset:

P.S> Home page of TD Ameritrade: "Diversify your portfolio with
over 100+ commission-free ETFs"


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## none (Jan 15, 2013)

In their defence, I was one of those idiots. Finally one of our new years resolutions was to figure out our finances (we were one of those goofy couples that had all of our cash sitting in high interest savings accounts - for no other reason than we didn't want to deal with it). I sat down and read the couchpotato money sense magazine and felt a big <DOH!>. I couldn't believe i was letting myself get ripped off all these years. Funny, because I'll spend 1/2 a day to save $10 on something online but then I buy big MER mutual funds? WTF?

Anyway, we've consolodated at TDW and are putting together out couch potato. A bit scary, I just bought $35K worth of ZCN. Yikes.


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## andrewf (Mar 1, 2010)

I just did norbert for the first time. Can't believe I hadn't done it earlier. Although, questrade used to have a much smaller spread on forex--recently expanding it to 2% made norbert more worthwhile. I converted about $12k from CAD to USD using DLR, and it cost me about 36 bps vs the noon exchange rate on the day I converted (per Bank of Canada) or $43.25. Much better than 2%... I probably could have done it cheaper through an interlisted bank stock, but I didn't want to take the risk/wanted to test drive DLR.


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## gibor365 (Apr 1, 2011)

andrewf said:


> Can't believe I hadn't done it earlier.


 me either 

Looks like are you ready to buy some stuff?!


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## Eclectic12 (Oct 20, 2010)

I suspect it's a bit that there's regulations making it more difficult to open up at US style prices (Remember the discount broker that claimed a $6 commission years ago, where they never delivered?).

But mostly I think it's the lack of demand from the consumer.


Cheers


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## My Own Advisor (Sep 24, 2012)

I used to pay over 2% MERs on my mutual funds. Now? I think the most I pay for any one ETF is about 0.33% MER. Everything else is lower than that. I wish I invested this way in my 20s. Oh well, live and learn.


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## none (Jan 15, 2013)

My Own Advisor said:


> I used to pay over 2% MERs on my mutual funds. Now? I think the most I pay for any one ETF is about 0.33% MER. Everything else is lower than that. I wish I invested this way in my 20s. Oh well, live and learn.


I know right? I can't believe I had all that cash sitting there making northing for the last 3 years. I could have made a killing. Oh well, forever forward.

Funny about Norberts - I feel the same way about that as I did about trading for the first time. (still haven't done Norbert yet) - but I plan to.


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## fatcat (Nov 11, 2009)

blame it on march 9, 2009

we didn't tank long enough for people to start realizing they need to watch their expenses to maximize their returns
in a rising market most people are too lazy or just don't care enough about the fees

let the market go sideways for about 10 years and we will see a lot more people complaining about fees


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## My Own Advisor (Sep 24, 2012)

You might have a point fatcat. More transparency might help as well. 

Something like credit card companies were forced to do through legislation; express how long it would take to pay off the debt if you only paid the minimum. For any investment products, how much money you pay in fees over 5, 10, 15, 20, etc. years.


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## none (Jan 15, 2013)

Moa: what a great idea.


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## gibor365 (Apr 1, 2011)

My Own Advisor said:


> You might have a point fatcat. More transparency might help as well.
> 
> Something like credit card companies were forced to do through legislation; express how long it would take to pay off the debt if you only paid the minimum. For any investment products, how much money you pay in fees over 5, 10, 15, 20, etc. years.


apparently MF and especially Seg funds companies are our clients, and I'm so freaking surprised how they trick people into their product, they paying for development after development and all developments are to charge more and more from clients (usually hidden charges). I just don't understand why those companies are not obligated by the government to declare in every annual statement how much they charge from clients money in MER, trailer fees, advisory fees, load fees etc... I think the current system is very good for everyone, except regular people getting robbed, but who cares about them?!


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## J Watts (Jul 19, 2012)

"The MER for this fund is 0.55%. That amounts to $5.50 for every $1000 invested."

What more is needed?


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## Eclectic12 (Oct 20, 2010)

My Own Advisor said:


> I used to pay over 2% MERs on my mutual funds.
> 
> Now? I think the most I pay for any one ETF is about 0.33% MER. Everything else is lower than that. I wish I invested this way in my 20s. Oh well, live and learn.


That's where when I cashed in my RRSP MFs, I had done better than I thought. When I went self-directed, I sold most of the MFs (i.e. 2% MER variety). When I later cleaned the last ones, I noticed it was the index MFs with a 0.8% MER. Not as good as now but better than I started with. :biggrin:


Cheers


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## jmrudow (Feb 26, 2013)

Eclectic12 said:


> I noticed it was the index MFs with a 0.8% MER. Not as good as now but better than I started with.


That's the intermediate step I'm at right now - I dropped the 2.3% MER RBC Balanced Fund and switched to 5 RBC funds representing the same diversity, but at an average MER of 0.8%. Now I just need to figure out how to properly invest in ETFs with regular, bi-weekly deposits to get that average down to 0.4% or 0.3%.

Sounds like Canada's extraordinarily high MERs are simply due to lack of knowledge on the part of consumers like me . Our complacency can be a strength (we don't kill each other as often as citizens of some other countries), but it can also be a weakness. Maybe that's why we have some of the worst wireless rates, too.

Not sure what can we do to get MERs lowered. Do we just need enough people to dump mutual funds for ETFs, so that mutual-fund providers have to lower their MERs to compete?


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## MoneyGal (Apr 24, 2009)

FWIW that study has been pretty widely bashed for not representing the full picture w/r/t mutual fund fees in Canada compared to other countries. Here's a good Globe article on the topic:

http://www.theglobeandmail.com/glob...l-funds-and-the-leading-myths/article1239816/


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## gibor365 (Apr 1, 2011)

FYI, I sent email to TWD saying: "_I just checked TD Ameritrade website and on home page found: “Diversify your portfolio with
over 100+ commission-free ETFs”. I was wondering if TD Waterhouse offers commission-free ETFs? If not, can I transfer all my portfolio from TDW to TD Ameritrade?
_

Answer from TDW: "_Thank you for contacting TD Waterhouse with regards to these commission expenses. We can definitely discuss this with you further.

While we are aware of this offer, we are unable to advise of how soon we may find a suitable partnership with a fund company and offer a similar commission structure. Also note that TD Ameritrade in the US can only service US clients, while TD Waterhouse Canada can only service Canadian clients. Due to these regulations, you unfortunately would not be able to transfer your portfolio from TDW to TD Ameritrade.
_

Typical Canadian BS


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## avrex (Nov 14, 2010)

To be clear, there are 'some' mutual funds with low MERs, that individual investors have been smart to discover.
I’m thinking here of TD Waterhouse’s excellent TD e-Series Funds. 
These low cost index funds are great for investors, with smaller portfolios, who are just starting out.

But, these are the exceptions. In general, those mutual funds that are recommended by your bank/adviser are of the high-fee variety.


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## andrewf (Mar 1, 2010)

I would not get too worked up about commissions. If they are a significant expense for you, you are probably trading too much. Trading a lot is highly correlated with significant under-performance of the market.


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## jmrudow (Feb 26, 2013)

MoneyGal said:


> FWIW that study has been pretty widely bashed for not representing the full picture w/r/t mutual fund fees in Canada compared to other countries. Here's a good Globe article on the topic:
> 
> http://www.theglobeandmail.com/glob...l-funds-and-the-leading-myths/article1239816/


Thanks for that MoneyGal - nice to get another view. Definitely more things to consider than I realized.

According to the article:



> As you move across the spectrum to riskier balanced and stock funds, the relationship between fees and returns weakens.


^ Does this mean that figuring out how well the fund will perform is more important than simply comparing MERs? 



> The cost of financial advice is included in the vast majority of Canadian funds' MERs - but they are not in many markets outside of Canada. Nor did these studies attempt to flesh out the many country-specific nuances that could significantly impact global fee comparisons.


^ Does anyone know examples of other "country-specific nuances" that would affect global fee comparisons? e.g., Are there additional charges on top of MERs that investors receive in other countries that we don't in Canada?

(As an aside - having the cost of financial advice incorporated into the MER makes sense if you're getting good financial advice. But in situations like mine - where you take 10 minutes to fill in the bank's questionnaire, they take 1 minute to assess the results, and say "This single fund is what works for your investor profile" - in those situations, I don't think the "advice" is worth the higher MER.)



> The average fee level does not matter if our universe of funds is sufficiently broad to meet the needs of many different investors.


^ i.e., There may be lots of crummy, expensive options out there, but there are lots of good, cheap options too. You just have to do the research to find them - which means it comes down to consumer education again. 

I'm glad I started looking into this now, and not ten years from now. When discussing with my friends and family, I think I'll say, "Look into the MER you're currently paying, it may be more than you need to pay. If you don't know what a MER is, I'll show you!"


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## jmrudow (Feb 26, 2013)

andrewf said:


> I would not get too worked up about commissions. If they are a significant expense for you, you are probably trading too much. Trading a lot is highly correlated with significant under-performance of the market.


Would commission-free trades be important if you're making regular, small purchases? e.g., with every paycheck, you invest in your RRSP's ETFs?


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## gibor365 (Apr 1, 2011)

jmrudow said:


> Would commission-free trades be important if you're making regular, small purchases? e.g., with every paycheck, you invest in your RRSP's ETFs?


Sure it's important... I just don't understand andrewf's logic. I'd have better performance with XIU if I would make small buys on monthly/quoterly basis (if I wouldn't need to pay $10/trade) that to put lump sum once or twice


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## MoneyGal (Apr 24, 2009)

If commissions are eating up a significant portion of your wealth ("significant" as defined by you), then you are trading too much. This is axiomatic.


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## andrewf (Mar 1, 2010)

jmrudow,

I see little value in making very frequent trades. If the amount you're transacting is so low that paying the commission is prohibitive, trade less often. One rule of thumb is commission should be less than 1% of trade value. At $10, that's $1000 trade value. I seldom make trades that small. But I'm more of a lump sum contributor. I don't have periodic automatic contributions.

I would consider moving down to quarterly contributions. Some fund providers also provide pre-authorized contribution schemes, with certain brokerages, which you can use to buy whole units commission-free.


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## none (Jan 15, 2013)

Or you could use things like the e-series for monthlies, sell them all once they get to a critical mass and then make a ETF buy.


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## gibor365 (Apr 1, 2011)

andrewf said:


> . One rule of thumb is commission should be less than 1% of trade value. At $10, that's $1000 trade value. I seldom make trades that small. But I'm more of a lump sum contributor. I don't have periodic automatic contributions.


I never trade less than $1000, but without commissions would do it. For example I always have leftovers after dividend or DRIPs , it's sometimes $100, sometimes $900, with no commissions I would add to some existing ETF, but now in the best case I can buy MM fund...

You're funny, from some posts I get impression that having ETF trading fees is an advantage  The same way I can tell that this is good that price of the gasoline going up and up , or you are driving too much


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## gibor365 (Apr 1, 2011)

none said:


> Or you could use things like the e-series for monthlies, sell them all once they get to a critical mass and then make a ETF buy.


none, not everyone has TDW account


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## none (Jan 15, 2013)

Well sounds like you should switch to Questtrade or TDW.


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## gibor365 (Apr 1, 2011)

none said:


> Well sounds like you should switch to Questtrade or TDW.


Doesn't see reason. Actually I have one RRSP in TDW, but all others in CIBC Investor Edge. So, I'm using advantages of every discount brokerage when trade. For example, trading fees in Investor Edge $6,95 and you can do multiple trades per day (fee will be the still 6.95), except this we have house account in CIBC and so on.
The only reason I don't transfer everything to Investor Edge, I like TD US wash and e-series funds


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## none (Jan 15, 2013)

I really don't see what you are complaining about then.


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## gibor365 (Apr 1, 2011)

none said:


> I really don't see what you are complaining about then.


man, I'm complaining that in TD Ameritrade there is NO ETF trading fees, and in TDW - I pay $10 for every ETF trade! That's it!


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## none (Jan 15, 2013)

Yet, you have access to e-series funds....

Ah, sorry, I guess I couldn't hear you over the sound of the worlds smallest violin.


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## andrewf (Mar 1, 2010)

Uh oh... this kind of talk invites great consternation from some.


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## lonewolf (Jun 12, 2012)

20 or 30 years ago I traded with Lind Waldock in the united states due to lower commisions. I closed the account out years ago & a few years back it seamed like I could no longer trade throug a brokerage house in the United States when I tried to sety one up.

Some of the brokerage houses South of the border have now moved into Canada that specialize in mutual funds wont let Canadians buy some of thir mutual funds & will only let us buy ones I think that might have more expensive MERs that are for Canadian investors.


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## purple.platypus (Dec 10, 2012)

jmrudow said:


> ^ Does this mean that figuring out how well the fund will perform is more important than simply comparing MERs?


I'll put it this way, if I wanted to get to Calgary, in theory flapping my arms and flying there under my own power would be a better option than buying a plane ticket, but given the constraints of the real world I'm buying the ticket.

In other words, stick to the possible. Generally speaking, "figuring out how well the fund will perform" is not in that category.


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## gibor365 (Apr 1, 2011)

IMHO, in 5 - 10 years all those MF/Seg funds' AUM will go down significantly. My son now in Grade 12 and they are learning how to trade commodities, about butterfly spread ...have stock picking content....so, I doubt very much that somebody from those guys will be investing into MF or so. In his age, I was learning in school how to build communism  and NA guys my age, probably how not to allow us to build communism.


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## Lephturn (Aug 31, 2009)

gibor said:


> My son now in Grade 12 and they are learning how to trade commodities, about butterfly spread ...have stock picking content....so, I doubt very much that somebody from those guys will be investing into MF or so.


That is awesome! What high school is this? Is this normal curriculum, a specific school, a special program, or just a really good teacher?

I have a 2.5 year old and twin 11 month olds.... so I want to know where they are teaching kids this level of financial education.


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## gibor365 (Apr 1, 2011)

Lephturn said:


> That is awesome! What high school is this? Is this normal curriculum, a specific school, a special program, or just a really good teacher?
> 
> I have a 2.5 year old and twin 11 month olds.... so I want to know where they are teaching kids this level of financial education.


Yes, this is great! When I saw his book for investment class , it was very impressed and wanted to read by myself. They cover stocks, dividends, commodities, ETF ...everything...
This regular public school, but IBT program (international business technology), I think there is at least 1 such school in every district. We're in Peel. My dauther now should go to middle school, so we aplied for the same IBT program.
My son is planning to study Investment banking in University, so this school is very beneficial for him.

P.S> from what I see, teachers are also good. They teach this stuff in fun way, so my son likes it


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## andrewf (Mar 1, 2010)

That's interesting, but probably not the best subject to focus on (futures, options strategies, etc.).


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## gibor365 (Apr 1, 2011)

andrewf said:


> That's interesting, but probably not the best subject to focus on (futures, options strategies, etc.).


andrewf, I just gave some examples of stuff they learning that I have no knowledge about.... would be happy if I could've learn it in high school....


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## jmrudow (Feb 26, 2013)

purple.platypus said:


> I'll put it this way, if I wanted to get to Calgary, in theory flapping my arms and flying there under my own power would be a better option than buying a plane ticket, but given the constraints of the real world I'm buying the ticket.
> 
> In other words, stick to the possible. Generally speaking, "figuring out how well the fund will perform" is not in that category.


So when comparing similar MFs or ETFs (e.g., two Canadian index funds), should I look at any other standard criteria besides the MER? Or are you suggesting that the effort required to go into further detail isn't worth it (and likely to confuse things, not clarify them)?

(And I agree, path of least resistance is always best - though many on this forum make a fair point when talking about MFs vs. ETFs, i.e., that spending the time to learn how to properly trade ETFs is worth the effort, considering the return over the next 10 or 20 or 30 years.)


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## purple.platypus (Dec 10, 2012)

Well, I'm on a very small scale right now and also still learning.

In theory, I'd want to look at MERs but also the diversity of the underlying stocks and the overall strategy (which should be pretty passive in the case of indices) underlying their purchase.

In practice, right now I'm just plunking a couple hundred dollars a month into the e-series and not otherwise thinking about it too much, except when I'm posting here. But I'm still early in the accumulation stage and right now debt reduction is a higher priority that I'm spending 4x as much on (and that's down from almost 7x before I got my tax refund and used it mainly to pay off my highest-interest debt).


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## jmrudow (Feb 26, 2013)

purple.platypus said:


> Well, I'm on a very small scale right now and also still learning.
> 
> In theory, I'd want to look at MERs but also the diversity of the underlying stocks and the overall strategy (which should be pretty passive in the case of indices) underlying their purchase.
> 
> In practice, right now I'm just plunking a couple hundred dollars a month into the e-series and not otherwise thinking about it too much, except when I'm posting here. But I'm still early in the accumulation stage and right now debt reduction is a higher priority that I'm spending 4x as much on (and that's down from almost 7x before I got my tax refund and used it mainly to pay off my highest-interest debt).


We're in the early stages too - putting aside a small amount every other week with our paychecks. I'm so glad there's a community like this where I can learn lots and lots about personal finances!



> So when comparing similar MFs or ETFs (e.g., two Canadian index funds), should I look at any other standard criteria besides the MER?


I found this article that I *think* answers my question about what hidden fees are out there, outside of the MER. Unfortunately a lot of it is going right over my head... :S

http://business.financialpost.com/2013/03/19/fees-and-taxes-searching-out-hidden-investment-costs/


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