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Canadian mutual funds still most commonly held retirement investment, despite highest fees in the world which negatively impact on long-term savings potential.
Toronto (10 Feb. 2009) – While Canadians have taken steps in recent months to reevaluate their financial retirement savings decisions by paying closer attention to market swings, very few have become more knowledgeable about the fees they pay, according to a recent Angus Reid poll. The survey, commissioned by ING DIRECT, found that only eight per cent of Canadians have become more knowledgeable about the fees they pay to invest in RRSP mutual funds.
The survey also found that mutual funds are the most commonly held investment for retirement savings (88 percent). Canadians, however, are not planning to change their reliance on these funds, despite the high fees that eat away at their investments. This could be because most investors are not aware of the long-term costs associated with investing in mutual funds. Indeed, the survey found that while most Canadians are aware that they are charged fees for their mutual funds (80 percent), half of them don't know how much they are paying to hold these investments or the impact of these fees on long-term savings potential.
Although approximately half of Canadians did not know how much they paid in fees for their funds, those who did know claimed to pay on average about 2.5% in Management Expense Ratio (MER), the annual fee that is charged by mutual fund companies.
Canadians pay more for their mutual funds than any other country in the industrial world according to a 2006 international academic study done by Peter Tufano, a professor of financial management at Harvard Business School. The average Canadian focused equity fund charges a 2.6 percent MER. The world average, as calculated in the study, was 1.29 percent.
Simple math shows that contributing $10,000 per year for 10 years at a return of 6 percent, will save an investor about $10,000 in fees and generate approximately $12,000 more in total growth with a fund that charges a 1 percent fee verses the average percent.
In his 2007 study titled Losing Ground: Do Canadian mutual funds produce fair value for their customers?, Keith Ambachtscheer, a pension industry expert, estimates RRSP holders took a $25 billion dollar “pension haircut” in 2007 thanks to the high fees and commissions from Canada’s mutual fund industry.
In it’s December 2008 pensions policy paper titled Pensions and the Economic Crisis, the National Union of Public and General Employees noted that Canada needs better rules and more transparency on investment fees in this country. The paper stated, “Governments must demand better labeling of financial products that the mutual fund and insurance industries sell. There should be reasonable limits set on administration costs for pensions, be they RRSPs or larger workplace plans.”
The survey:
From November 21, 2008 to November 27, 2008, Angus Reid Strategies conducted an online survey among a randomly selected, representative sample of 1,004 adult Canadians through the Angus Reid Forum. The margin of error for the total sample is +/- 3.1%, 19 times out of 20. The results have been statistically weighted according to Statistics Canada's most current education, age, gender and region Census data to ensure a representative sample of the entire adult population of Canada.
NUPGE
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE