A storm of controversy has recently erupted over an American study of mutual funds being sold in sixteen countries, including Canada. The problem in Canada, the researchers claim, is not with the mutual funds themselves, but with the “notoriously high” fees and expenses Canadian investors are being charged.
According to the Chicago-based Morningstar Global Fund Investor Experience, “Canada’s failing grade in fees is the lowest grade received” in any of the countries surveyed. We got the only “F” in this category. Ouch!
Naturally the investment industry on this side of the border quickly came to their own defense saying that their commissions and trailer fees are justified, because of the expert advice they dispense along with the sale of mutual funds. The real question Canadian consumers should then be asking themselves is what is this advice actually worth? In other words, are our Canadian financial advisors really earning those plump and juicy commissions?
There are a number of important points that the typically mild-mannered Canadian investor should keep in mind when deciding on an advisor:
1.) First off — there is no such thing as free advice!
2.) Get fully informed about what fees you are being charged in commissions and other fees. According to Morningstar, Canadians are comfortable with the fees they are paying – “because they don’t know how low those fees should actually be.”
3.) What level and quality of “advice” should you expect for the “notoriously high” fees you are likely paying?
4.) Is the advice you are being given directing you to products or services that pay higher commissions and trailers?
5.) Does your salesperson have a conflict of interest? Are they just out to make a sale or do they have your best interests at heart?
6.) Does the advice you are receiving include such things as competent tax, estate and insurance planning? (Those pricier trailer commissions are supposed to cover such things.)
7.) Ask yourself: Does it really make sense to receive crucial financial advice from a commissioned salesperson – or is it finally time to seek out truly “independent” and unbiased financial advice? (Independent “fee-for-service” financial planners might still be difficult to find in Canada, but they do exist)
8.) Do you have a personal financial plan yet? (Most Canadians do not! Maybe its time you do?!) If you do have one in place, how does the financial advice you are receiving fit in with your overall strategic plan?
9.) A good financial plan allows you to keep the big picture of your life in mind and to maintain some personal objectivity and financial perspective in both good markets and bad. (Now here’s something to think about: Maybe your financial advisor should insist you have a strong financial plan in place before dispensing any advice?)
Under our current advisor compensation system in Canada, it is simply too easy to blur the lines between what is best for the investor – and what is best for the salesperson and the institution they work for. Ultimately, however it is up to the Canadian consumer to expect and demand more from their financial advisers and institutions. Much more! Seems you’re paying for it anyway!
Karin Mizgala is a Vancouver-based fee-for-service financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.