In recent years, the debate has raged on the management fees of mutual funds. If we talk about it so much, it is because mutual funds are among the most popular financial products in the country. Canadians have invested more than $ 1.1 trillion. There are more than 3,000 different ones. There is something for every budget and every need. The growth of the last years is mainly on the side of the funds without entry or exit fees. And with over $ 100,000, you have access to more attractive portfolios at lower cost, including those of the best pension and private wealth fund managers.
The truth about management fees
Suppose you have a good fund in your RRSP that earns 7% NET annually. In fact, it pays more or 9.2%. Let’s see where the difference is. If you have $ 10,000 in such a fund (with a 2.2% expense ratio) it costs you $ 220 a year. From the sum, $ 104 goes to the fund company. It must pay the salaries of analysts and managers, marketing costs, IT, transactions, legal and accounting. Some send at their expense, analysts do audits in companies before investing a single dollar. The management company must also pay its external auditors, licenses and liability insurance. Where many people are surprised is that on the management of the portfolio, you also have to pay taxes. Eh yes. The fund company must pay about $ 16 in GST and provincial tax.
Compliance and transaction service
From the remaining $ 100, the advisor’s brokerage firm will retain $ 35 to pay for its compliance and transaction service, client reports, computer security, research, licenses and liability insurance. Finally, your advisor will receive about $ 65. But he will also have to pay his expenses (travel, assistant, rent, computers and software, telecommunications, work permit, continuing education, insurance and other office expenses). Of a general nature, he will have about $ 40 before taxes. This remuneration is granted to him to give you services. Like, meetings and frequent contacts, projections and financial plans, support in your budget and fiscal management and direct you to the products that best meet your interests. Clearly, audits, security, licensing and compliance account for a significant portion of the costs. But this has the advantage of filtering out mistakes and potential frauds and offering peace of mind.
Guarantee of excellence
It’s true that fees are very important, but the NET result is even more important. In my opinion, the principle of the lowest bidder is not a guarantee of excellence in major public works or in the finance sector. Finally, I think a quote from John Dean concludes the subject wonderfully: “Price is what you pay, value is what you get. “
- Ask to see similar fund returns over 5, 10 years or more
- A good fund yields more than the median and is in the 1st or 2nd quartile
- Managers who VISIT companies in person bring great added value
- If you do not get any advice or follow up on your accounts, ask for discounts
- For maximum tax efficiency with non-RRSP and TFSA investments, apply for corporate class funds