Mutual fund fees not higher here

Fee-only not always better

Re: “Mutual funds: Would we buy them if we knew the cost?,” Barbara Shecter

Barbara Shecter incorrectly states that Canadian investors pay more than double the fees paid by U.S. investors. New comprehensive research debunks this oft-cited misconception, demonstrating that, on a tax-adjusted basis (no HST in the U.S.), the asse-tweighted cost (2.02%) of owning mutual funds in Canada is virtually the same as the average cost (2 %) for a typical investor using an advisor in the U.S.

In the U.S., advisors mostly charge a separate fee for advice. These fees are not published, and have not been included in past analyses of investors’ total costs. The new research report was able to obtain and apply that data.

The U.S. fee-based approach requires investors to either go it alone, or to pay fees based on a percentage of assets or hourly rates for advice. While this may benefit wealthy individuals, the average U.S. investor can end up paying more in total fees under fee-for-service than he or she would under the embedded Canadian compensation model.

As a result, unbundling may re- duce the number of people who save for retirement, leaving them dependent on government programs later in life. Average and small investors would be hurt the most.

Canadian investors are receiving great value at a competitive price, and the current regulatory environment is serving them well. Joanne De Laurentiis, president and chief executive, the Investment Funds Institute of Canada

Re: The hole the mutual fund industry has dug for itself, Jason Heath, April 27

Jason Heath misleads readers when he implies that it is only embedded fees for mutual funds that are prohibited in some countries. In fact, in the handful of countries that have addressed advisor fees, these new rules apply to most financial products — not just funds — and not without consequences.

The U.K. recently passed such a law; however, industry observers there are expressing concern that people with smaller levels of wealth may no longer be receiving financial advice. The European Parliament’s economic and monetary affairs committee rejected a Europe-wide ban on commission payments paid to independent advisors, opting instead for “enhanced transparency.”

Before accusing others of “sleight of hand” and denigrating Canada’s dominant bundled-fee model, Mr. Heath might want to disclose his own interests. As a fee-only planner, who, according to one investor publication, charges $250 per hour and annual fees for service of between $1,500 and $3,500, Heath has a vested interest in promoting the elimination of bundled all-in fees for mutual funds.

Such a move by regulators would reduce investor choice, forcing them either to go it alone or become paying customers for Heath and others like him.

That might work for some investors, but for others, the result would be higher fees and reduced transparency. The better path is to continue to improve disclosure and let the marketplace decide. Jon Cockerline, director, policy and research, the Investment Funds Institute of Canada