Serving Greater Vancouver & the Fraser Valley

“Fee” Money

by Arnold Machel, CFP®

“The LORD detests dishonest scales, but accurate weights find favour with him.”

– Proverbs 11:1

If you are reading this, then the odds are high that you own a mutual fund.

According to the Investment Funds Institute of Canada (IFIC), when it comes to meeting their financial goals Canadians have greater confidence in mutual funds (87 per cent) than any other financial product out there. GICs came in with a 61 per cent) confidence rating, bonds with 55 per cent) and stocks were at 62 per cent). Since mutual funds account for 31 per cent) of Canadians’ financial wealth and (as at June 30th, 2016) we hold over $1.3 trillion in funds, it’s likely that many (perhaps the majority) of our readers are mutual fund investors.

Soon you will get your 2016 year-end statements… and there are some notable changes that you will see this time around. One, in particular, will be in regards to the fees that you pay; fees that maybe you don’t even know about.

A friend of mine shared a funny true story with me a while ago. He lived with his parents right up until the time that he married. He and his new bride immediately moved into an apartment to be on their own. Then, about a month later he received a letter from the utility company. To his shock and dismay, he discovered that heat and lighting weren’t free.

Hopefully, you already know this, but just like heat and lighting, the services that come with a mutual fund (including the services provided by your financial advisor) don’t come for free. Many of the costs associated with investing in mutual funds are embedded within the funds making them difficult to understand, so in recent years the industry has been working to be more transparent and to educate fund holders.

Also, in an effort to ensure that investors are clearly aware of the fees earned by advisors, regulators have made a change to the information that is required to be sent out to you. So if you are a mutual fund owner, when you get your year-end investment statements from the mutual fund companies you should notice something new – summary of the fees earned or charged by your dealer should be included.

Starting this year, a regulatory requirement is coming into effect that requires that all fees paid to your dealer be reported on your statements. Your “dealer” is the firm that your advisor is licensed with. The dealer will pay a portion of those fees to your advisor, so while your advisor likely doesn’t get all of that money, it is effectively the money that you are paying for their advice.

It is the hope of the regulators that this change will make the fees that you pay much easier to see and understand… at least some of them. It’s surprising to me that the requirement only applies to fees paid to your dealer and not all fees paid by you, but at least it is a step in the right direction. Also surprising, given the huge numbers of fund holders, is that not much media attention has been given to this change.

You can expect this new section to include all sales commissions and fees related to your accounts that have been paid by the fund company to your dealer.

A few things you should know…

• The fees shown in the new report are not all of the fees that you pay. Only the portion that is paid to your advisor’s dealer are reported. The total cost of the funds is represented by the Management Expense Ratio (MER). This is the combination of fees and expenses that they incur on your behalf. These fees and expenses may be used to pay for such costs as trading costs, salaries, trustee fees, etc. and they may also cover the cost of paying your advisor’s dealer.

• DSC commissions paid to your advisor are one-time commissions that the fund company can only afford to pay based on your commitment to keep your money with them (typically for three or seven years). You don’t pay the commission directly out of pocket, but you do pay for it over time. If you sell these funds prior to the commitment period, you will be required to pay the Deferred Sales Charge to the fund company.

• Front End sales charges are commissions that you may pay in order to purchase a fund. They typically range from 0 per cent) (if you have a lot of money already invested) up to 5 per cent).

• Your advisor is typically also paid a Trailer Commission. Usually this is less in the case of DSC funds and more in the case of Front End funds.

• The above are all paid out of the fund’s MER.

• Advisory Fees or Wrap Fees have lately become more popular. With these products advisors are able to recommend funds that have lower MERs, but then add on their advisory fee separately.

Ultimately your advisor needs to be paid. But you deserve to get value for the money you are paying. Going forward at least, regardless of how they are paid, you will be able to see what they are costing you.

Arnold Machel, CFP® lives, works and worships in the White Rock/South Surrey area.  He attends Gracepoint Community Church where he serves on the Leadership Team.  He is a Certified Financial Planner with IPC Investment Corporation and Visionvest Financial Planning & Services.  Questions and comments can be directed to him at or through his website at   Please note that all comments are of a general nature and should not be relied upon as individual advice.  While every attempt is made to ensure accuracy, facts and figures are not guaranteed.

Author: Steve Almond

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