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(Aga & Miko Materne)
(Aga & Miko Materne)

Rob Carrick

The no-gouge way to better investing Add to ...

Been gouged today?

Probably. Complaints are rife these days about price gouging in mutual fund fees, car and home insurance premiums, cellphone, cable TV and Internet bills, gasoline, airline flights and the cost of cars and clothes in Canada versus the United States. Hospital parking lots are being accused of gouging, too, as are electronics stores selling the HDMI cables needed to hook up high-definition TVs.

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Face it. They’ve got us by the you-know-whats in most of these cases. Cheap alternatives may exist, but they’re too time-consuming to find or too technically challenging. The one bright and shining exception: Mutual fund fees.

Overpaying for mutual funds is a totally solvable problem. There are plenty of good low-fee funds that you can buy on your own or through your adviser, or you can move into exchange-traded funds and save even more.

Out in Calgary, there’s a fund company called Mawer that you can deal with directly as long as you have a minimum $5,000 to invest. Low fees, strong and consistent results – that’s what you get with these guys. I’ve been impressed enough with them to invest an old locked-in retirement account of my wife’s in the Mawer Canadian Balanced RSP Fund. The cost of owning it, as tallied through the management expense ratio, is 0.98 per cent, which is roughly half of what the biggest balanced funds charge.

Mawer’s fees are low because they don’t include a component to pay investment advisers for their services. Similar low-fee fund firms include: Beutel Goodman, Jarislowsky Fraser, Leith Wheeler, McLean Budden, Steadyhand, and Phillips, Hager & North. PH&N Bond is machine-like in delivering consistently strong returns. The MER for the D series – that’s the cheap option – is 0.61 per cent. Again, that’s roughly half what many competing funds charge.

Embedding fees for advisers in mutual funds have helped make Canada one of the most expensive places in the world to buy funds. A full percentage point of the MER for most equity funds goes to the adviser, as does half a point in the typical bond fund fee.

Still, even if you buy funds through an adviser, it’s possible to avoid price gouging by keeping the MER of your equity funds as close to 2 per cent as possible and your bonds funds close to 1 per cent. Remember, your fund fees are supposed to cover the cost of owning funds plus investment advice. For help in assessing the value in mutual funds and advice, see my weekly Portfolio Strategy column this Saturday.

ETFs are an obvious answer to mutual fund price gouging because they have MERs that range from about 0.7 per cent all the way down to a bit below 0.1 per cent (Note: Fund returns reflect the impact of the MER – you don’t have to subtract it from the published rates of return you see).

But, please, let’s not have any more talk that ETFs are a panacea for investors upset about high-cost mutual funds. I own ETFs myself and have been a booster since the days when they were called index participation units and there were all of a dozen or so trading on North American exchanges. Today, there are close to 1,350 ETFs to choose from and assets are rising steadily.

You know what, though? ETF assets are just a tiny percentage of what’s invested in mutual funds. People in the ETF business are racking their brains to figure out ways of getting more money away from mutual funds, and they keep coming up against one big hurdle. Lots of investors just aren’t cut out to set up online brokerage accounts and buy their own ETFs.

Frankly, this process is easier than people think. (Check out my online slideshow tutorial on how to invest in ETFs.) Another way to buy ETFs is through the small but growing number of advisers who are using them instead of mutual funds for client portfolios. Be warned, though. If an adviser is pulling the strings on your ETFs, you have to add at least a full percentage point to your fees to cover the cost of advice.

It is beyond pathetic that no mutual fund company in this country wants to make low fees a key part of its marketing pitch to investors. Our fund industry abides. It’s insular, complacent and arrogant. It too often charges high fees for lame funds that investors buy through advisers who provide no advice.

Yes, there is price gouging in the mutual fund industry, but there’s also good value. You should take advantage.



Fund

Category

MER (%)

Category avg. MER (%)

10-yr avg. return (%)

10-yr. avg. return for peer funds (%)

Minimum investment

Beutel Goodman Cdn Equity D

Cdn equity

1.49

2.59

8

5.9

$10,000

Mawer Cdn. Balanced RSP

Global neutral bal

0.98

2.45

6.2

3.5

$5,000

PH&N Bond D

Cdn bond

0.61

1.73

6

4.5

$5,000

RBC Monthly Income

Cdn neutral bal

1.18

2.51

7.3

4.4

$500

Trimark Fund SC

Global equity

1.67

2.76

1.8

0.1

$500

Source: Globeinvestor.com



For more personal finance coverage, follow me on Twitter and Facebook.

Read more of Globe Investor's 29 Ways in 29 Days to be a better investor

Follow on Twitter: @rcarrick

 
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