As a financial planner, I see many prospective clients who show me their mutual fund portfolios. Given that Canada has some of the highest mutual fund fees in the world, we are used to seeing fees of 2.4 per cent and higher.
Investors Group, however, stands out among fund companies in Canada because their fees often hit around 2.7 per cent. This is but one of the red flags I find when reviewing Investors Group portfolios.
I should preface all of this by saying that Investors Group is a competitor of mine.
But as one of the largest financial organizations in Canada, it is a company that has an impact on many investors. So I think it is important for Canadians who own their mutual funds to be educated how that might impact their financial world.
Here are my five main concerns with Investors Group:
1) Weak Performance
Investors Group has 15 funds with holdings of over $1-billion. According to GlobeFund’s 5 star rating system, 6 funds are 1 star, 4 funds are 2 star, 4 funds are 3 star, 0 funds are 4 star, and 0 funds are 5 star. One fund is not rated.
2) High Fees
This certainly impacts on the poor performance issue. Eleven of the 15 funds have fees over 2.50 per cent (up to 2.71 per cent). On the ‘low’ end, there are 3 fixed income funds with fees of 1.95 per cent, 1.96 per cent and 1.97 per cent. As a comparison, RBC Canadian Equity fund has a fee of 2.05 per cent. The Investors Group Canadian Equity fund has a fee of 2.72 per cent. The RBC fund has a 5 year annualized return of 1.02 per cent, where the Investors Group fund has a 5 year return of -3.86 per cent. It isn’t like the RBC Canadian Equity fund is a star performer. It is a middle of the road 3 star fund, but it looks very good in comparison.
In the Canadian Bond category, a 3 star fund like the TD Bond fund has a fee of 1.11 per cent and a 5 year return of 5.24 per cent. The Investors Group Bond fund has a fee of 1.96 per cent and a 5 year return of 4.45 per cent.
3) Majority of funds are sold with Deferred Sales Charges
At a time when many advisers and firms have meaningfully decreased sales of mutual funds using a deferred sales charge, Investors Group doesn’t seem to have slowed down. What that means is that in many cases, an investor can not sell out of the Investors Group fund family within seven years without having to pay an additional fee – the deferred sales charge. And because a good percentage of the funds are sold with a deferred sales charge, a percentage of clients end up with even higher fees if they sell and pull money out of Investors Group within seven years of buying the fund.
The following deferred sales charge schedule comes from the Investors Group Simplified Prospectus – June 30, 2011. By the way, this ‘Simplified’ Prospectus is 321 pages long.
| When you sell your units | You pay |
| Within 2 years after you bought them | 5.5% of the amount you sell |
| During 3rd year after you bought them | 5.0% of the amount you sell |
| During 4th year after you bought them | 4.5% of the amount you sell |
| During 5th year after you bought them | 4.0% of the amount you sell |
| During 6th year after you bought them | 3.0% of the amount you sell |
| During 7th year after you bought them | 1.5% of the amount you sell |
| More than 7 years after you bought them | No fee |
