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Canada no longer scores dead last in an international ranking of how much mutual-fund investors pay in fees. But it’s not going to give the cost-conscious much to cheer about.

In a global ranking released last week by Morningstar, both Italy and Taiwan were found to have higher investment fees and expenses than in Canada. That’s an improvement since the previous study was conducted two years ago, even though Canada has only been upgraded to a list of countries grouped together as “below average."

Morningstar says Canada moved up in the rankings because of the increased availability of certain mutual funds that do not include a deferred sales charge, which are early withdrawal fees investors must pay when they pull money from their mutual fund before a set date. Often hidden from consumers, this type of mutual fund has slowly been declining in popularity because of new transparency rules.

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Morningstar also cited the declining number of front-load funds that are available, which charge a fee upon an initial investment in a fund.

But Canada still received a low ranking because of the common practice of bundling advice fees with other costs associated with mutual-fund investing. Known as trailing commissions, these are embedded commissions paid by mutual-fund companies to compensate financial advisers and firms that sell their funds. The fees can range from 0.5 per cent to 1.5 per cent.

Fees and Expenses Scorecard

Top and above average markets have lower

asset-weighted median expense ratios and tend

to have investor-friendly approaches to initial

charges and ongoing commissions.

Improved

since last study

Declined

since last study

No change

since last study

New to

study

Top

Above average 

New Zealand 

Australia 

Sweden 

Netherlands 

United States 

Switzerland 

Thailand 

Britain

Average

Below average

China 

Belgium 

Denmark 

Canada 

Finland 

France 

India 

Germany 

Japan 

Hong Kong 

Korea 

Mexico 

Norway 

Singapore 

Spain 

South Africa 

Bottom

john sopinski/

the globe

and mail, source:

morningstar

Italy 

Taiwan 

Fees and Expenses Scorecard

Top and above average markets have lower asset-weight

ed median expense ratios and tend to have inves-

tor-friendly approaches to initial charges and ongoing

commissions.

Improved

since last study

Declined

since last study

No change

since last study

New to

study

Top

Above average 

New Zealand 

Australia 

Sweden 

Netherlands 

United States 

Switzerland 

Thailand 

Britain

Average

Below average

China 

Belgium 

Canada 

Denmark 

Finland 

France 

India 

Germany 

Japan 

Hong Kong 

Korea 

Mexico 

Norway 

Singapore 

Spain 

South Africa 

Bottom

Italy 

john sopinski/the globe

and mail, source:

morningstar

Taiwan 

Fees and Expenses Scorecard

Top and above average markets have lower asset-weighted median expense ratios and tend

to have investor-friendly approaches to initial charges and ongoing commissions.

Improved

since last study

Declined

since last study

No change

since last study

New to

study

Top

Above average 

Average

Below average

Bottom

New Zealand 

China 

Belgium 

Italy 

Australia 

Sweden 

Canada 

Netherlands 

Denmark 

Taiwan 

United States 

Switzerland 

Finland 

France 

Thailand 

India 

Germany 

Britain

Japan 

Hong Kong 

Korea 

Mexico 

Norway 

Singapore 

Spain 

South Africa 

john sopinski/the globe and mail, source: morningstar

Australia, the Netherlands and the United States scored the highest rankings this year, the third time in a row all three countries made top marks in the biennial rankings. Products in these three countries are typically unbundled.

Seeing an improvement to “below average” is not something to celebrate, said John DeGoey, a portfolio manager with Wellington Altus Private Wealth, who termed Canada a “laggard” when it comes to improving fee structures on its mutual funds.

“There is clearly a high correlation between unbundling and low-cost fees,” Mr. DeGoey said. “The three countries with the lowest average cost have all banned embedded compensation. That is not a coincidence.”

The ranking is published every two years and was first completed in 2009 to compare best practices in mutual fund products from 26 countries. It comes three years after the launch of an industry initiative in Canada to tackle the transparency of embedded commissions and allow investors to know exactly how much they are paying for advice in dollar terms. The fees and expense report is the first of four reports to be released this year.

In some mutual fund product segments, Morningstar still found Canada’s fund fees to be the highest of all countries. Canada has the highest median expense ratios for asset allocation funds – which hold various mixes of stock and bond investments – at 1.94 per cent. For equity funds, it has the third-highest median expensive ratio for equity funds, at 1.98 per cent, and it has the seventh-highest median expenses for fixed-income funds, at 0.99 per cent.

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Paul Bourque, CEO of the Investment Funds Institute of Canada (IFIC), said that while the 2019 report has improved by breaking out individual fund fees that are specific in Canada to show averages for commission-based advice, fee-based advice and do-it-yourself funds, the report is still comparing apples to oranges.

“Where we have difficulty with the report, and always have, is the way that they compare jurisdictions that are predominantly bundled commissions with jurisdictions that are predominantly not bundled,” Mr. Bourque said in an interview.

He said a global comparison should also consider the total cost of ownership and investor outcomes, and include the cost of advice for all countries.

A report commissioned earlier this year by Strategic Insight found the average cost of an actively managed mutual fund, including advice, cost investors 2.10 per cent in Canada, compared with 2.30 per cent in the United States and 1.99 per cent in the United Kingdom.

“In our own analysis, when we look at the total cost of ownership – including advice – Canada is very comparable with the U.S. in terms of the MER [management expense ratio] for a balanced fund sold with advice,” Mr. Bourque said.

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