All my retirement savings are in mutual funds — some through RRSPs, some through TFSAs. I know roughly what a mutual fund is. But I have no idea what’s really going on, how much in the way of fees I’m paying and how the things truly work. I’m not alone, not by a long shot. Most Canadian have savings in mutual funds (six in 10, in fact) and many have little understanding of what mutual funds truly do. It’s an issue that’s under scrutiny right now in Canada.
How little we know
According to a recent survey funded by ING Direct, 51% of Canadians spend just 3.4 hours a year planning their mutual fund investments. The same folks put in five hours to buy a TV or computer and nine hours into a car purchase or lease. An additional 50% of those surveyed also had no idea what annual management expense they were paying on their funds.
The push for change
A discussion paper by the Canadian Securities Administrators, released last December, talks about the rising problem of hidden fees in mutual funds. While management fees range from 1% to 2% on most funds, hidden in that is something called a trailer fee which is often not broken down for consumers.
The paper says this fee is on the rise and yet it’s not fully disclosed. There are also concerns that fund mangers are putting their own interests first and not those of investors. The paper calls for reforms to trailer fees and more limits on the conduct of managers to put consumers first.
Ask the right questions
When you buy into a mutual fund — or if you’re already invested in some — sit down with your banker or financial advisor and ask for an honest breakdown of the fees. Are there extra costs if you sell? Find out who’s managing your mutual funds and what that person’s track record is.
If your advisor can’t or won’t answer your questions, consider that a red flag. If you don’t have a degree in finance, mutual funds and their fees can be hard to understand. But don’t let that stop you from asking hard questions and pushing for more transparency with your money, and protecting your savings.