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Monday, July 28, 2025

Canada banks misleading on mutual funds

by

20130126

Cana­di­ans al­ready pay some of the high­est mu­tu­al fund fees in the world, but poor trans­paren­cy from some fi­nan­cial in­sti­tu­tions may be cost­ing cus­tomers even more, a CBC in­ves­ti­ga­tion has found. A Mar­ket­place re­port looked at Cana­da's Big 5 banks–CIBC, Roy­al Bank, Toron­to-Do­min­ion Bank, Bank of Mon­tre­al and Sco­tia­bank–and found most of­fer lit­tle clar­i­ty on how the fees work and how much they cost.

Fi­nan­cial con­sul­tant Preet Baner­jee told Mar­ket­place host Er­i­ca John­son that in­vestor ad­vo­cates want more open­ness, but the banks won't oblige. "We want full dis­clo­sure," he said. "Of course there's a lot of re­sis­tance from the in­dus­try, be­cause if peo­ple start com­par­ing fees, that means fees will go down. If fees go down, prof­its go down."

The Big 5 re­port­ed a com­bined prof­it of al­most $28 bil­lion in 2011-2012, and a chunk of that comes from Cana­da's no­to­ri­ous­ly high mu­tu­al fund fees. Cana­di­ans' in­vest­ments can take a ma­jor hit with man­age­ment ex­pense ra­tios (MER), the per­cent­age de­duct­ed for ad­min­is­ter­ing the fund. The me­di­an MER in Cana­da is around 2.5 per cent, one of the world's high­est.

'Patent­ly false' in­vest­ment ad­vice

As part of its in­ves­ti­ga­tion, Mar­ket­place used hid­den cam­eras to record in­vest­ment ad­vis­ers at dif­fer­ent banks and analyse the qual­i­ty of in­for­ma­tion giv­en to clients. Baner­jee says Cana­di­ans need to "push back" and fight for low­er bank fees. Af­ter re­view­ing the in­for­ma­tion from each bank, Baner­jee said on­ly one rep­re­sen­ta­tive gave a clear ex­pla­na­tion of fees. An in­vest­ment ad­vis­er at TD Bank was clear about costs, but that proved to be the ex­cep­tion.

A coun­ter­part at BMO said fees are "the least part to wor­ry about," a claim Ban­jeree dis­agreed with. "If you have a fund that has an MER of 2.5 per cent, that's go­ing to con­sume al­most 50 per cent of the po­ten­tial val­ue of the port­fo­lio over 25 years," he ex­plained. He al­so blast­ed a CIBC rep­re­sen­ta­tive who said that "in the long run, (mu­tu­al funds) al­ways go up."

"That's not true at all," Baner­jee said. "There have been a lot of funds that lost so much mon­ey, they got shut down. Say­ing that [they al­ways go up] is patent­ly false." CIBC re­spond­ed to Mar­ket­place's find­ings with a writ­ten state­ment, say­ing, in part, that the "iso­lat­ed ex­am­ple you have brought to our at­ten­tion is not aligned to our usu­al prac­tices."

TD, Roy­al and Sco­tia­bank al­so re­spond­ed with gen­er­al state­ments, say­ing cus­tomers are al­ways pro­vid­ed with the nec­es­sary doc­u­men­ta­tion on mu­tu­al fund fees. But that in­for­ma­tion is of­ten too com­plex for the av­er­age in­vestor, says mon­ey coach Melanie Buf­fel.

CBC


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