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Canada banks misleading on mutual funds
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.