I recently read a letter to the editor written by the chief executive officer of the Investment Funds Institute of Canada.
To quote “We agree that the merits of mutual funds remain valid today and suggest two additional factors that explain why mutual funds continue to be the investment of choice for 25% of Canadian households. The first is the high level of disclosure and transparency applied to funds and their fees”.
Is this guy delusional? He has to be! What disclosure and transparency? Can he show me one place where an investor can find their mutual fund charges listed on their statement? Does he believe that a “simplified” prospectus that lists fees and charges over 5 pages tells you anything? No!
Let’s look at the second factor. To quote, “The second is the significant benefit that having a financial advisor delivers. Canadian research from Montreal’s Cirano Institute released in 2012 concluded that investors who use advisors end up with more than twice the level of wealth compared with those who don’t seek advice – and that’s after all fees have been paid.” That’s an interesting conclusion. What would it look like if the fees were half or less?
I don’t think this really deals with the issue. People with money use advisors. People with lots of money usually pay less in fees than people with a little money. Fees kill a portfolio’s return. The higher the fees the more detrimental it is to a portfolio. This has been proven over and over and over again.
Here’s an interesting coincidence. On the same day this letter appeared there was another headline “CI Financial Q4 Earnings Rise 10% Increases Monthly Dividend”. To quote the chief executive officer of CI Financial Corp. “CI ended 2012 with strong sales growth in both the retail and institutional funds”.
He continues, “Assets under management are now at an all-time high for CI … positioning CI for an excellent first quarter of 2013 and supporting the 6.3% increase in the dividends”.
I wonder how many mutual fund investors saw their investments go up 6.3%?
Yes, mutual funds can obviously be a great investment – if you own the mutual fund company (or its’ stock)!