Investors paying “staggering” fund fees, says robo-advisor chief

Investors paying “staggering” fund fees, says robo-advisor chief

Investors paying “staggering” fund fees, says robo-advisor chief It’s been one week since the third phase of CRM2 came to pass, bringing a great deal of discourse among the investment community about its merits or lack thereof.
Randy Cass, CEO of Canada's largest independent robo-advisor Nest Wealth, considers the measure a positive, albeit not exactly an absolute solution. 
“CRM2 is a good first step, but it doesn’t give a total amount of fees being paid,” he says.  “We now know the fees going to advisors, but that’s trailer fees and not MERs. It was our belief (at Nest Wealth) that if we created a tool to allow Canadians to know the total amount they are paying each year, it would make a big difference.”
That tool is a fund calculator which allows investors to calculate exactly how much they are paying in fees. The timing, coming hot on the heels of CRM2, means the issue was already a real talking point as the product launched this week. 
 “It was appropriate timing: we thought the industry’s attention would be focused on greater transparency on fees,” says Cass. “When we were sitting around as a company, we realized there still wasn’t an easy way for Canadians to figure out how much in total they were paying in fees.
How much in many cases is quite a bit indeed, with data from Nest Wealth showing the average Canadian household pays $323,654.40 in mutual fund fees over their lifetime. The fact that many of these people are unware they pay such a huge figure meant Cass and his firm felt they had to act.
“We asked how much the average Canadian pays each year in fees and the amount is staggering,” he says.  “We can’t wait a year for these numbers to appear on statements – that’s tens of thousands of the average person’s savings. We thought the sooner we could release this tool, the better off they’ll be.”
It’s clear that ETFs and other investment vehicles are increasing in popularity as the fee issue becomes more and more prevalent. That being said, mutual funds remain the overwhelmingly dominant investment option, which should mean the drive for greater transparency in the industry will continue on long past CRM2.
“We still have about $1.4 trillion dollars in mutual funds in Canada versus less than a tenth of that for ETFs,” says Cass. “There still is an excessively large amount of people that might be unaware of the fees they are paying and the alternatives out there like ETFs.”

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  • Dan J 2016-07-22 12:20:58 PM
    Who believes $323,654.40 in fees for the average Canadian household over a lifetime is accurate?

    If those fees are 3% of assets, that means the average Canadian household invests $10,788,480 in mutual funds over a lifetime.

    What sample was used to represent the average Canadian household?

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  • Steve 2016-07-22 1:47:39 PM
    Its not a one time fee of 3%. Mgmt fees are charged daily, weekly or monthly on funds...never stops.

    $323K is probably a very low estimate. Likely low because "Average Cdn Households" includes a large percentage of households with low income and hence very low savings.

    Using an average management fee of 2% per year over 40 years on an average balance of $400K you get to about $320K. A $400K average balance would mean both spouses saving from the age of 25 to 65 a combined $800K or $400K each. That is only $10K savings per year each on average, assuming no growth in the account and income only covering the fees. Realistically, there will be income and growth so a lower savings of san average of $5K per person per year for 40 years will easily get you to $323K in fees.

    I think an average client is not a low income household and they would have both spouses saving about $800K each over 40 years, the fees the average client household will pay are around $700K combined.
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  • Steve 2016-07-22 2:04:50 PM
    To add...using Robo-advisors like JustWealth or Wealthbar reduce the fee to about 0.70% per year (0.4% for the account and 0.3% MER in the ETFs they invest in). The average household retires with at least $250K in fee savings. Plus they get professional and unbiased financial planning, unbiased insurance planning, estate planning for free. Makes a lot of sense for portfolios that are less than $1,000,000.
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