Canadians Pay More than 50% of Their Investment Return in Mutual Fund Fees
The Global Fund Investor Experience Study written by Morningstar in June 2017 found that "Canada scores poorly in [Mutual Fund] Fees and Expenses, receiving a Bottom grade. Fund costs are high when compared with other countries in this study, with the median asset-weighted expense ratio for equity funds the highest in this report."
Canada's Median Mutual Fund Management Expense Ratios shown in this Study are:
The consequence of excessive mutual fund management expense ratios in Canada is shocking. If mutual fund expense ratios are not reduced going forward for the next 30 years, Canadians who save for retirement each year will be giving up 51% of their investment returns to the financial industry. This is calculated on the average Canadian mutual fund fee of 2.2% (including HST) and an expected investment return of 6%. Looking at this another way, Canadians would have 16% more retirement savings after 30 years if they were paying the world median mutual fund fee of 1.31% instead of the Canadian MER of 2.2%.
Canadians saving for retirement through mutual funds are at a severe disadvantage compared to those covered by defined benefit pension plans. Mutual funds have an average 2.2% MER compared to an average 0.25% MER for defined benefit pension plans. Savings of $10,000 per year over 30 years in a defined benefit pension plan accumulates to a 39% higher amount of capital at retirement than this same amount of savings in mutual funds.
Investment returns for the foreseeable future are extremely low due to the low interest rate policies of central banks and the outlook for low global economic growth, because consumers, corporations and governments have to get their debt levels down through austerity.
Canadians simply cannot afford to pay the excessive mutual fund fees.