by Salman Ahmed
Canadian investors have been overcharged and underserviced for too long. Most providers have engaged in behaviour that does more to fatten their bottom line than improve investor experience and returns. This includes high product fees, extra charges for accessing your money, a lack of transparency, and incentives that promote sales not returns.
Some TD fundholders are taking a stand. They’ve proposed a class action against TD’s asset management division for paying discount brokers a trailing commission out of its funds.
Trailing commissions are embedded in the annual fees deducted from most mutual funds. The fund company collects these commissions and pays them to the advisors as compensation for the ongoing advice they are supposed to be providing clients. This contrasts with fees for F-series mutual funds and most ETFs which charge a fee for managing the fund, but do not charge trailing commissions. Instead, an investor negotiates the advice fee with their advisor.
Discount brokers are not permitted to provide any advice, yet most fund companies pay them trailing commissions anyways. The trailing commissions on most equity funds is 1% per year. That means a 1% lower return every year. That adds up!
TDAM isn’t the only company doing this. The practice is pervasive in the industry. If the suit moves forward, expect similar class action against others.
Fees and disclosure have also become a high priority for regulators. The Mutual Fund Dealers Association (MFDA) recently published a discussion paper on expanding cost reporting.
This is great news for investors, who have only recently seen some improvement in fee disclosure. Starting in January 2017, most investors saw, for the first time, how much they paid their advisor. Though a step in the right direction, we don’t think the disclosure goes far enough. Some of the proposals in the MFDA paper would provide transparency on investment product costs, account administration fees, account transferring costs, and charges for adding or redeeming funds, among others.
At Steadyhand, we don’t nickel and dime our investors. We charge one simple fee. Since the day Steadyhand opened its doors 11 years ago, clients have seen the all-in fees they pay us in dollar and percentage terms every quarter. This includes fees for managing the funds, the advice we provide, the costs of administering the funds and your accounts, and taxes the government collects. Clients are NEVER charged for making trades, transferring money to or from Steadyhand, or front- or back-end charges. And we don’t pay trailing commissions. Regulations or the threat of class action don’t force us to operate this way, we just think it’s what clients deserve.
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