Why Are Investment Costs In Canada Higher Than Most Other Countries?

Whether it’s fighting ridiculously high investment fees or educating seniors on financial abuse, CARP is working with individuals and stakeholders to help stop Canadians from getting soaked.

With February comes RRSP deadline, a time to check up on how they, our mutual funds, and other retirement investments did last year. And thanks to the latest phase of the Client Relationship Model (CRM), an initiative of the Canadian Security Administrators, the investment industry is making an effort to make these statements more readable.

So, when you open your financial statements this year, you’ll notice simplified language as well as explanations of what all those confusing financial terms mean. More importantly, you’ll see how much you’re paying your financial adviser to handle your money.

And while transparency on fees is a good thing, the amount of money we’re paying will come as quite a shock—according to a major study, Canada has among the highest fund fees and expenses in the world.

Morningstar’s Global Fund Investor Experience Study (a biennial report that measures mutual fund investors in 25 countries across North America, Europe, Asia, and Africa) gave Canada a D- minus grading in fees and expenses, the lowest mark of any country they surveyed. “The most consistent predictor of a fund’s net performance over time is the level of its annual expenses,” said the report.

One of the single most important ways to improve portfolio returns over time is to keep costs low,” says Wanda Morris, vice president of advocacy, CARP. “Unfortunately, Canadians pay some of the highest fees in the world for financial advice, often without even knowing it.” Fees are routinely hidden and frequently paid directly by the fund, resulting in a lack of transparency at best and, at worst, a portfolio that yields high compensation to the adviser rather than optimal returns to the investor.

CARP is working with key stakeholders to reduce fees, eliminate widespread compensation-related conflicts of interest and ban hidden costs.

Poor grades 
How Canada compares to other countries in investment fees and expenses.

Grade Country
A Australia, Netherlands, U.S.
B+ Korea
B Denmark, New Zealand, South Africa, Sweden, U.K.
B- Finland, India, Norway, Spain, Switzerland
C+ France, Thailand
C Belgium, Germany, Italy
C- Singapore
D+ China, Hong Kong, Japan, Taiwan
D- Canada
Source: Morningstar Inc.

A version of this article appeared in the March 2017 issue with the headline, “Protective Measures,” p. 58-60.