Can you imagine not being aware of paying $29,207.38 in fees?
That is what happened to one of my neighbors, let’s call her Kellie.
Kellie is 51 years old and in 2009, she inherited $250,000 from a family trust. A few months later, as the money was earning less than 1% in a high-interest savings account, Kellie had the opportunity to attend an investing seminar at Investors Group. Kellie was charmed by the knowledge the mutual fund representative seemed to have. He was quite convincing that his firm was an expert in investment management – backing his claims up with charts and the significant assets under management (AUM) of Investors Group. She didn’t understand all, but she was confident that any money she invested with IG would be well managed. When she asked about the fees, she was told not to worry, she would not pay any up-front or direct fees for her mutual fund purchases.
Kelly was relieved to have this taken care of and agreed to purchase:
- $125,000 Investors Canadian Large Cap Fund
- $125,000 Investors Bond Fund
Recently, Kellie began to notice that her annual returns were a few percentage points lower than the index returns, which were published regularly in the Globe & Mail.
Unfortunately, her suspicions were right.
The Investors Group mutual funds representative had sold her funds without explaining one little detail: the outrageously high MER fees. Ugh, it makes me so grumpy when advisors do this.
I sat down with her and together we unpacked the fees that she was paying with her current Investors Group portfolio, versus what she could be paying in a similar ETF portfolio, with a similar risk/reward profile.
Here are the 5-year annualized results for both the actual portfolio (IG) and the ETF portfolio (iShares) as of March 2015:
Investors Group Portfolio
Investors Canadian Large Cap Value Fund (Series C, purchased DSC)
5 year return: 3.4%
Fees paid over 5 year period: $20,380
Investors Canadian Bond Fund
5 year return: 3.33%
Fees paid over 5 year period: $12,477.10
Total fees paid to Investors Group over 5 year period: $32,857.10
Black Rock iShares Portfolio
iShares S&P/TSX 60 Index ETF
5 year return: 7.06%
Fees paid over a 5 year period: $1,267.80
iShares Canadian Bond Fund
5 year return: 5.71%
Fees paid over a 5 year period: $2,381.92
Total fees paid to Blackrock iShares over the 5 year period: $3,649.72
The numbers show that Kellie paid an extra $29,207.38 in fees for a mutual fund portfolio that she could have built with ETFs, that would have had an almost identical risk/reward profile.
Even more amazing is how much she would pay if – all things being equal, she held the mutual funds until her retirement at age 66.
Holding the IG portfolio for 20 years, Kellie would pay over $147,000 in fees.
I don’t want this to happen to you!
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