According a 30-year veteran in the Canadian mutual fund industry, typical Canadian investors are either “not capable of grasping” or simply “refuse to believe” how MERs work.
Identified as commenter “MDB” on Ellen Roseman’s blog, this industry insider goes on to explain that mutual fund investors lose “60-80% of their total lifetime return because of MERs.” However, when he attempts to explain this problem to clients, they “glaze over, not wanting to understand this issue. If everyone they knew invested in mutual funds, that made it okay with them.”
Some of MDB’s clients believed “that a regulated product sold by a licensed broker could do no harm.” When MDB spoke to investors from other brokerages, “despite the prospectus in hand, they thought I was misleading them in order to discredit their advisor.” They would look MDB in the eye and say they were not charged MERs.
When a seasoned veteran can’t even convince investors that they pay MERs, the prospect of improving things with better mutual fund disclosure seems completely futile.
Existing mutual fund disclosure does help some investors, but maybe fewer than I originally thought based on MDB’s comments. Better disclosure would help more investors, which is a step in the right direction even if it doesn’t reach the majority of investors.
I’m more convinced than ever that disclosures must be expressed in dollars. If I were about to invest $250,000 of my savings with an advisor who recommends some DSC funds with a 2.5% MER, I should have to sign a sheet of paper with something like the following on it:
First year fees you pay: $6250.00
Estimated first decade fees you pay: $62,500.00
Early withdrawal fees you may pay:
1st year: $13,750.00
2nd year: $13,750.00
3rd year: $12,500.00
4th year: $11,250.00
5th year: $10,000.00
6th year: $ 7,500.00
7th year: $ 3,750.00
If someone reads and understands this information and then decides whether or not an advisor’s help is worth the money, then disclosure has served its purpose. However, if MDB’s experience is any indication, even this level of disclosure may not reach many investors.