Wednesday, January 18, 2017

Investor ALERT : Online brokers may be overcharging you

This ALERT is for investors who buy mutual funds via a discount broker. Discount brokers shouldn’t be collecting opaquely disclosed trailer commissions intended to provide you with investment advice. The obligation to provide investment advice is contained in Fund Facts , the document you were given before you bought the fund .A recent report provided by securities regulators tells us that  about $25 Billion  in mutual funds at discount brokers are A class ( a class of fund with a portion of the cost intended for advice per Fund Facts) which means that  investors are being overcharged  .Since discount brokers cannot and do not provide investment advice, clients of A class funds are being robbed of returns.Clients are not being treated fairly, honestly and in good faith as required by securities laws. We've been asking Regulators for years to enforce the law; we're still waiting for an answer.

By the way, at 1% trailing commission, that amounts to an astounding $180,000,000 each year that isn't going towards the retirement funds of Canadians! Shameful, no? That 1% is buried inside the MER (Management Expense Ratio) of the fund so it's not readily visible.

So, ask your discount broker what fee you are being charged to buy and own mutual funds. If it’s D class or involves a small one time upfront charge , that’s OK. But if you are being charged an ongoing trailer commission for advice, you are being charged for a service that is not being  provided. Ideally, the charge would be equivalent to what you’d pay to buy an ETF, around $9.95  

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