Mackenzie sheds light on fund fees

(April 27, 2004) In an effort to clear up the confusion over fees charged by mutual fund companies and their advisors, Mackenzie Financial has produced a booklet on the topic called “Fees and Mutual Fund Investing: The Facts.”

Mackenzie Financial president David Feather says the publication is an attempt to help investors understand what they’re paying for and why. But it’s also something of a defence of the much-maligned fund industry.

“The industry’s toughest critics often argue that Canadian investors would be better served elsewhere and for lower costs. We disagree,” Feather says in a letter accompanying the booklet. “Mutual funds remain the single best available investment for the majority of Canadians for a variety of reasons, chief among them is the benefit of professional management.”

The 36-page glossy booklet contains information on management expense ratios (MERs), commissions and how advisors and fund companies are paid.

Using the example of a $10,000 investment in Mackenzie’s Ivy Canadian Fund, with a 2.51% MER, the booklet includes a chart showing exactly how the $251 fee is distributed. Mackenzie collects $102 in management fees and $98 goes to the dealer in various forms of compensation, including trailers and commissions to advisors, as well as co-op marketing. Operating expenses, such as transfer agents and custodial services, take up a further $35 and $16 goes to the GST.

Morningstar Canada’s investment funds editor Rudy Luukko says the booklet offers a useful perspective in the debate over value for money in fund fees.

“The Mackenzie guide contains some good information that is communicated in plain language,” Luukko wrote in a column posted today on the Morningstar Web site. “The simple, attractive graphics help make the booklet an easier read for investors than the more challenging prose of a fund prospectus.”

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But Luukko says the booklet lacks the type of hard information that would enable investors to evaluate pricing alternatives. For instance, he notes that there is no discussion of the pros and cons of bundling dealer compensation into MERs, and no explanation of why trailers paid to advisors vary between 0.25% and 1%.

For that information, he says, consult the fund’s prospectus. “For example, the trailer fee for an equity fund like Mackenzie Ivy Canadian is $50 a year if purchased using the deferred sales charge option, but it doubles to $100 for the front-end option. The reason: Front-end sales are cheaper for companies like Mackenzie, since no 5% commission has to be paid out of the management fee.”

Most fund companies pass on savings on front-end sales to advisors in the form of higher commissions, Luukko says, rather than to investors in the form of lower fees.

Advisors can obtain a copy of the free booklet directly from Mackenzie or by contacting the firm’s client service department at 1-800-387-0614.

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Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com

(04/27/04)

Doug Watt