MERs rising, Morningstar study finds

(June 10, 2003) In down markets, investors are likely to question anything they suspect is draining their accounts. And if they think mutual fund fees are higher than they used to be, they might be right. A report from Morningstar Canada says Canadians paid over $10 billion annually for the past three years and it […]

By Steven Lamb | June 10, 2003 | Last updated on June 10, 2003
2 min read

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  • Despite attractive fees and performance, pension managers fail to increase fund share

    • But is this really just a case of fund companies trying to maintain profits as the market drops? Perhaps not.

    The report points out that since 1995, the number of funds has exploded from around 1,000 to more than 4,600. Many of the new products are smaller, more specialized funds that lack the economies of scale larger funds enjoy.

    “New funds have smaller asset bases to spread costs across and tend to cost more,” said Morningstar Canada’s director of analysis Mark Warywoda. “Interestingly, many of the bigger and better-established players don’t seem to be able to pass on savings to investors either.”

    Also driving up the industry-wide average MER is the proliferation of segregated funds, which are more expensive because of their insurance features. Seg funds now make up almost 40% of retail investment funds, but they hold little more than 10% of assets under management. Seg fund MERs rose from 2.32% in 1998 to 2.90% in 2002.

    Finally, there’s the role of the government, which legislated the inclusion of GST into MERs, which first appeared on mutual fund statements in 2000.

    Of course, this may be cold comfort to your clients, as they probably care less who their money is going to and more about the fact that it is going at all.

    Filed by Steve Lamb, Advisor.ca, slamb@rmpublishing.com.

    (06/10/03)

    Steven Lamb

    (June 10, 2003) In down markets, investors are likely to question anything they suspect is draining their accounts. And if they think mutual fund fees are higher than they used to be, they might be right.

    A report from Morningstar Canada says Canadians paid over $10 billion annually for the past three years and it doesn’t look like 2003 will be any different. Of the funds surveyed, 78% raised their management expense ratios (MERs) between 1998 and 2002. Only 12% lowered their MERs.

    The survey broke out management fees into two measures: the average MER charged by funds, regardless of size; and the average MER paid by investors, which was dollar-weighted.

    Fees charged by companies for non-segregated funds increased from 2.03% to 2.44%, but since investors’ dollars are not evenly distributed among all funds, the average MER paid was slightly lower, up from 1.93% to 2.13%.

    Related Stories

  • Investors paying closer attention to fund fees, Maclean’s finds
  • No-loads outperform, but don’t outsell load funds
  • Despite attractive fees and performance, pension managers fail to increase fund share

    • But is this really just a case of fund companies trying to maintain profits as the market drops? Perhaps not.

    The report points out that since 1995, the number of funds has exploded from around 1,000 to more than 4,600. Many of the new products are smaller, more specialized funds that lack the economies of scale larger funds enjoy.

    “New funds have smaller asset bases to spread costs across and tend to cost more,” said Morningstar Canada’s director of analysis Mark Warywoda. “Interestingly, many of the bigger and better-established players don’t seem to be able to pass on savings to investors either.”

    Also driving up the industry-wide average MER is the proliferation of segregated funds, which are more expensive because of their insurance features. Seg funds now make up almost 40% of retail investment funds, but they hold little more than 10% of assets under management. Seg fund MERs rose from 2.32% in 1998 to 2.90% in 2002.

    Finally, there’s the role of the government, which legislated the inclusion of GST into MERs, which first appeared on mutual fund statements in 2000.

    Of course, this may be cold comfort to your clients, as they probably care less who their money is going to and more about the fact that it is going at all.

    Filed by Steve Lamb, Advisor.ca, slamb@rmpublishing.com.

    (06/10/03)

    (June 10, 2003) In down markets, investors are likely to question anything they suspect is draining their accounts. And if they think mutual fund fees are higher than they used to be, they might be right.

    A report from Morningstar Canada says Canadians paid over $10 billion annually for the past three years and it doesn’t look like 2003 will be any different. Of the funds surveyed, 78% raised their management expense ratios (MERs) between 1998 and 2002. Only 12% lowered their MERs.

    The survey broke out management fees into two measures: the average MER charged by funds, regardless of size; and the average MER paid by investors, which was dollar-weighted.

    Fees charged by companies for non-segregated funds increased from 2.03% to 2.44%, but since investors’ dollars are not evenly distributed among all funds, the average MER paid was slightly lower, up from 1.93% to 2.13%.

    Related Stories

  • Investors paying closer attention to fund fees, Maclean’s finds
  • No-loads outperform, but don’t outsell load funds
  • Despite attractive fees and performance, pension managers fail to increase fund share

    • But is this really just a case of fund companies trying to maintain profits as the market drops? Perhaps not.

    The report points out that since 1995, the number of funds has exploded from around 1,000 to more than 4,600. Many of the new products are smaller, more specialized funds that lack the economies of scale larger funds enjoy.

    “New funds have smaller asset bases to spread costs across and tend to cost more,” said Morningstar Canada’s director of analysis Mark Warywoda. “Interestingly, many of the bigger and better-established players don’t seem to be able to pass on savings to investors either.”

    Also driving up the industry-wide average MER is the proliferation of segregated funds, which are more expensive because of their insurance features. Seg funds now make up almost 40% of retail investment funds, but they hold little more than 10% of assets under management. Seg fund MERs rose from 2.32% in 1998 to 2.90% in 2002.

    Finally, there’s the role of the government, which legislated the inclusion of GST into MERs, which first appeared on mutual fund statements in 2000.

    Of course, this may be cold comfort to your clients, as they probably care less who their money is going to and more about the fact that it is going at all.

    Filed by Steve Lamb, Advisor.ca, slamb@rmpublishing.com.

    (06/10/03)