More here: http://funds.rbcgam.com/pdf/fund-pages/monthly/rbf272_e.pdf
As will happen from time to time, I get to meet some bright young people (often referred to me by one of our clients) and engage them in conversation about their current investment situation (as was the case earlier this week). As is often their situation, they are hard working (at their chosen profession) and have little time (or have had little time up until now) to explore and learn more about their savings and the possibilities for building and managing their wealth. Usually, they have trusted an institution (usually a bank) to assist them with the growth of their savings.
Most are relatively conservative about the type of risk that they should be taking (which is why they have ended up talking with me) but also realize that to stay ahead of inflation in the longer term, they are going to have to do better than low yielding GIC's.
They often have a somewhat difficult time getting hold of their bank advice giver to find out exactly what their returns have been and what fees they have been paying.
CRM2 (the legislation that requires both $ fee outlays and annual portfolio performance) is supposed to make this easier, but apparently the conversation with their advice giver does not offer up a whole lot of clarity.
I, in no way want to bash the institution above (who I bank with and actually get pretty good personal banking service from) however, if you look closely you will see that this particular mutual fund (which I am using only as one example amidst thousands of others), which their asset management division manages, has 5.6 BILLION dollars under management.
The cost of the managing of this balanced fund (to the investor who has their money invested in it) otherwise known as the MER is 2.16% (see above) annually.
If you invested $10,000, 10 years ago (pretty much the full investing cycle, through the 2008 crisis) in this fund you would now have $13,686 (according to the above chart) a little over 3% per year in growth. Likely, you paid over $2,200 over this same time frame just in management fees alone. You probably do not realize that you have paid them because they are listed in the fine print and rarely part of the conversation with the advice giver.
How does 5.6 Billion dollars find its way into paying such an exorbitant amount in management fees?
At High Rock, as an example, we can cut that management cost in half. We run balanced portfolios and charge our clients a management fee of 1%.
So why on earth would anybody pay 2% for a balanced mutual fund that only returns 3% ?
Why are 5.6 Billion dollars (in this one fund alone and there are thousands of these funds out there) doing so? It makes no logical sense.
I would suggest that it is because it is just not being made clear to the investors.
The intelligent people that I talk to, when they finally have the time to realize that their money has not been growing as well as it otherwise should have, can't seem to get straight answers from their bank advice giver.
The straight answer is: you have been paying too much and it is not in your institution's best interest to tell you. So they don't. They hem and haw and avoid directly answering the question.
At High Rock we don't avoid the question. Which is the way it should be: total transparency above and beyond the CRM2 requirement. You can also throw in great client service and fiduciary responsibility as well. We not only try to get the best risk-adjusted returns, but also save our clients money in fees and costs.
Ask the tough questions. If you don't get good answers. We have them for you.
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist