Can I put mutual fund fees back in my account?

I learned, because of the Series that the financial advisor purchased, the percentage is calculated in the MER and sent directly to the financial institution. 

I think it should not be taken off at all nor given back to the client, but the financial institution is refusing. I hear there is a class-action suit that will make them give back all the money they have stolen from clients. Is this true?

Also, where can I put my mutual funds where I can get away from anyone else taking a percentage of my funds. How can I do that? Can I deal directly with the mutual fund companies? I would like to put them in one place if I can save thousands of dollars in commissions every year. 

Also, I can’t put into a Series D without tax issues. And there are also differences in the funds: They are not the complete duplicate from the series they are in now.

—Shelley

Fund Facts and fees

Shelley, there are fees associated with owning investment products and accounts. It is important to understand the fees to determine if the services justify the fees. Let’s look at trailing commissions.

The “Fund Facts” sheet is one of the easiest places you can go to for your mutual funds. It confirms the fees and is a simple document with a similar layout across all mutual funds. If you don’t have the Fund Facts on hand, search online for your particular fund. You can also ask for a copy from your advisor. 

Let me walk you through the Fund Facts using a random Canadian Equity Fund.

First, look for the management expense ratio (MER), which is about one quarter of the way down the first page. The MER in this example is 2.16%, and this fee covers both the 1% trailing commission and the amount paid to the fund supplier, which I refer to as the “product cost.” 

You can verify the presence of a 1% trailing commission by going to page three of the Fund Facts.

On page 3 of the Fund Facts, you will see a trading expense ratio (TER). This is in addition to the MER and represents the funds trading costs. The total fee on the fund is the MER plus the TER. 

2.16% + 0.03% = 2.19%

On a $100,000 portfolio, the total fees will be:

$100,000 x 2.19% = $2,190 

Note that 1/12 of that total is drawn from your investments each month. That includes: $1,160 to the product provider, and $1,000 is the 1% trailing commission paid to the company (dealer) the advisor works for.

Be aware that only the 1% trailing commission (or $1,000, using my example), is reported on your investment statement. The product cost ($1,160 in the example) is not reported on your statement. 

Always find or ask for the MER and the TER, total them up, and multiply by the total value of your investments to find your true cost. 

I apologize, Shelley, I may have gone on about fees a little longer than expected but it’s important you’re aware of all of the fees: the product cost and the trailing commission.

The fees according to the type of mutual fund

The mutual funds you own are likely A-class funds, and the MER includes both the product fee and the 1% trailer fee. My random Canadian Equity Fund example also has D-class and F-class versions of the same fund, with MERs of 1.34% and 0.99%, respectively. D-class funds are meant to be used for DIY investors, and “F” class funds are meant for fee based accounts. Neither has a 1% trailing commission. 

Reducing fees on mutual funds

To reduce fees, Canadian investors can consider moving A-class funds to either the D- or F-class version of the same fund. There should be no tax implications for non-registered accounts, and the funds will have the same investment holdings.

You’re correct, Shelley, that there was a class action suit against companies offering self-directed investing accounts while collecting trailing commissions. As a result, funds with a trailing commission have been moved to a class version without the trailing commission. However, this is not the case if you are working with an advisor. 

Every investor should ask their advisor if they will move your existing funds to the D- or F-class fund version. If they cannot, check to see if they are available on the self-directed platform. 

A F-class fund version may not be available on every self-directed platform, so if you want the F-class version, and you are comfortable working on a self-directed platform, you may have to call around to the different platforms.

One last thing, Shelley. When checking to see if D- or F-class funds are available, check online first. Get the fund code for the D and F classes. Then give the fund code to an advisor, or the person you’re speaking to at the self directed platform, to see if it can be purchased.

I am sure that after talking to your advisor with your fund codes in hand, you’ll find an opportunity to save yourself some fees and get rid of the 1% trailing commission.

Letter was edited for space and clarity.

Allan Norman provides fee-only certified financial planning services through Atlantis Financial Inc. and provides securities related business through Aligned Capital Partners Inc. (ACPI). ACPI is regulated by the Investment Industry Regulatory Organization of Canada (IIROC.ca). Allan can be reached at atlantisfinancial.ca or [email protected].

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About Allan Norman, MSc, CFP, CIM

With over 30 years as a financial planner, Allan is an associate portfolio manager at Aligned Capital Partners Inc., where he helps Canadians maintain their lifestyles, without fear of running out of money.

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