Do you know what you're paying? Understanding your retirement plan fees
Would you buy a car without knowing the full cost? Would you purchase a home only knowing your real estate agent’s commission and not the actual cost of the home (legal fees, land transfer fees etc)?
Then why do so many Canadians invest their hard-earned money in a retirement plan without knowing all the fees?
“The fees paid by Canadians for investments in mutual funds are among the highest in the world," according to the Ontario Securities Commission. Yet, Almost two-thirds (63.1%) of Canadians don't know how much they pay in investment management fees.
While the latest CRM2 Regulations (Client Relationship Model - Phase 2) is a step in the right direction towards fee disclosure, the industry still has a long way to go when it comes to full transparency. With CRM2 the cost of advice will be disclosed, but not the cost of the investment products you own. Specific wording from CRM2 states: "For investment funds, a Management Expense Ratio (MER) is paid to the fund managers which is not included on this report. Details on MER charges are available in your prospectus or fund facts document.” This means investors must search for the cost of underlying investment funds. You also won’t find out your advisor’s compensation. The dollar figures you see in your report go to the firm that employs your adviser, but the advisor’s cut will vary by company.
Add to the confusion over fees an entire investment vocabulary and it’s no wonder there is a great deal of uncertainty. What is a trailer fee, deferred sales charge or management expense ratio? How do I know if I am being charged front-loads or low-loads? These are some of the questions investors have that require time and research to find the answers to.
So given the amount of effort required to understand these fees then why is it so important that investors understand exactly what they are being charged? 1% versus 0.5% may not feel like much over the course of a year, but when saving for retirement, it could mean the difference between retiring at age 65 versus retiring at 70. Of course, the more you pay in fees, the less money you have for retirement which is why both employers and employees need to take a good look at their overall retirement plan costs.
On October 10th Open Access will be hosting a free webinar to help you better understand your retirement plan fees and offer guidance on ways to lower or eliminate unnecessary charges.