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Money Why discount investors should hate A class fund fees

22:16  16 april  2018
22:16  16 april  2018 Source:   moneysense.ca

Opinion: Federal government spends millions in legal fees to battle veterans

  Opinion: Federal government spends millions in legal fees to battle veterans Just imagine if that $38 million had been funnelled into veterans' programs instead of court battles. There is no word on how much the previous government spent in legal fees battling veterans requests for more assistance. Suffice it to say that they are on no moral high ground either.It boggles the mind to think that members of Parliament ensure that they have a lucrative pension for their service to their country, but they can't seem to find the money to assist men and women who put themselves in harm's way to serve Canada.

The legal action against TD arises from the fact that billions of dollars of these high- fee , A class funds are sold through online discount brokers which An investor ’s guide to getting what you don’t pay for. Some tough questions to ask your advisor. Should my teens be investing with a discount brokerage?

It’s not about a funding crisis — it’s about turning retirement savers into passive investors . That’s why they succeed where we fail. All of us benefit from their successes, which raise the The pension reform drive should be understood, at least in part, as a campaign of economic voter suppression.

a man sitting in front of a laptop: iStock© Used with permission of / © Rogers Media Inc. 2018. iStock

A class action law suit* filed recently against TD Asset Management serves as a reminder to all investors to be vigilant regarding costs. The claim relates to the industry practice of selling high-cost mutual funds through online discount brokers. It’s important to note that while this action targets TD, the issue is industry wide.

Mutual funds come in different “classes”, the most expensive of which are called “advisor class” or “A class” funds because they incorporate a fee for advice. The legal action against TD arises from the fact that billions of dollars of these high-fee, A class funds are sold through online discount brokers which do not, and by regulation cannot, provide investment advice. These A class funds are often offered side by side with “discount class” or “D class” versions of the same fund which produce higher returns because the advice portion of the fee has been stripped away.

Why Rugby Canada is taking a hit for raising registration fees

  Why Rugby Canada is taking a hit for raising registration fees Rugby Canada to facing a storm of criticism for increasing registration fees and proposing to use the proceeds solely to fund the men's national team. Last weekend, the sport's national governing body announced the fee increase in a news release, stating the entirety of the funds — around $450,000 — would be used to help the men's national rugby 15s team attempt to qualify for the upcoming 2019 Rugby World Cup in Japan.

Why Investment Fees Matter. It is easy to forget about fees when focusing on other important Just as some asset classes gravitate towards high fees , some assets are geared towards low fees . Fee -conscious investors should pay careful attention to one particular type of mutual fund .

“If you want the lowest fee , you should not invest with us,” he said in an interview, arguing that his skills and experience justify his costs.CreditBaron Funds . It’s dizzyingly complicated for investors to figure out what fees they’re paying. With funds ’ multiple share classes , varying structures and

READ: About $195 million is going to discount brokers, instead of you and me

Many investors make the mistake of buying more expensive, lower return A class funds through discount brokers. Perhaps they assume that, as discount broker clients, they will always be provided with lower-cost products. There are exceptions, but with most discount brokers, this is not the case when it comes to mutual funds.

What is the potential impact of this practice on an average investor? Let’s consider an investor putting $2,500 into the TD Dividend Growth mutual fund each year for 20 years.

If we assume the average annual compound return of the TD Dividend Growth Fund over the next 20 years will be 6% before fees, the investments within the fund would grow to $97,482. If you purchase a D class version of the fund, you would be left with $84,922 after the cumulative deduction of the 1.19% annual fees (MER) whereas an investor purchasing the A class version of the same fund with a MER of 2.02% would end up with only $77,248.

About $195 million is going to discount brokers, instead of you and me

  About $195 million is going to discount brokers, instead of you and me About $195 million is going to discount brokers, instead of you and me

“Management fees should not function to generate profits,” the AOI says in a report published on Tuesday. One of the more common discounts is a founders’ share class , where early investors in a fund pay a lower fee .

Lower ratios indicate deeper discounts (bargains in the stock market, in other words) and higher expected returns. Not surprisingly, small-cap value stocks have historically outproduced other major asset classes . Lots of investors and advisers worry about the volatility of small-cap value stocks.

READ: How mutual fund fees work

In this example, the D class investor retains 74% of the total gains of the fund while the A class investor retains just 57% of the total gain, with the balance lost in fees.

For many years, investor advocates have been calling for the practice of selling A class funds through discount brokers to be banned. While regulators have expressed their distaste for the practice, no concrete action has been taken to protect investors. Until the regulators or the courts act, investors must protect themselves. If you choose to buy mutual funds through an online discount brokerage, make sure you buy lower cost D class funds and keep more of your investment returns for yourself!

Of course, index ETFs are an obvious, much lower cost alternative to mutual funds for online discount brokerage investors. Let’s again look to TD for an example. Assuming a similar 6% average annual compound return and $10 commission costs on each annual purchase, the TD S&P/TSX Capped Composite Index ETF with a MER of 0.08% would generate a total value of $96,188 after 20 years ($50,000 invested and $46,188 gained – 97% of gain retained).

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  How average investors can play in the private-equity big leagues How average investors can play in the private-equity big leaguesAn idea then came to me to examine how the public stocks of private-equity firms such as Apollo Global Management LLC, Blackstone Group LP, Carlyle Group LP, etc., were performing. We quickly discovered that most of these stocks were trading 40 per cent or more below their highs. They were also trading at discounts to their prospects — the large management fees that these firms would generate from the mega-funds of $5 billion or more that were being raised.

Investors should look at the total fees and how they compare to the competition, he says. Also, a fund of funds can get overbalanced. Industry: Discount stores Consecutive annual dividend increases: 49 Dividend yield: 4.3 percent.

Despite their popularity, exchange-traded funds , or ETFs, have some drawbacks that investors should know about. Depending on how often you trade an ETF, trading fees can quickly add up and reduce your investment's performance.

READ: Are fund fees worth 35 times the amount you pay to DIY?

How will the TD ETF actually perform against the TD mutual fund? We can’t be sure but a comparison of top holdings gives us a clue. The majority of both funds are invested in a small number of prominent Canadian stocks. In fact, as of December 31, 2017, the 9 of the top 10 stocks in both funds are identical. They are the big five banks, Enbridge, CN Rail, Suncor and TransCanada.  If this similarity continues we could guess that returns might also be similar before fees and that the outcomes are highly likely to favour the lower-cost index fund after fees.

Regardless of whether investors choose online discount brokers or traditional advisors, the lessons are simple:

Know exactly how much you are paying in feesUnderstand the long-term impact of feesMake sure the services you receive are worth the price you pay now and over timeMORE ABOUT

FEES:

  • An investor’s guide to getting what you don’t pay for
  • Some tough questions to ask your advisor
  • Should my teens be investing with a discount brokerage?

China invites overseas investors to propel local chip ambitions .
The country's industry ministry said on Wednesday that it welcomed foreign enterprises to invest in its top state-backed semiconductor fund, even as tensions simmer over tech transfers between China and the United States. China is looking to accelerate plans to develop its semiconductor market amid a fierce trade stand-off with the United States and a recent ban on U.S. sales, including of American chips, to ZTE Corp.China's National Integrated Circuit Investment Fund is now putting together a second fund to support the sector, a Ministry of Industry and Information Technology (MIIT) official said.

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