Weekend Reading: Problems With Trailer Fees Edition

The Canadian Securities Administration wants to reform the mutual fund fee structure in Canada and earlier this year awarded two studies to review whether commission-based compensation changes the nature of advice and influences mutual fund sales.

The first report was prepared by the Brondesbury Group made it clear that commission-based advice creates problems that need to be addressed. York professor Douglas Cumming released the second study this week and found that – to no surprise – mutual funds that pay trailer fees attract higher inflows from investors, even when they perform badly. These types of funds also tend to perform worse than other funds that do not pay trailer fees.

He said his report does not draw conclusions about what regulators should do next because he was asked only to study mutual fund data.

“It’s not my job to tell them to go ban trailer fees, but the data say a very clear picture about what’s going on in the industry.”

Hopefully these reports will give regulators enough ammunition to make serious reform to the mutual fund industry and do the responsible thing by phasing out trailer fees altogether.

Canadian investors take note: Britain’s ban on embedded fees and sales commissions has led to a rapid drop in sales of the most expensive fund products to clients.

This week(s) recap:

Last Monday I looked at how first-time homebuyers are getting into the market.

Last Wednesday Marie showed us how Canadians are spending their money.

And last Friday I shared 5 ways to take control of your money.

Over on RateHub I opened up about misusing credit cards back in college and how my relationship with credit cards evolved over time.

On Monday I compared taking CPP early vs. late.

On Wednesday Marie explored the real cost of starting a family.

And on Friday I explained how to set up an RESP.

Weekend Reading:

Valeant was Canada’s largest company three months ago. Now it’s being called the next Enron.

Motley Fool’s Morgan Housel just had a baby and shared some thoughtful financial advice for his son.

Tom Drake rounded up some great personal finance tips from Canadian money experts.

Michael James on Money looks at the difference between typical spending and average spending.

Alan Whitton from Canajun Finances asked if robo-advisors are a God-send to investing?

Some frugal lessons from The Frugal Girl on this week’s edition of Because Money.

The Diderot Effect: An Anecdote from 250 years ago may help explain why we always feel the need to buy more.

Feeling ambushed by credit card offers? Here’s how to win the war on plastic.

Rob Carrick says it’s time for Canada to stop coddling the housing market.

Carrick also argues why downsizing to a condo in retirement won’t always cut your costs.

Steadyhand’s Tom Bradley explains how to narrow the behaviour gap that’s hurting your portfolio.

Here’s some great insight from Ben Carlson on what they don’t teach you in business school.

Adam Mayers interviewed accountant Mark Goodfield about a tough topic – inheritance. He explains why a little plain speaking now will a lot of heartache later.

Tim Cestnick lists five ways to use up the capital losses in your portfolio.

Should you avoid dividends because of the OAS clawback? John Heinzl explains.

Here’s how to plan your retirement finances if you know you’ll have more money than you need.

Jason Heath talks power of attorney and taxes – here’s what you need to know.

Heath also explains where to get good investment advice even if you don’t have a lot of capital.

Have a great weekend, everyone!

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  1. Big Cajun Man (AW) on October 24, 2015 at 6:36 pm

    Thanks for the inclusion, should be interesting to see if ROBO-Advisors are as biased as humans when it comes to purchasing funds

  2. Michael James on October 24, 2015 at 8:29 pm

    I’m not sure why people have problems with the mutual fund industry — the biggest players are making plenty of money. What else matters? 🙂 Thanks for the mention.

  3. Kathy Waite on October 25, 2015 at 11:02 am

    Mutual fund fees : be the shareholder they are making the profit for not the client they are making it from.

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