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.
