Exposed: Hidden Investment Fees

It goes without saying that we all want to maximize the financial returns of our investments. The terms of the agreement may be complex, but the concept is simple: You lend your money to others to use for their purposes, and they pay you back with interest. But purchasing investments comes with costs from your broker and/or financial institution—sales charges, management fees, electronic communications networks fees, operating expenses, and trailing commissions—that can eat into your returns. Here is chart detailing some of these fees from various brokerages. And when you purchase a group of investments within a mutual fund, the fees have historically not been revealed separately, leaving you in the dark about where your money is going.

There is nothing inherently wrong with any of these costs; it costs money to manage money. But it’s important to know what these fees are in advance of choosing your investments, brokers, and financial institutions.

It hasn’t always been easy or even possible to understand the additional costs hidden within mutual funds. But there is good news! In July 2016, the Ontario Securities Commission (OSC) rolled out new requirements to make this information accessible and transparent. Now all mutual fund managers and brokers of funds must provide investors with:

• An annual report on charges and other compensation that shows, in dollars, what the dealer or adviser was paid for the products and services it provided; and
• An annual investment performance report that covers
• deposits into, and withdrawals from, the client’s account;
• the change in value of the account; and
• the percentage returns for the previous year; and the previous three, five and ten years.

The OSC’s new regulations require by law that you must receive this information compiled into a “fund facts” document within two days of buying into a mutual fund and in an annual report (here is a useful sample of that document). Note that since this annual report was made a requirement in July 2016, many of us will be getting our first report in 2017. Important: If you buy into funds through a discount brokerage, the fund fact sheet and annual report isn’t mandatory, so you’ll have to ask for this information yourself.

Given the OSC’s new requirements, keep your eye out for your annual report or go to your wealth manager, investment advisor, or brokerage firm and ask how much they charge in fees. Then you can seek advice on whether to stick with your current investments or look into other options.
SolarShare prides itself on being transparent about the fees associated with purchasing Solar Bonds. Currently, Solar Bonds earn 5% per year for a 4.5 year term, and lifetime membership in the co-operative, which is mandatory for investors, costs $40. Solar Bonds are eligible to be held in an RRSP or TFSA, and we have created partnerships with a few institutions who will set up registered accounts for our members. SolarShare’s financial partners charge $55 – $65 per year in management fees. 15-year self-amortizing Solar Bond are available at 6% interest, however they cannot be held in registered plans.

The OSC has a handy mutual fund fee calculator for comparing service fees of registered mutual funds. With these new requirements, it’s a good time to speak with a financial advisor to review these fees and decide whether your money would do better elsewhere. Furthermore, these regulations also make it easier for you to tell what stocks are making up your mutual fund (look for the “top 10 investments” and “investment mix” sections on your fund facts sheet). If you find out that your money is financing fossil fuels or other industries that don’t align with your ethics, consider divesting.