Best Mutual Funds: Investment Funds, Bond Funds, Money Market Funds, Growth Funds, Stock Funds A Source of Best Performing Mutual Funds of Investment Funds, Bond Funds, Money Market Funds, Growth Funds, Stock Funds

Today’s Well Advised column looks at RRSPs and the Future of Mutual Funds, and adviser Preet Banerjee and a new book he’s written entitled simply “RRSPs.’ The book is aimed both at fellow advisors as well as retail investors. With 41 different RRSP strategies and tips, I’d be surprized if some of the content wasn’t an eye opener for readers. Go here for more on the book.


As the column explains, the 30-year old Banerjee is representative of a new breed of young financial advisor in Canada. While Banerjee got a big boost in his financial planning career while at mutual fund giant Investors Group Inc., he now eschews mutual funds at ScotiaMcLeod — much preferring exchange-traded funds (ETFs) sold under whatever compensation model a client chooses: fee-based, fee-only, by-the-hour or even the traditional commission model — which may be most cost-effective of all for those who prefer to buy and hold broadly based ETFs for the long term. 

  Most of the email about the column today has centered on the admittedly controversial headline about “shunning” mutual funds. Indeed, if Banerjee is truly representative of a new generation of advisor, then the mutual fund industry may have a  bit of a problem. The core of its distribution strategy has been embedded compensation — trailer fees which derive in part from hefty Management Expense Ratios or MERs.  Burgeonvest’s John De Goey — also mentioned in the column — has long railed against embedded compensation, arguing instead for the unbundling of compensation and advice.

 It’s one thing for retail investors and a few do-it-yourself investors to embrace index funds or ETFs. It’s quite another if advisors are breaking away from the embedded compensation pack and recommending that their clients move from mutual funds to ETFs.

One point I should clarify — when referring to “mutual funds” the headline [which I didn't write] was presumably referring to actively managed mutual funds with high fees. There are of course some actively managed mutual funds (from firms like Phillips Hager & North, Beutel Goodman, Saxon, Sceptre, GBC etc.) which aren’t necessarily sold with embedded compensation. And of course index mutual funds (like some of the bank no-load groups or DFA Canada] resemble ETFs in their passive approach to the markets. The difference is that some index mutual funds also have trailer fees or embedded compensation.

 Then again, as we’ve written in the past, even some ETFs have moved to embedded compensation: Claymore Investments in particular has pioneered trailer fees of 75 basis points paid to advisors, bringing the cost to investors significantly closer to the level Canadian investors have been accustomed to paying for years in their actively managed mutual funds.

 In short, the mutual fund industry and the ETF industry appear to be converging somewhat: some ETFs are actively managed or soon will be; some mutual funds take a passive approach; most mutual funds have embedded compensation but some do not; most ETFs do not have trailer fees but some do. So it’s really not productive to make sweeping generalizations about mutual funds being “shunned” altogether. Nevertheless, young advisors like Banerjee may prove to be the canary in the coal mine for the mutual fund industry. That plus the extensive media coverage of the Tufano et al academic study on how high Canada’s MERs are relative to 18 other nations suggests that the industry needs to continue to drive down costs and to deliver performance and value for those fees.

 I’ll close with the same offer made at the end of the column. Over the coming months, I’d like to hear from more young financial advisors who believe they are part of a new breed. We’ll profile them in the same spot occupied today by Banerjee.