According to a sheet of paper stuffed in my mail slot, it’s “time to think about being paid what you’re worth.” Investors Group is taking on twelve new “consultants” in my area. This prompted me to poke around the Investors Group web site to look at their investment products. I didn’t much like what I saw.
Presumably, Investors Group (IG) consultants would sell IG mutual funds among other things. The fund selector on IG’s web site showed 84 funds designated as “aggressive growth,” which seems to mean stock funds. The dollar-weighted average management expense ratio (MER) was 2.65% per year!
This is staggeringly high. Most forecasters consider an estimate for the long-term compound return from stocks of 6% above inflation to be optimistic. IG stock funds take away nearly half of this return in MERs.
Actually, it’s worse than the 2.65% I calculated. This percentage is for the back-end loaded version of the funds, where you pay a percentage upon leaving the fund if you leave too soon. Typically, a back-end load starts at 5% or 6% and declines to zero over 5-7 years. The unloaded version of IG’s funds typically had an MER about 0.15% higher than the loaded versions.
What about Canadian money market funds? These are supposed to be ultra-safe funds that give very modest returns. They typically have low MERs. IG has three Canadian money market funds. The only no-load fund has a painfully high MER of 1.13%. The loaded funds have MERs of 0.66% and a whopping 1.27%!
This was enough for me. I have moments where I think it might be fun to be a financial advisor, but I certainly wouldn’t want to do it having to sell mutual funds with such painfully high expenses.
If you became a financial advisor, you would never sell such garbage.
ReplyDeletePeople who sell that stuff are really ripping off their clients - within the law. How do they sleep at night?
I assume you are referring to IG - The Investors Group, which is based in Canada. If not disregard below.
ReplyDeleteMy mother invested with IG. On nearly a million $ investment she lost over 2K in one year. I find it almost inconceivable that a supposedly conservative investment program with such a high input could lose anything. But that's the stock market, I'm led to understand.
Then, as the story sometimes sadly goes, she died. In order for the trustee to remove what's left of her investment, he/she will have to pay at least $11k (5.5% of total).
Is this kind of performance typical of investment groups? And, if so, why would anyone get involved in them? JMcP
Anonymous: Yes, I was talking about Investors Group in Canada. If a significant fraction of your mother's money was invested in stock mutual funds, then losing money in a given year is certainly possible and may not really be the fault of IG. However, their sky-high fees definitely increase the odds of losing money. The 5.5% charge you described sounds like a deferred sales charge. This charge kicks in if the money is pulled out within 5 to 7 years. Between the deferred sales charge and the high MER, as soon as an investor signs up IG is assured of collecting a certain amount in total fees. They will either get their money through many years of MERs, or if you pull your money out early, they make up for the lost years of MERs with the deferred sales charge.
ReplyDeleteMichael
ReplyDeleteI got the same flyer. It would actually be kind of interesting to attend the seminar to get an inside view. The experience could make an interesting blog post. Any fellow Ottawa bloggers like to join in, I wonder? Could be a special field trip for the NCFBA.
Larry:
ReplyDeleteIt could be similar to the time I went to a time-share presentation to see what they were like. I think it would be interesting to listen to the presentation, but I wonder whether they attempt to screen people like us out.
Ahhhh Investors Group... makes me think of that movie... now whats its name again?...er um you know the one where the honest main st. guy gets fleeced for his money through deceptive practices.. The Boiler Room? no...Wall St with Charlie Sheen? LOL... You know if these guys in their offices were so good at investing money for people they wouldn't be working in those offices.. they would sitting by the pool at a resort in Fiji sipping those pretty little drinks with Umbrellas in them !
ReplyDeleteKeep in mind Investors Group consultants are a special brand - near the bottom of the barrel in aggregate.
ReplyDeleteAnonymous: Are you speaking from experience about the quality of Investors Group consultants?
ReplyDelete