Monday, 7 October 2013

Conference Board Shows Us the Mutual Fund Footprint

The Conference Board of Canada's Making Dollars and Sense of Canada's Mutual Fund Industry tells us that the industry is gigantic. How ironic and perverse. According to the definition of value added on page 2, the more the industry charges over its cost, the more it adds value. Bring on 10% MERs, that would make the industry even more valuable! The more inefficient it is, the better? There is a big missing piece. There needs to be consideration of the cost and value to consumers.This key issue is raised in this quote, "Fund management creates value in the economy through portfolio management activities, distribution channel creates value through the advice a fund dealer provides when selling a mutual fund to an investor". But then the report avoids assessing that critical aspect. Portfolio management that doesn't beat the index - that's value added? Advice from too many fund dealers that consists mainly of selling effort - that's value added?

In the terminology of the report, the industry has a huge economic footprint. Unfortunately the footprint falls heavily on the back of Canadians trying to save for retirement.
(Thanks to Ken Kivenko for the link to the report)

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