Mutual Funds: 3 things you need to know

Quinn Waddington of Waddington Wealth Management Group, an advisory practice at Canaccord Genuity Wealth Management,knows firsthand just how prevalent mutual funds have become in many people’s portfolios—and just how important it is for would-be investors to be aware of the potential pitfalls.

“Lack of transparency when it comes to the true costs of investments can be an issue for investors,” says Waddington, a Chartered Financial Analyst born and raised in the New Westminster area. “Hidden fees associated with mutual funds can cost clients in excess of 2.5% a year. A good Investment Advisor should be able to help you mitigate these costs through a comprehensive investment strategy.”

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According to Waddington, here are three must-knows for mutual funds investors:

1.    New regulations, statements –“New regulations have come out regarding financial statements that are designed to increase transparency for investors,” says Waddington. “All investors will receive a statement in January 2017 showing their total fees for the previous year.  Reading these statements carefully may open your eyes to potential cost savings opportunities and hopefully start a conversation about fees.”

2.    Secret fees – “Although these new statements will disclose the amount paid to the advisor from the mutual fund company, otherwise known as the mutual fund trailers, other fees charged by the company, including the management fee, will not be disclosed,” Waddington explains. “This is important because management fees are often the largest portion of the overall costs of mutual funds. So investors still won’t know their total costs unless they look into the management expense ratios, or MER – which includes the management and trailer fees—or contact us to figure out the real costs and find more cost effective alternatives.”

3.     Investment alternatives – “With the average Canadian mutual fund costing around 2.5 per cent annually, alternatives such as separately managed accounts (SMA) and Exchange Traded Funds (ETF) portfolios can help to lower clients’ costs while still providing well diversified managed accounts,” says Waddington. “SMAs provide similar exposure to mutual funds, but allow investors to actually hold individual positions in their accounts, which can reduce overhead costs. ETF portfolios are a great way to achieve diversification at very low costs, with smaller accounts.”

“Using these tools we’ve been able to consistently reduce the costs for our clients by up to one per cent annually,” says Waddington. “While one per cent may seem like a small amount, compounding that over a lifetime can make a huge impact on the funds available in retirement.”

For more information about Waddington Wealth Management Group, visit their website, send them an email or call Quinn Waddington directly at 604-699-0874. You can also find Waddington Wealth Management Group on Facebook and Twitter. Canaccord Genuity Wealth Management is a division of Canaccord Genuity Corp., Member – CIPF and IIROC.

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