The first questions that I suspect will come from the lips of Canadians finding out how much their advisor is paid (as required by the end of 2016), will be ‘Why didn’t I know this sooner?’ ‘How come she didn’t tell me?’ and perhaps ‘What should I do about this?’.

Lowering your MER

While I can’t answer the first two questions, I will spend some time with this 3rd question – because what matters most is how to best move forward. We can’t change the past.

The new disclosures will show – in dollars and cents – what your financial advisor’s compensation is for your business. If you don’t feel you are getting decent value for this fee, it makes sense to look elsewhere and determine how to lower your fees.

Many Canadians are flocking towards index funds and exchange-traded funds, which are generally 5 – 20 times cheaper than standard mutual funds. They’ve actually been around for more than 20 years but it is only more recently that their merits are being extolled by the educators in the industry.

Fees matter. An annual fee of 2.4% (no matter how charged) can rip 50% of your returns away in less than 15 years – and that just isn’t acceptable for a growing number of Canadians. When an Index fund charges 0.5% and an exchange-traded fund charges 0.1%, the benefits should become clear.

Now some might argue that the ‘active professionally managed funds’ will put the experts on your side and compensate for the high fees of mutual funds. Perhaps index funds are for amateurs who don’t understand the value of a good research team and professionals timing their way in and out of the market. Not true. Check out any SPIVA report that comes out quarterly. 90%+ of all mutual funds cannot keep up their respective market index (like the Canadian TSX) over any given 5-year period. Very convincing stuff if you’re willing to take the time to read it.

And from today’s Globe & Mail (page 1 of Report on Business): ‘Not a single Canadian manager investing in U.S. stocks delivered higher returns than the S&P 500 index over the past five years – none.’

So if the research is there to suggest that a more passive, index-hugging approach is better for investors, why isn’t everyone doing it? The answer is buried in the reason our banks and investment companies make several billion dollars in profit each year – it’s not in their best interests to promote it. As Upton Sinclair wrote, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

But reporters and educators who are not profiting from the sale of financial products get it. Dan Bortolotti (Canada’s renowned Canadian Couch Potato Investing guru) puts it like this: “Indexing strategies are used by the most sophisticated pension and endowment fund managers in the world, and many of its proponents are Nobel laureates… yet many financial advisors are contemptuous of the idea despite ample evidence to the contrary.”

When you find out what you’re paying for your mutual funds this year – know there are alternatives available. Move forward with a low cost, diversified, index approach and your future self will thank you.