Morningstar released a comprehensive report on the Investor Experience with mutual funds in 16 different countries today. Overall, Canada faired well on a comparative basis, receiving a final grade of B. On the individual categories:
- Investor Protection: A
- Transparency in Prospectus and Reports: A
- Transparency in Sales and Media: A
- Fees and Expenses: F
- Taxation: C
- Distribution/Choice: B+
- OVERALL: B
I want to stress that these are relative to the other 16 countries, I’m not too sure if these grades would be so high on an absolute basis. For example, I know there are some people who will fall off their chair when they see that Canada scored a grade of A in Investor Protection and Transparency… like I did.
I fell off my chair too.
To get an A for transparency, a simplified prospectus should be a single page that includes the following text in 20-point font: “If you put $50,000 into this fund, we’ll take away $1200 of your money every year.”
After reading Naked Investor 2nd Edition, I would give Investor Protection a D+.
Transparency in Prospectus and Reports: C. I don’t find them to very useful or understandable and sometimes exclude important information for certain mutual fund families.
Transparency in Sales: F. Most salespeople do not explain to you what deferred sales charge is and how they are compensated.
Transparency in Media: A. Rob Carrick and Jonathan Chevreau have been doing an excellent job of updating us on personal finance and investing. Preet also tells us a lot about the brokerage industry in general, which is great. Morningstar.ca is an excellent source to compare different mutual funds and provides important information like fund turnover.
It is often said that Canadian regulators follows the old English focus and not the American one of process over result. I have been told Americans are much more concerned about fraud and results whereas Canadian regulators are concerned about the right process being followed.
The best example being the diverging enforcement of Conrad Black who, procedurally speaking, was most likely on-side even if it produced a widely abusive result and this could explain why the Americans sought criminal proceedings while Canadian regulators mostly did little (publicly at least) to address the substance of his actions.
So on a relative basis, I can see the A grade in transparency since it goes to process and the F grade in fees since it goes to substance.