Clear disclosure cleans up water heater rental scams. Why can’t the mutual fund industry do the same?

Last week I turned the kitchen tap to HOT and all I received was lukewarm water. I’m certainly not the world’s greatest handyman (my wife would be laughing if she actually read this blog, she doesn’t), but I knew it was likely the hot water tank. Sure enough I went into the basement and discovered that the water heater pilot light was out. Off to Google I went. How to restart a pilot light? I also called my Brother, he knows his way around home repairs.

My bro said open up your basement windows for a while, make sure you don’t smell any gas, make a meaningful and heartfelt prayer before you strike that match. I’ll admit it was more than scary. But it would not start. After the fact I found out that I did everything right, but the gas line heading into the pan was shot. The tank was about 17 years old. Time for replacement.

Rent vs buy for your water heater? 

As you may know, you can rent your water heater. You might even be lured into a lease-to-own furnace or air conditioner according to this article from Ellen Roseman of the Toronto Star. Be careful out there folks. And for more on Enercare complaints and issues please have a read of Enercare’s customer service did not go to plan.

Certainly, do the math. It’s almost always going to be cheaper to own your water heater vs renting. Please have a read of this post on Boomer and Echo Water Heater Rentals: Do Ontario Residents Get Hosed? where Robb Engen lays out the options and benefits and potential traps. In the end my wife and I decided to rent the water heater. Mostly because, if I have my way, we will be leaving our lovely home and neighbourhood in 4 years or so.

Rouge National Park Marshlands 

It will actually be ‘cheaper’ for us to rent. We did not have to pay for the two repair and installation visits (well, we’ll see when we get the final bill), we have ongoing coverage for repairs and service and we will receive a $300 Visa gift card. Certainly that gift card might be a bit of a short-term hook for many unsuspecting water heater renters.

But this post is not about water heaters, it’s about the disclosure rules. I had to agree to the terms and conditions over the phone before they would install the new water heater. When I called, the Enercare representative was kind and clear and patient and she answered all of my questions. She gave me my monthly costs including taxes, she gave me the total purchase price if I wanted to go that route, she explained that I was responsible for that monthly payment even if we sold the house. If we move we have to disclose to the new homeowners that there is a rental agreement. The new homeowners will need to sign on. There were certainly more disclosures on the service agreement and on what was and wasn’t covered. etc. etc. I was told that the call was voice recorded and that I could agree to the terms and conditions if I wanted to proceed. I agreed. I knew what I was getting into.

Here’s a link to the larger suite of rules governing the industry. Thanks to Ellen Roseman for this.

Why can’t we tell mutual fund investors how much it will cost? 

The mutual fund industry is uh, ethically challenged. For the compliance and regulatory picture have a read of Ken Kivenko’s Canadian Fund Watch. The number of cases and complaints would dwarf the little water heater arena. The dollar value of fees paid (unnecessarily in my opinion) by Canadians is in the tens of billions annually. It’s a societal issue. And yet, Canadians continue to not know of the fees that they pay on mutual funds. ‘Advisors’ at banks and mutual fund sales offices continue to not disclose those fees. When I was an advisor at Tangerine Investments I would conduct portfolio analysis for clients (on their outside investments) and they would send me their statements and reports. I would ask them to ask their bank or advisor how much they were paying in fees. Too often they were told that they were not paying any fees at all, to the advisor (a trick answer to a simple question). Clients most often could not get a clear answer on fees, in writing or by verbal description.

In an effort to add ‘clarity and transparency’ the regulators mandated that mutual fund dealers must now send annual statements outlining the fees paid. But guess what, those statements only have to disclose the fees paid to the dealership (advisor) and not the total cost of the fund. If a Canadian has a mutual fund with a total MER of 2.2%, they will likely get a statement showing the fees paid are 1% – the trailing commission paid to the dealership. The 1.2% is missing from the statement. The larger part of the fees is not disclosed.

Hence the Cut The Crap Investing blog 

There is no honest effort to disclose the total fees paid on mutual funds in Canada. In fact, the regulation leads to confusion not clarity. This regulatory effort is called CRM – Client Relationship Management. It appears obvious that there will be no regulation that requires the mutual fund industry to disclose all fees in those annual statements. Sorry investors, the regulators do not have your back.

It’s up to you to help yourself. You can self-direct your own ETF portfolio, use a Canadian Robo Advisor, or contact a fee-for-service advisor.

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Contact me, Dale @ or better yet, leave a message.

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