Canadian Foundation for Advancement of Investor Rights (FAIR Canada)

Canadian Foundation for Advancement of Investor Rights (FAIR Canada)

March 11, 2010 18:07 ET

FAIR Canada Issues Report on Money Market Funds: Canadians Losing Out on $300-$500 Million

TORONTO, ONTARIO--(Marketwire - March 11, 2010) - FAIR Canada today issued a 21-page report today entitled "Canadian Money Market Funds – Zero Returns" (the Report). 

Most Money Market Funds (MMFs) not making money. The Report found that Canadians hold $56 billion in money market funds earning almost nothing. In the six months to year end 2009, the average Canadian MMF earned just 0.02% after costs, before the impact of inflation and taxes. The average return for the most recent 30 and 60 day periods was 0%. Even worse, fully one quarter of all Canadian money market funds (mostly smaller segregated funds) lost money in the three or six months to December 31, 2009, and continue to lose money.

$300 - $500 million opportunity cost. "Few individual investors are aware that MMFs are now producing zero or even negative returns or that many bank savings accounts can produce better returns," said Ermanno Pascutto, FAIR Canada Executive Director. "Canadians are missing out on potential interest income of $300 - $500 million by not shifting their funds into higher-yielding premium savings accounts." (See the calculation in the appendix to this release).

FAIR Canada - Zero Returns Report calls for improved disclosure of returns and fees. "Investors have a right to know when returns on a safe "savings account" type investment like a MMF fall to zero or (in the case of some segregated fund MMFs) turn negative. Investment advisors should act in their clients' best interest and consider recommending to their clients that they switch from MMFs to alternatives like CDIC-insured premium savings accounts, if there are no other compelling reasons to keep them in MMFs," said Mr. Pascutto.

Fund economics don't work in this low interest rate environment. The Report notes that since interest rates declined to almost zero in March 2009, most Canadian MMFs would be losing money had they not reduced their fees. The average fee (Management Expense Ratio or MER) for all Canadian money market funds is 0.99%. The largest funds charge an average MER of 0.62%. Yet, the current wholesale rate available to the MMFs on Government Treasury bills is only 0.57%. The result for individual investors is zero returns even with reduced MERs.

"Premium savings accounts at the major banks pay 0.75% to 1.0% and are CDIC-insured, compared to 0% for most MMFs. Investors should stay current and well-informed about their accounts and financial alternatives, and not rely solely on their advisors. However, financial firms and advisors should be informing clients of current returns on MMFs and alternatives to the current zero returns. Monthly statements should disclose the current interest paid on MMFs," said Mr. Pascutto.

About FAIR Canada

FAIR Canada is a non-profit, independent national organization dedicated to representing the interests of Canadian investors. The mission of FAIR Canada is to be a voice for investors in securities regulation and a catalyst for enhancement of the rights of Canadian shareholders and retail investors. Visit www.faircanada.ca for more information.

See Appendix attached

http://faircanada.ca/top-news/fair-canada-issues-report-on-money-market-funds-canadians-losing-out-on-300-500-million/.

Contact Information

  • Canadian Foundation for Advancement of Investor Rights
    (FAIR Canada)
    Ermanno Pascutto
    Executive Director
    416-572-2282
    ermanno.pascutto@faircanada.ca