Pulling Off the Bandage Quickly

Deferred sales charges (DSCs) may have been the mutual fund industry’s greatest marketing innovation. Back in the 1980s, it wasn’t unusual for funds to be sold with front-end loads of 5% or more. Then fund companies realized it’s a mistake to charge an entry fee that discourages people from buying your product. Better to draw them in for free and charge them dearly to leave: DSCs typically start at about 6% and continue on a sliding scale for six or seven years, with no time off for good behaviour.

For investors who have six-figure mutual fund portfolios, the cost of selling funds with DSCs is downright painful: in our DIY Investor Service we have worked with clients who have had to swallow more than $5,000. There are no doubt countless others who want to break free of a bad relationship and start fresh with a low-cost portfolio of index funds, but who just can’t bring themselves to fork over those DSCs. They’d prefer to sell their funds gradually over two or three years in order to reduce the upfront cost.

That’s understandable, but in most cases it’s probably the wrong decision. While there may be ways to make a gradual exit, it’s usually better to simply pay the penalty and make a clean break. It hurts to rip off the bandage quickly, but it’s preferable to prolonging the agony. The pain goes away quickly once you’ve implemented a new low-cost portfolio with all of your assets.

Breaking free and breaking even

If you’re planning to set up a new ETF portfolio and manage it on your own, the amount you pay in DSCs will be immediately offset by huge savings in management fees. Let’s say you have a $100,000 portfolio of mutual funds with an average MER of 2.5%. Your salesperson tells you the funds carry a 4% deferred sales charge, which means selling them will cost you $4,000. You might be tempted to wait a year or two for that DSC to drop to 3% or 2%. But remember, if you move immediately to a portfolio of index funds with an MER of 0.5%, you’ll save about $4,000 in management fees in the first two years alone—and that’s assuming your portfolio doesn’t grow during that time.

It’s not just the math: there is also a huge psychological benefit to severing ties with crappy investments. You might be able to save some money by selling your DSC funds gradually (Justin Bender has outlined a strategy for doing so), but the process is time-consuming and demoralizing. I’ve even encountered investors who drew up a schedule for redeeming their mutual funds gradually but never followed through. Best to acknowledge those fees as a sunk cost and allow yourself to get excited about what lies ahead.

A taxing question

Fear of taxes can also delay implementing a new portfolio. These days one of the biggest obstacles is a reluctance to realize capital gains: after several years of outstanding equity returns, even mutual funds charging 3% have seen big gains, and selling them now is likely to come with a tax bill. But again, the short-term pain is worth it in the long run. By switching to an ETF portfolio you create opportunities for tax-loss selling, and if we do experience a market correction you’ll be able to harvest some losses and carry them back for up to three years, potentially reducing that initial tax hit.

If you’re sitting on a portfolio that’s concentrated in three or four stocks with big gains, the decision should be even easier. The capital gains tax is a small price to pay for dramatically reducing your risk by moving to a more diversified portfolio.

No time like the present

Finally, almost everyone who implements a new portfolio worries about whether market conditions are favourable for a big move.

Let’s remember that if your mutual funds have a similar asset allocation to the new portfolio you’ve planned, this is a non-issue: you’re not changing your market exposure at all if you’re moving from a high-fee Canadian equity mutual fund to Canadian equity ETF. You’re either selling low and buying low, or selling high and buying high, so your timing makes no difference. I like to compare this decision to finding a better deal on car insurance: if you were offered more coverage and lower premiums, would you hesitate for second?

If your asset allocation will be changing significantly—it’s not unusual for mutual fund salespeople to put clients in absurdly aggressive portfolios—the situation is different. But in most cases you should still implement the whole portfolio at once. Dollar-cost averaging with a lump sum is appealing to many investors who think it reduces risk, but that’s largely a myth: in most cases it just ends up resulting in lower returns. It also turns one anxiety-inducing decision into many.

It will never feel like a good time to invest a large sum of money. Just consider the last five years: after the financial crisis, when stocks were cheaper than they have been in a generation, many investors wanted nothing to do with them. Now that they have reached all-time highs, just as many are afraid of a looming correction. If you have a well-formed financial plan and a target asset mix that is suited to your goals and temperament, the best time to implement your portfolio is always now.

34 Responses to Pulling Off the Bandage Quickly

  1. Andrew F November 27, 2013 at 10:59 am #

    I think you’re totally correct about not dragging out the pain of exiting DSC funds. But, I thought it might be interesting to comment on the popular notion that “It hurts to rip off the bandage quickly, but it’s preferable to prolonging the agony. ”

    Daniel Ariely is a famous behavioural psychologist who also happened to be badly burned in an accident while serving in the Israeli military. While he was in the burn ward, the nurses would quickly rip off the bandages using this rationale, but it would result in excruciating agony. What Ariely found when he studied the experience of pain later was that patients actually preferred longer, less intense pain induced by carefully removing the bandages. It was actually the nurses who preferred the quicker removal of bandages as it reduced the amount of time they had to inflict pain on the patients. The “rip it off quickly” rationalization was used to justify it (not that the nurses were acting in bad faith–they believed they were doing the right thing). Further studying people’s experience of pain, like with colonoscopy, Ariely found that people remember peak pain and the pain at the end, but not so much the duration of pain.

    Totally off-topic, but this post reminded me of the book. It’s a fascinating topic.

  2. Mike D November 27, 2013 at 11:32 am #

    Great post! Of course, my own decisions on this matter were the opposite. I just could not get past having that much less money at work for me. It makes perfectly rational sense to just get it over with for the reasons you mentioned, but I am still holding onto some high fee funds that have DSCs. I have sold the 10% free that I was allowed each year, and for smaller holdings just bit the bullet and sold. I will sell all in January – as there is a 10% free redemption each year. I am not convinced that the savings in MER for 1 month will justify the additional DSC charges. Then I will finally be free of those $%$#$% funds!

    Another question entirely is should funds with DSCs be sold at all? Clearly, they serve the mutual fund industry well as there is such large initial commissions to the sales person. But is the investor well served? My belief is no. The industry will argue that these fees make it possible for the small investor to get access to their services, but then explain why the banks can sell no load funds with lower MERs (1.5 to 1.85% or so, less than the 2.5% of some others?

  3. Claire November 27, 2013 at 11:35 am #

    Wow…from DSC funds to colonoscopy! But seriously, I was once in a DSC mutual fund conundrum , and I bit the bullet in one major transaction. It was one of my best decision as I was leaving the actively managed mutual funds forever.

  4. Smithson November 27, 2013 at 11:51 am #

    When I made the switch from mutual funds to ETFs in 2005, it cost me about $2000 in DSCs, but it was one of the best decisions I’ve ever made. Someone correct me if I’m wrong, but I believe that DSCs are considered investment expenses so they can be added to your adjusted cost base to reduce capital gains from the sale of the mutual fund. That also might help reduce the sting of the DSC.

  5. Andrew F November 27, 2013 at 12:03 pm #

    Personally, I think mutual fund MERs should only be used to pay for fund expenses and the manager’s fee. Advisor fees should be transparent and paid directly by the investor. The perverse incentives at work in the fund industry can make good people do bad things. Kickbacks from fund companies are an excellent example. At that point, advisors are selling their clients to fund companies–you become the product, not the client!

    Sorry for the aside on colonoscopies. It helps to explain why people prefer to tear off the DSC bandage slowly rather than all at once, even though the latter course is rationally speaking the better option.

  6. Jeff November 27, 2013 at 12:09 pm #

    Hi Dan,

    Thanks for the post. Does the same hold true for switching from index mutual funds to lower cost ETFs?

    I have some index funds in my non-registered account that I would like to convert to VUN and VDU (these ETFs have an 0.27 and 0.37 MER advantage when compared to my index funds). Although I haven’t done the math, I figured that due to capital gains taxes, I would be better off converting to these ETFs when re-balancing my portfolio or during a market correction.

    What are your thoughts?

  7. Cybamuse November 27, 2013 at 12:37 pm #

    Completely agree! I just had to go through the vexing fight with my mutual fund manager over the fact he was ‘disappointed’ I was selling one of my mutual funds while it was down etc and in frustration, I just said, “Yes, its down, but I’m not going out to buy a TV with this money, I’m going to reinvest right back in a low cost ETF which is also down, so when that ETF recovers, so does the money you think I’ve ‘lost’ – and meanwhile, I’m not loosing money in 3.5% in fees each year waiting for it to recover.”

    It was not a pleasant conversation! Thanks Dan for giving us the understanding to fight back when the ‘old guard’ fight to keep us paying high fees.

  8. Canadian Couch Potato November 27, 2013 at 12:51 pm #

    @Andrew F: I thought about Dan Ariely’s book when I wrote this: he makes a very wise observation in that anecdote about having his burn dressings changed. But I think this case is different!

    @Smithson: Yes, DSCs are considered part of the cost of disposing of the funds, so in a non-registered account the after-tax cost would be lower than DSCs incurred in an RRSP.

    @Jeff: Your situation is quite different. You’re not in a bad relationship with a wildly expensive and inappropriate portfolio: you’re just looking to gain some incremental cost savings. I would agree with you that this kind of tweaking can be done gradually.

    @Cybamuse: Great story, thanks for sharing. It is remarkable how powerfully we resist selling crappy investments because they’re down in value. Just consider the logic. If you are reluctant to sell when it’s down, then you must be expecting it to go up faster than the alternative you’re considering. And if you’re expecting it to outperform your alternative, then you should be prepared to buy even more. If you’re not, then your logic makes no sense and the only decision is to sell immediately.

  9. Mike Holman November 27, 2013 at 2:38 pm #

    I think I’m the only non-mutual fund saleperson alive who actually thinks DSC load is a pretty good deal for some investors (especially smaller ones).

    Justin’s paper on avoiding DSC charges is pretty good.

    He mentions switching to lower cost bond funds – I would add that some companies also offer cheaper index equity funds as well, which might be useful especially for an investor with a high equity allocation.

    TD has a few options for less than 1% MER. Note, I’m not talking about the e-series which have to be in a special account.

    RBC has some as well. Desjardins too – and I’m sure there are other examples.

    ie RBC Canadian Index – mer 0.72%
    TD Canadian Index mer – mer 0.89%

    These may not be as cheap as going with e-series or ETFs, but are a lot better than staying with a 2%+ fund while waiting out the DSC period.

    Another option if the company doesn’t have any ‘cheap’ funds is to just look for anything that is cheaper which might fit in the portfolio. In this case a bond fund will probably be a cheaper choice (Justin’s suggestion), but if the client already has enough bonds, then a cheaper equity product is another possibility.

    BTW – Your title is not very SEO-friendly. 😉

  10. Canadian Couch Potato November 27, 2013 at 3:58 pm #

    @Mike: In theory, I agree DSCs could make sense. But in practice they are almost never a good deal for the investor.

    Theory: An investor has $50,000 and an advisor agrees to work with him. The advisor provides some good, unbiased financial planning services with no upfront fee on the condition that the client invests the $50,000 in a diversified portfolio of mutual funds with an MER of 1.5% and deferred sales charges that would kick in if the funds are sold before six years.

    Practice: An investor has $50,000 and an advisor agrees to work with him. He provides “advice” that consists of recommending a portfolio of segregated funds with MERs of 3% or more and deferred sales charges, and then recommends leveraging those investment to enhance returns.

    It may be possible to avoid DSCs by switching to lower-cost funds in the same family. But normally this means being able to transfer the DSC fund to a discount brokerage account. That is often not possible if people are working with big companies that have proprietary finds (such as Investors Group).

    Sorry about the blog title: I don’t know anything about SEO. 🙂

  11. Phil November 28, 2013 at 1:03 am #

    I completely agree that especially when your portfolio allocation needs to be altered it’s worth the paying the DSC’s to set things right. I went through this process this summer with my grandparents (in thier 80’s) portfolio. Their old advisor had them in inappropriate funds eg venture capital funds which cannot be sold for 8 years without 30% charges, and other high yield funds all with Front load or DSCs. I worked it out and after their MERs and the advisor and brokerage fees (not including transaction fees, and lost value due to inefficient tax planning) it was costing them 5% a year for their holdings. There was no advice, no education, and no fund explanations. So after my fury subsided I removed all their funds from Dundee Wealth Management and opened a self directed account for them at RBC.
    RBC has a great account interface which made organizing the funds quite easy. They now currently have only 4 etfs VCE, VFV, XEF, XSB. The remainder is in GIC ladders and HISA. It has been worth the switch, not only are their funds low cost they are now in locations that maximize tax savings, they now use TFSAs, and their account value has gained much more than the cost of the DSCs. RBC was also willing to pay the transfer out fees charged by Dundee.

  12. Robert M November 28, 2013 at 7:41 am #

    I also agree with the view that DSCs are a bad idea for the investor, but not the advisor. When I started investing, everything was front end charges. When DSCs came in, I have to admit to being asleep at the switch.

    However, I have to take exception to the simplistic comparison of the DSC to the ETF mer which I feel is invalid. The cost that I use is the DSC plus the MER of the fund to the date of the transaction added to the cost of the ETF for the remainder of the year and the cost of the advisor advice. This assumes that I am moving to a fee based service. DIY advisor cost is, of course, $0.

    For me, the most cost effective time to move is in the 6th year where the payback is within a single year. This assumes that I am moving to a fee based service that charges about 0.5%.

    My next engagement with a professional is at the point where my entire portfolio cost is under 1% per year, including advice.

    My second point of my rant is wrt to fee based advisors and how they engage clients. You could increase your client engagement by working with clients and showing them a spreadsheet on how DSC charges can be minimised. Often, the advisor wants to see the portfolio, but when the discussion turns to mitigating fees, the silence at the table is deafening. The spreadsheet doesn’t have to be complicated. A standard 3 to 4 fund 60/40 couch potato portfolio is probably sufficient.

    Yes, the advisor may not win the business that year, but you have demonstrated value and are in the front of the pack for any decision for the next year.

    While you are doing the right thing in slamming DSCs, a fee based advisor is showing their worth by working with the prospective client to show how the fees can be mitigated.

    I will be at the table with PWL in my sixth year when my DSC charges are at 1.5% and when the cost of migrating is approximately 2.5% which is the average cost of the funds for the year.

    But you could have locked me in sooner by demostrating superior value at the initial meeting.

    BTW, for the readers, I have not met with Dan, but other advisors of PWL who I felt were also quite good and have no complaints. They just missed the opportunity to make a fantastic first impression.

    Also, Dan, my offer of dinner if you ever make it to Ottawa stands. You have provided me with more good advice than my soon to be former financial advisor.

    cheers, and apologies for the rant.

  13. Oldie November 28, 2013 at 10:54 am #

    @Andrew F: Some people might view the comparison of colonoscope discomfort (and indignity) to the angst caused by frequently obscenely high DSC and other charges, not all of which are adequately explained by sales persons to naive clients, as not being completely off-target.

  14. Dennis E November 28, 2013 at 11:01 am #

    Another great post Dan! I was one of those fearful misfortunates that stick their head in the sand and pile all of their savings into GICs. Then about 1 year ago I found your website and read your book (i.e. along with a few others that you recommend). Having seen the light, I took the plunge and moved everything over to ETFs and TD e-Series index funds. One year later, we’re doing great! Thanks for all your efforts. You’re making a big difference. Keep up the good work!

  15. Canadian Couch Potato November 28, 2013 at 12:27 pm #

    @Robert M: Thanks for the dinner offer. 🙂 You’re correct that it might make sense to wait if you are planning moving to a new advisor, because the cost savings from switching will not be as dramatic. But in the example I gave, I was careful to say “If you’re planning to set up a new ETF portfolio and manage it on your own…”

    Not sure if you have seen this but Justin has created a detailed plan for minimizing DSCs, and he’s done this with several of his clients:
    https://www.pwlcapital.com/en/Advisor/Toronto/Toronto-Team/Blog/Justin-Bender/April-2012/How-to-avoid-Deferred-Sales-Charges-%28DSC%29

  16. Al November 28, 2013 at 2:52 pm #

    RE: market timing

    I get the rationale however is it not a problem to buy a large chunk of etfs or mutual funds late in the year when you will get nabbed for taxes on distributions even though they were not held through almost the entire year?

  17. Canadian Couch Potato November 28, 2013 at 3:08 pm #

    @Al: That’s a separate issue, but it can indeed be a problem. Most ETFs don’t distribute large capital gains, but it’s certainly something to be aware of:
    http://canadiancouchpotato.com/2010/12/10/how-to-avoid-paying-other-peoples-taxes/

  18. Robert M November 28, 2013 at 3:44 pm #

    @CCP: The fund company that I currently am involved with is very good at locking in clients. For example, they only allow monthly withdrawals against the plan and not lump sum withdrawals. It makes it difficult to get the money out.

    However, we have not been idle. This year, the advisor lost all the securities and all non-DSC funds representing about 40% of the portfolio. As these were funds that were in place for more than 7 years, he lost all the bonus revenue associated with these funds.

    This had the benefit of reducing my total investment expense by about 10k per year.

    With respect to the original post, I am definitely in the pull it off quickly camp. When the time comes, the funds transfer in one lump sum and we get on with our lives. What really irks me is that this genius put our TFSA money into DSCs effectively nullifying any advantage of having a TFSA as an emergency fund.

  19. Brian November 28, 2013 at 9:49 pm #

    Re: capital gains

    Timely article. Just recently I met with my adviser, compared my portfolio performance to an comparable index one and then used the Donald Trump line “you’re fired.” While he didn’t match an index portfolio, he wasn’t horrible and he did make some money for me. He was even cool about it and said, he can’t beat a self directed index portfolio because of the fee difference.

    That was my final managed account and completes my transition to a fully self directed portfolio. The good news was it was a fee based adviser so I have no DSC worries. The other good news is I have a hefty capital gains.

    That’s good news? You see, a few years back I actually traded stocks (vs indexing) and a capital gains was a good thing to celebrate because it meant you made money that year. 🙂 It’s all a perspective.

    Also, remember that you can pay capital gains taxes now or later… but you can’t hide from paying forever.

  20. MC November 29, 2013 at 9:00 am #

    DSC is entirely self-serving. Advisors are supposed to be in the business of doing what’s right for the client, and putting our clients’ interests ahead of our own. How can a DSC ever be justified as putting the client’s interest ahead of the advisor’s? I ask this simple question: Name one thing beneficial to a client about DSC?

    DSC introduces a risk to the client that previously did not exist. Advisors are supposed to help clients reduce risks, not bring new ones to the table. It is entirely self-serving.

    Disclaimer: I sell mutual funds for a living.

  21. Corey Goldman November 29, 2013 at 11:54 am #

    I am wondering whether any readers / commenters would be interested in sharing their experiences for a piece I am working on for Financial Post Magazine on Canadians’ ongoing love affair with mutual funds, and why it continues. If so, please contact me – cgoldman@nationalpost.com

  22. Paul N November 29, 2013 at 6:16 pm #

    Another great post. A good follow up to your last one which brought out a lot of good discussion. I love your “Theory vs. Practice” reply above. Also Mike D’s post.
    I have told my gf’s story in the past being coerced into buying $20K of crappy funds and being advised to get a med-high interest leverage loan to do so. The “advisor” swooping in at parties, get together’s and being recommended by unwitting close friends. Really devious methods of getting clients.

    I later caught up with the gentleman and his wife working a sweet 16 party and had some choice words for them. 7 years of DSC’s. I too had the gf pay back the leverage loan early using the RRSP return, then take advantage of each years 10% free removal + whatever DSC would be close to the MER rate anyway the next year. (you would lose that money anyway). Finally its down to a small amount and the last of it will be moved over next year. The whole experience was exactly the opposite of what it should have been.

    It gives the whole industry a bad name because some investor’s will never understand the difference between what is a good fair priced advisor service + what fair fund costs should be. Their bad experience simply lumps all investment types together, and “their” all bad! Lets all keep fighting to weed out the bad actors!

  23. Paul N November 29, 2013 at 6:21 pm #

    @ Corey

    Their are still a few good Mutual funds out there. I personally have 2 simple no load balanced funds that have a 5 yr return of 12 and 14% respectively. One of those a 10 year return of 9%. I really don’t mind paying a 1.5% MER for that kind of return. You can still love some – just the right ones. Some of the best advisors simply can’t duplicate even that return.

  24. David November 29, 2013 at 8:07 pm #

    My ex-advisor convinced me that DSC was better than FE because the fees are deferred until after you’ve made some profits. After becoming a couch potato a few years ago I realized the complete absurdity of FE/DSC fees altogether. DSC fees help advisors to lock in clients. It has been several years since leaving my advisor and I’m still fuming about this!!!

  25. Robert_M November 30, 2013 at 6:07 pm #

    DSCs may have been valid at some point in the past. If you were young and early in the investment cycle, DSCs would have allowed you to avoid the sales charges on the fund.

    However, today, with the availability of ETFs, low cost and no load index funds and the select few mutual funds with low MERs, it makes no sense to purchase any DSC fund.

    The advisors also do not explain the full effects of the DSC. They just mention saving the sales charge and the slightly lower MER. Then they get you to sign a paper that says that they have “explained” everything to you.

    This leaves the client with a bad taste in their mouth when they realize the full impact of a two minute decision.

    The best defence is to wait 24 hours before signing any piece of paper. This places a lot of pressure on the advisor and gives you the time to do the necessary research.

  26. Lauren December 16, 2013 at 9:51 am #

    Hi,

    This question doesn’t directly relate to this post but I couldn’t find an appropriate post. I own shares in a company that I bought a few years back, before I knew much about investing (now I index everything!). I’ve been holding onto these shares and they’re in my TFSA but right now are facing about a 50% loss. I haven’t decided yet if I am going to sell some or all of them but I am wondering if it is possible to transfer these shares out of my TFSA into a non-registered account and then sell them? If so, if I did it before year end what contribtion room would I get back (original or value of the shares when transferred out?). In doing this I could then claim the capital loss…I have a feeling this isn’t possible because it seems like too obvious a loop hole but I can’t seem to find any clarity – hoping you can help!

    Thanks.

  27. Canadian Couch Potato December 16, 2013 at 12:17 pm #

    @Lauren: As you anticipated, you cannot claim a capital loss on a stock in a TFSA, nor can you transfer the stock to a non-registered account and claim the loss there.

    If you do transfer the stock out of the TFSA, you will only be able to recapture contribution room equal to the market value when it is withdrawn, not the original purchase price.

  28. Sue January 23, 2014 at 10:43 pm #

    I pulled off the bandage quickly for 2 mutual funds this week. This blog was very helpful in the timing as to when I did this. I’m not regretting my decision. And can’t wait to see my losing funds turn into something much better. This was a very liberating experience for me and although I lost a bit of money in the process I’m confident I can make this up in no time. Mistakes can be your greatest teacher……I won’t make those again!

  29. Mercedes April 18, 2016 at 11:03 am #

    What do you do if your target allocation *doesn’t* match the allocations in the mutual funds?

    I’d like to move my investments from Tangerine and Investor’s Group to TD e-series. The problem is, my asset allocations there are significantly different than what I’m planning (I didn’t have a clue what I was doing when I signed up at IG, and just let them recommend something, and went with it; by the time I found Tangerine, I had a better idea what I was doing, but their equities mix is quite heavy in CDN).

    Since the difference in values is because of purchasing allocations, not growth differences, and since equities happen to be doing poorly right now and my portfolios are especially heavy in CDN equities which are especially low right now, it seems like a bad idea to rebalance during the transfer. But is the only alternative to try and time the market?

  30. Canadian Couch Potato April 18, 2016 at 11:40 am #

    @Mercedes: If your asset mix is not where you want it to be, then it is definitely a good time to rebalance, regardless of whether the individual funds are up or down. Getting that risk level right is the most important job, and attempting to time that move is just guessing.

  31. mid August 23, 2016 at 1:15 pm #

    How do I work out whether paying the DSC and getting into a better fund sooner is cheaper, or just paying the MER (avoiding the DSC) is cheaper, for a given set of options? eg. If I want to be 100% pragmatic and just do what gets me out ahead.

    For me, this gets muddy.
    A) How does one calculate a DSC? At RBC, one fund that I hold shows a ladder of penalties based on years. First year, the penalty might be 6%. Second year, 5%. Etc. How are the time and $ values, specifically defined? I can think of several ways to do each. I’m guessing original opening date, and current cash value. I guess just call the bank and ask?

    Once I know the cost of switching, I then must compare that to the savings I’d achieve.

    B) How can I estimate my future savings? I presume I could imagine a likely market scenario at random, then simulate the value of each of the two funds based on their respective holdings… then subtract the MERs from each… but that sounds ridiculously complicated.

    So, for those of us trying to work out whether to stay in a high-MER fund and wait out the DSCs, or move now – how can we realistically decide, without falling back to mere idealism?

  32. Canadian Couch Potato August 23, 2016 at 8:44 pm #

    @mid: You’re right that it can get complicated, but the basic ideas is this:

    – Give up any thoughts of estimating the DSC yourself: call the brokerage or fund company and get the exact numbers, including the maturity date (after which the DSCs would be zero). Let’s say in this case the fund is valued at $10,000 and the DSC is $600 today (6%), falling to zero in five years.

    – Now calculate the difference in MER between your current fund and the ETF you’re planning to switch to. For example, if the holding is $10,000 and the mutual fund charges 2.5% compared with 0.10% for a comparable ETF, the difference is 2.4%, so you would save $240 per year, assuming zero growth in the fund.

    – So the lower MER would offset the $600 DSC in 2.5 years ($600 / $240 = 2.5), which is clearly better than waiting five years for the DSC to mature.

    This isn’t a precise measure, but it at least puts you in the ballpark.

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