February 12 2010 by Ellen Roseman
Remember when all you heard from investment salespeople during the RRSP season was about the 30 per cent tax credits available on a labour-sponsored fund?
Sometimes, they added the RRSP deduction and showed how 75 to 80 per cent of your contribution was subsidized.
Sounded like a great deal, right? But did they also mention the sky high management fees or the fact that a portfolio of emerging businesses might prove to be highly illiquid in an economic downturn?
Unless you held the fund for eight years, you had to repay the tax credits. But just as cash-in time was getting close, many funds suspended redemptions and moved to annual distributions. This meant an even longer wait to retrieve your money, assuming you had much left.
What I find galling is that the high management fees continue to accrue, even though you’re stuck in the fund and can’t exit. That’s another thing your salesperson probably didn’t tell you.
I spoke to investment author Gordon Pape, who owns a bunch of labour-sponsored funds and didn’t see it coming. Neither did I when I bought the Vengrowth II fund, which I wrote about this week.
My column elicited lots of response from readers, some of whom asked if they could join a class action lawsuit against the fund managers.