VIDEO: The Wealthy Barber Returns

Bestselling author David Chilton says Canadians aren't well-served by exorbitant mutual fund fees, an epidemic in the industry that he says eat into returns over time.

In an interview on the CBC's Lang & O'Leary Exchange, he told CBC's Amanda Lang that the fees mutual fund companies charge Canadian investors to manage their money "are high by any common sense standard".

While fund managers get paid in a variety of ways, one of the most common is what's known as the Management Expense Ratio, or MER. That's the percentage of the fund's assets that goes to the fund manager, before any returns are given to unitholders.

A recent study by fund monitoring company Morningstar found that Canadian mutual funds have a median MER of 2.31 per cent. That's higher than those in most developed economies, including the U.S., where funds have a median MER of 0.94 per cent.

Industry advocates say that's a misleading comparison for many reasons, since the fund industry is a competitive marketplace and investors get all sorts of value-added management for their money. But in the interview, Chilton rejected those claims.

"There's pressure on the industry now to bring fees down and probably that's a good thing," Chilton said.

CBC business commentator Kevin O'Leary says Canadian funds are sometimes higher because of the nature of Canada's investment market. U.S. funds enjoy economies of scale from being larger.

But Chilton disputes that notion. "There's not a lot more work managing $2 billion as opposed to $200 million," he said.

(In the interest of full disclosure, O'Leary is chairman of O'Leary funds, a Toronto-based money manager.)

Chilton says there's no good reason for a Canadian equity fund to charge in excess of two or more per cent to buy widely available large-cap dividend-paying stocks. "That's nutty," Chilton said. "and … I don't meet anybody in the industry who denies that's nutty," he said.

Those costs can add up. Assuming an average five per cent annual return, $10,000 invested over 45 years in a fund that charges 0.5 per cent will mean $17,783 to the fund manager, while the investor gets $72,066. But if that management fee jumps to 2.5 per cent, the investor ends up making less than half what his professional help does, with $60,356 going to the manager and $29,493 going to the investor.

Chilton also expressed concern with some of the new Exchange Traded Funds coming to market. ETFs made a big splash when they came to Canada in the 1990s by allowing investors to cut fees by indexing major stock markets and get in and out of the funds easily, because they trade on stock exchanges themselves.

"The initial version of ETFs, broad baskets of securities to match major markets at a low cost, [they're] tough to argue with," Chilton said. "But I'm a little concerned about some of the new entries into the field."

That's because new ETFs are becoming niche products, getting involved in illiquid investments, with more and more derivatives underlying them — not simply baskets of common stocks as they were originally. That opens them up to all sorts of counterparty risks and has also caused fees to inch higher.

Click here to see the complete David Chilton interview, or watch the player above.

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China's economy slows

New figures show China's industrial production slowed to its slowest pace in two years in November.

The country’s National Bureau of Statistics Friday reported that industrial output rose 12.4 per cent.

In another sign that the world’s second largest economy is losing momentum, the government reported inflation cooled to 4.2 per cent last month from 5.5 per cent in October.

Still, the official Xinhua News Agency reported that the Communist Party's powerful Politburo agreed during its meeting Friday to keep to a "prudent" monetary policy.

That’s a catch phrase for keeping a lid on inflation.

Leaders were widely expected to remain cautious about stimulating growth given an upcoming leadership transition next year, the uncertain global situation and concerns over the potential for inflation to rebound.

China has experienced a surge in labour unrest recently and public dissatisfaction over the widening gap between rich and poor, corruption, pollution and other issues have added to jitters as the party prepares for a transition next year to a new generation of leadership.

Moves toward an easier monetary stance may come as early as next week at an annual economic work conference in Beijing next week that will set policy for the coming year could spell out measures to encourage growth, but China must try to balance that with the concern that too much stimulus could touch off another round of excess investment and inflation.

Escalating price increases remain a risk, given retail sales rose by 17.3 per cent in November compared with the same month a year earlier. That was up slightly from October.

China's latest bout of inflation was fuelled by a stimulus-led binge in bank lending in 2009 that helped fend off the global crisis. Much of it was squandered in excessive investments in construction and real estate.

China's economy has been slowing for most of the year, with growth expected to drop below nine per cent in 2012. GDP growth in the quarter that ended in September was 9.1 per cent.

With files from The Associated Press

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Canadian firms planned to spend more on R&D in 2011

Businesses in Canada planned to spend $15.6 billion on industrial research and development in 2011. That is five per cent higher than the $14.9 billion they planned to spend in 2010. iStock

Research and development spending by industry is expected to increase in 2011 — the first time in four years that has happened in Canada.

"The 2011 industrial R&D spending intentions suggest that recovery is underway after three consecutive years of declining R&D spending that occurred across almost all industrial sectors," said a Statistics Canada report Friday.

Businesses in Canada planned to spend $15.6 billion on industrial research and development in 2011. That is five per cent higher than the $14.9 billion they had planned to spend in 2010, but still below the $16.8 billion they spent in 2007.

The communications sector showed the biggest relative increase, at 21.4 per cent, followed by aerospace at 8.2 per cent.

Each of those industries planned to spend $1.4 billion this year. Scientific research and development services planned to spend the largest amount, at $1.7 billion, but that was an increase of 1.1 per cent compared to 2010.

In addition to planned spending in recent years, the Statistics Canada report also looked at actual spending for years where data was available.

It found that industrial R & D activities provided the equivalent of 149,900 full-time jobs across the country in 2009, down 11.8 per cent from 2008.

The companies themselves provided 79 per cent of the funding for their research and development activities. However, 13 per cent came from foreign sources, two per cent came from the federal government, and the rest came from other Canadian sources such as provincial governments and contracts with other firms.

Over the longer term, the number of companies performing research and development has increased from 9,648 in 1997 to 24,203 in 2008.

Nevertheless, Canada's R & D spending-to-GDP ratio "continues to lag the average for all OECD member countries" and has fallen from 1.3 in 2001 to 1.0 in 2009, the same level it had in 2004, the report said. Meanwhile, the U.S. ratio increased to 2.0 in 2008 from 1.7 in 1994.

The countries with the highest relative R & D spending were Israel and Finland, which had ratios of 3.4 and 2.8 respectively. In 2009, the most recent year for which provincial data was available, Ontario and Quebec accounted for more than 75 per cent of industrial R & D spending across the country.

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Shuttered US auto plants being reused, report finds

A woman walks next to the abandoned Packard Motor Car Company building, that ceased production in the 1950's, in Detroit, Michigan December 18, 2008. Rebecca Cook/Reuters

A new report finds about half of all U.S. automotive plants that have closed since 1979 are being reused, with much of that activity coming in the past few years.

The Ann Arbor, Mich.-based nonprofit Center for Automotive Research's report released Thursday finds that of the 267 assembly and parts plants closed during that period, 128 have found or are finding new life.

Forty percent of the sites surveyed were bought for a new use between 2008 and 2010, during which General Motors and Chrysler went through restructuring and bankruptcy reorganization.

An Associated Press analysis released in January 2010 found that of 128 major manufacturing plants in North America closed since 1980 by the Detroit Three and their largest suppliers, three of every five sat idle.

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Toyota cuts earnings forecast 54%

Toyota Motor Corp. has lowered its forecast for annual earnings, and is on track to lose its place as the world’s largest automaker.

The firm said Friday it expects to finish the fiscal year ending in March with a net profit of $2.3 billion Cdn, down 54 per cent from the target it projected in August.

It blamed a strong yen and massive flooding in Thailand for the sharp downgrade.

Japan's biggest automaker fell to number three in global rankings for vehicle sales during the first six months, trailing General Motors and Volkswagen.

It cut its estimate for worldwide sales to 7.38 million from the 7.6 million it predicted four months ago.

Japanese car makers were first hit with the earthquake and tsunami in March and their suppliers in Thailand were hit by the worst flooding in half a century this autumn.

The flooding will cut output by 230,000 vehicles, Toyota executive vice president Satoshi Ozawa said.

But among Japan's car makers, Honda Motor Co. has been the worst hit by the floods. It has yet to release forecasts as a result.

Compounding the pain is a strong yen, which hit multiple historic highs against the dollar this year.

With jitters about European and U.S. economies, global investors have turned to the yen as a relative safe haven.

For exporters like Toyota, a strong yen reduces the value of overseas profits when repatriated and makes Japanese products less competitive on prices in markets outside Japan.

With files from The Associated Press

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Britain leads push against new Europe deal

The European Union's president said Friday that 26 of its 27 member countries are open to joining a new treaty tying their finances together to solve the euro crisis. Only Britain remains opposed, creating a deep rift in the union.

In marathon overnight talks, the 17 countries that use the euro gradually persuaded the others to consider joining the new treaty they would create. Some of those countries may face parliamentary opposition to the treaty, which would allow for unprecedented oversight of national budgets.

"Except for one, all are considering participation," EU President Herman Van Rompuy told reporters.

A document released near the end of a high-stakes EU summit Friday said the leaders of nine of the 10 EU countries that don't use the euro "indicated the possibility to take part in this process after consulting their parliaments where appropriate."

In drafting a new treaty, the countries hope to help European nations struggling with giant debts over the long term, and in that sense there were early indications of success. Such an agreement is considered necessary before the European Central Bank and other institutions commit more money to lowering the borrowing costs of heavily indebted countries like Italy and Spain.

"It's a very good outcome for the euro area, very good," ECB President Mario Draghi said in Brussels. "It is going to be the basis for much more disciplined economic policy for euro-area members. And certainly it is going to be helpful in the present situation."

Stocks and the euro climbed on the news of the new treaty, even though it offers only a long-term solution and no immediate salve for a crisis that started in Greece, then plunged the whole eurozone into crisis and now threatens the global economy.

While the deal could help save the euro, the political implications of the rift could be enormous. Germany and France had hoped to persuade all 27 EU countries to agree to change the treaty that governs their union. But Britain, which doesn't use the euro, firmly said no.

Britain's leaders argued that the revised treaty would threaten their national sovereignty and damage London's esteemed financial services industry. Germany and France, the eurozone's biggest economies, made clear that a deal among the 17 euro countries and whoever else wanted to join was better than nothing.

Hungary, the Czech Republic and Sweden said they would need to consult their parliaments, while the other six countries outside the eurozone — Denmark, Poland, Bulgaria, Romania, Latvia, Lithuania — agreed they wanted to join.

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BCE hikes dividend 5%

Three-month stock chart for BCE Inc. The company raised its dividend Thursday. CBC

BCE Inc. is raising its dividend by five per cent and using surplus cash to bolster its balance sheet as the telecom giant predicts strong growth ahead.

The Montreal-based telecommunications company and parent company of Bell Canada, said Thursday it will boost its annual dividend by five per cent to $2.17 per share for 2012. It's the seventh increase in the past three years, and payouts will begin in BCE's first-quarter payout, on April 15 next year.

"This reflects our confidence in delivering on our business plan, based on the Bell team's strong execution of our strategic imperatives and reinforced by a healthy balance sheet with ample liquidity," president and CEO George Cope said in a statement.

"We have the financial flexibility to reward shareholders, while supporting significant ongoing capital investment in Bell's broadband networks and services."

In addition to the dividend hike, the company will also buy back as much as $250 million worth of its own stock in a move designed to increase its share price and it plans to make a voluntary $750 million voluntary payment on its defined benefit pension plan.

Because it is tax deductible, the pension payment will provide BCE with about a $170-million boost to its free cash flow. It will also add an estimated three cents to adjusted earnings per share next year as it reduces expenses booked against earnings.

"The new share buyback program and voluntary pension contribution represent a well-balanced use of surplus cash," said chief financial officer Siim Vanaselja.

"In a financial climate of declining interest rates and weak equity returns, accelerating the cash funding of Bell's future pension obligation to preserve a strong solvency position in the pension plan is a prudent action."

BCE said Bell Canada's expected revenue growth will remain unchanged from prior guidance at between nine and 11 per cent, while the parent company's adjusted earnings per share should rise to a range between $3.10 and $3.15 from earlier guidance of $2.95 to $3.05.

UBS analyst Phillip Huang said BCE is continuing its "annual tradition" of raising its dividend.

"We believe the dividend increase and special pension contribution announcements are largely expected, but the buyback is a positive surprise," Huang wrote in a research note.

Huang called the special pension contribution financially attractive for BCE.

"Obviously, the voluntary funding will also reduce future pension funding and expense in the longer term."

But he said he considers the increased dividend of $2.17 at the low end of BCE's payout policy.

Huang said he expects earnings per share in fiscal 2012 to remain unchanged at his estimate of $3.25.

BCE is Canada's largest communications company, and a longtime staple in investment portfolios designed to profit from steady growth companies with a solidly dependable dividend. Aside from wireless and landline telephone services, broadband Internet and satellite TV, it also owns a stable of media properties including the CTV television network.

Shares in BCE were up 25 cents to $40.43 in morning trading on the Toronto Stock Exchange.

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