To many Americans, Canada sometimes seems like the Northern Extension of the U.S. When it comes to mutual funds, however, there are some major differences between the two countries. Here are some of the biggest:

Regulation: In Canada each province and territory has its own regulatory body for mutual funds and other securities, and there's no national authority (probably the best-known and best-funded provincial authority is the Ontario Securities Commission). In the U.S., the Securities and Exchange Commission operates at the national level, and most states have their own regulatory authorities. Canada obviously has a smaller population; coupled with unfocused resources, this tends to means looser securities regulations and less monitoring for compliance.

Investor education: Several studies have revealed that "financial illiteracy" in Canada has reached a distressingly high level. For example, of 2,000 Canadians pulled in a 1997 study, almost 50% didn't know they were charged mutual fund fees. In another study, it was shown that a significant minority of Canadians believes that a "no-load fund" means they're paying no sales charges or any management fees whatsoever. Canadians, known worldwide for being polite and easygoing, tend not to be assertive or probing when purchasing funds. Partly because Canadians have been undereducated and complacent about fund fees, an ironic situation has evolved: The equity funds with the most assets and investors are the funds with the highest management expense ratios! And, in recent years, several of these popular funds have significantly lagged the Toronto Stock Exchange (TSE) 300, a widely-followed Canadian benchmark that is roughly equivalent to the S&P 500.

Fund directors: Canadian funds are not legally required to have directors (independent or otherwise), although some funds have them voluntarily, and legislation to require fund directors is pending. In the U.S., directors are required by law.

Management expense ratio (MER): The average Canadian MER is 2.1 percent, versus about 1.4 percent in the U.S. (Part of the explanation may be that Canadians invest proportionately more in global equity funds, and such fund carry higher expense ratios.). In Canada investors pay an average MER of 1.6% to buy a fund that tracks the S&P 500 index. In the United States, a similar fund is available with an MER as low as 0.2%, or one-eighth of the Canadian equivalent.

Sheltered retirement plans: Every Canadian can contribute up to $13,500C per year, or up to 18 percent of earned income, whichever is less, to a registered retirement savings plan (RRSP). (Spouses without earned income are allowed the same contribution. Contributions can be made to a "spousal plan," with the tax deduction remaining with the contributing spouse. The contribution amount is reduced by any contributions to an employer-sponsored retirement plan.) In U.S. dollars, the RRSP limit is not as favorable as the limit for 401(k) plans, but it is considerably more generous than the U.S. IRA rules. It is interesting to note that Canadians may not invest more than 30 percent of their RRSPs in foreign equities, and U.S. stocks, including the S&P 500, are considered "foreign" (friendly and foreign, but foreign nonetheless). In the US, there is no similar restriction on foreign investment. The 30 percent foreign limitation can be exceeded through "clone" funds that use complex financial instruments to replicate an otherwise non-eligible investment (the MER for a clone fund is typically 0.5% higher than for the basic version). Surveys indicate that the average Canadian’s actual foreign holdings are about 9 percent, despite aggressive fund industry promotions to get that percentage higher.

Method of distribution: Most Canadian mutual funds are sold via advisers, and they carry front- or back-end fees. In the U.S., about 30 percent of investors bypass intermediaries when purchasing funds (i.e., they buy no-load funds). In Canada, only about 20 percent do, because they appear willing to pay for the advice process. Canadian back-end loads can be as high as 8 percent, depending on the number of years held; the maximum front-end load is typically 5 percent. Banks sell mostly no-load funds via branches. Exchange-traded funds are relatively new to Canada, because of years of resistance by the mutual fund industry.

Size: Canada has about 30 million people. In excess of $400 C billion (or $13,000 per citizen) is invested in mutual funds, which is greater than the amount in bank deposit saving accounts.

Taxation: Canada is a highly-taxed nation, with the highest marginal income tax rate at about 50 percent. Fifty percent of capital gain is excluded, so capital gains are treated preferentially. There is no distinction between short and long-term gains. For funds held outside an RRSP, after-tax return is critical. Certain measures such as tax efficiency and built-in tax liability are of great interest to Canadians, but this information is difficult to come by.

Industry concentration: There are nearly 3,800 Canadian funds to choose from; a few large mutual fund companies (such as Dynamic, AIC, Investors Group) and the five nationally-chartered banks dominate the industry. Fidelity has a Canadian presence, but Schwab has just announced that it is selling its Canadian business. Janus, for example, has no Canadian presence. Relationships in the Canadian financial services industry are "clubby." The banks also own corporate financing arms, brokerages, and trust companies. Relationships between government, media, and institutions are probably too friendly. The potential for conflicts of interest is very high, although few scandals have surfaced.

Reporting: Required mutual fund reports are notoriously light on details and specificity. Performance metrics are limited to return rates, turnover percentage, and comparison to a benchmark. Customer service staff at mutual funds are generally not equipped to respond to detailed questions such as R- squared, Beta or P/E ratios; these metrics are not required to be calculated or published. Morningstar.ca and globefund.com (see below) both provide additional fund information, analysis, and performance data.

Fund voting: Canadian funds do not reveal their proxy voting policies, how or why they voted, or even if they voted. The potential for conflict of interest, especially among bank-owned funds, is very high.

(a) The Fund Library (www.fundlibrary.com) is Canada’s original web site dedicated to mutual funds. Visitors will find lots of content contributed from a variety of experts, most of whom work for financial services firms. The site also has a discussion forum.

(b) Morningstar.ca (www.morningstar.ca) is one of the more informative mutual fund sites in Canada. Getting the best of their free information requires a registration, but there's no charge. You'll get detailed information on most funds, and analyst opinions on many. The most useful information on this site is something called "Manager Monitor," which consists of profiles of mutual fund managers.

(c) Globefund.com (www.globefund.com), run by the Globe and Mail newspaper, has much of the same fund-specific information found at the other sites. Its unique features include easy-to-use fund charting functions, a quick link to relevant Globe and Mail fund articles, and links to their monthly report on mutual funds.