Mutual fund sales in jeopardy

Mutual fund sales in jeopardy

Mutual fund sales in jeopardy New numbers are quantifying the kind of chop to mutual fund sales advisors may experience post-CRM2 implementation.

That new information from the Australian Stock Exchange paints a very vibrant ETF scene down under that’s flourished under the increased regulation and reform instituted by the government there. While it doesn't specifically track the decline of mutual fund sales, analysts rightly point out that any increase in ETF sales has generally come at the expense of higher-MER
mutual funds.

The phenomenon has Canadian advisors looking at the Australian story as writing on the wall for their move through the same sort of reform process as their counterparts down under did a couple of years earlier..

“In Australia, a new regulatory mandate called the Future of Financial Advice (FOFA) highlighted investment fees and led to investors moving toward lower cost products. After the implementation of FOFA, the use of ETFs almost doubled, according to June, 2014, data provided by the Australia Stock Exchange. Over an 18-month span assets rose to $11.9-billion (Canadian) from $6.54-billion.”

Undoubtedly, say analysts, costs will become paramount for Canadian retail investors who up until now have proven relatively impervious to high fees whether we’re talking investments or cell phones. We’re really just a bunch of softies.

The elephant in the room, of course, are those exchange-traded funds. WP's Top 10 ETF Trends in 2015, which ran in mid-January, suggested that the competition in the ETF space would heat up in the coming year putting intense pressure on product manufacturers with inferior products.

No, we’re not talking about Vanguard or iShares.

As part of this increased competition a number of ETFs are expected to perish due to a lack of critical mass. If an ETF doesn’t have at least $10 million in assets under management after a couple of years it’s safe to assume it won’t be around by year three or four.


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2 Comments
  • Howard Kitchen 2015-03-19 1:28:12 PM
    I have been in the industry since the 80's when Canadian Mutual fund assets were under 20 billion. I have heard for my entire career how the end of Mutual funds is just around the corner. I believe assets are now close to 1.1 trillion and the growth has been 15 % a year for 20 years. Hmmmm I like that kind of industry. I am not sure how ETFs will grow in the future and it does not matter to me. The ongoing debates on fees will continue regardless of the products. Mutual funds still have a place in a portfolio and somehow I believe we will all survive. As for ETFs remember the quote from English author John Ruskin on the "common laws of business" I will leave it at that.
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  • Wealth Advisor 2015-03-20 12:06:01 PM
    It appears that the MFDA will be offering ETFs to their Dealing Representatives before too long and to me it just means another arrow for the quiver. You are correct, there will be more competition and the marketplace will adjust.

    The Australian experience to ETFs is dwarfed by the U.S. retail investor crush into indexes and ETFs.

    Remember, the Great Rotation back to stocks by the retail investor only started about a year ago. Hopefully it won't be at the tippy-top of the market.

    That aside -although superficially it may look like it, I doubt that the rush by Australians to ETF's is a direct result of regulatory change because there was no equivalent change in the regulatory environment in the U.S. In the U.S. the numbers are much, much higher.

    No, I think the true reason why everyone is running to just one side of the boat. - is good old fashioned greed.

    I am currently actively discouraging panic buying of any sort. Could be a contrarian indicator, but one of the important things I do is to be the role of a circuit breaker and a real live person at that!

    It is hard to determine who is buying up all of those lofty market valuations - but one thing I know for sure, is that hot money will be exiting out a lot faster than it came in.
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