Mutual fund sales in jeopardy

Mutual fund sales in jeopardy

Mutual fund sales in jeopardy

“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.”

Worldwide, PwC did a survey in 2014 that suggests ETF assets under management could hit $5 trillion by 2020, just five years from now. Something has to give as there’s only so much wealth to go around.

Clearly, CRM2 implementation in July 2016 will lay bare the underbelly of the mutual fund industry, which for too long has dined at the expense of Canadian consumers.

While it’s possible that mutual fund companies will take evasive action to avoid a blood bath of AUM attrition, Australia’s experience indicates that’s not likely to happen; at least not to the degree that is necessary to stem the tide.

If you don’t believe ETFs are the real deal, you need look no farther than Raymond James’ recent announcement that it was acquiring Cougar Global Investments, a Toronto-based company that provides ETF portfolios to high net-worth investors. No longer can advisors live by mutual funds alone.

As Malcolm Gladwell would say, we’re at a tipping point. 

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  • 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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