Vanguard head proud of role in low-cost ETF revolution

Atul Tiwari explains how price competition helps advisors and all Canadian investors

Vanguard head proud of role in low-cost ETF revolution

The head of Vanguard Investments Canada insists he is proud of his firm’s role as instigator in what he calls the “revolution of low-cost investing”.

The noise surrounding the ETF boom continues to increase, with some critics accusing manufacturers of a “race to the bottom” over fees at the cost of good advice.

But after launching three new asset allocation ETFs last month – they have attracted a combined $200 million in cash flow in seven weeks - managing director Atul Tiwari makes no apology for increasing competition, driving down cost and, the way he sees it, putting the investor first.

He said: “We see this around the world. Wherever Vanguard comes into a market, our competition lowers their fees to compete with us in that asset class.

“Quite frankly, that is very exciting to us because our mission is to give all investors the best chance of investment success and the word ‘all’ is in there on purpose. If we can stimulate price competition among established players in the market to where they reduce their prices to benefit investors, we’re actually happy because everyone is winning.

“We are a big part of helping all investors in Canada receive the benefits of better opportunities for long-term net returns.”

Last year was a record year for the ETF industry in Canada with $26 billion of cash inflow. For Vanguard, one of the early pace-setters in the industry, they also had a record year, making up $3 billion of that despite increasingly stiff competition from BMO and BlackRock among others.

Tiwari said Vanguard are “feeling good” about their position and highlighted this quarter as the best three-month period in its history in Canada. It has taken more than $1.5 billion in new money already this year, putting them firmly on track for another record 12 months.

Rather than get embroiled in the ETF v mutual fund argument, Tiwari said investors need to look at the argument as low cost versus high cost. He understands where some of the negativity around ETFs comes from but, naturally, disagrees.

He said: “When you are part of an industry growing at a rate that ETFs are, the number of providers is dramatically increasing. There are almost 30 providers and the number of listed ETFs is rapidly increasing; there are 600 now.

“Some people may look at it and say, this reminds me of the days when mutual funds took off and boomed, and all these esoteric products came out and a bunch of companies had to shut down their funds.

“So when they see these esoteric products come out in the form of ETFs, I can imagine that would result in some of that chatter. Our view in terms of product development is to take a long-term view, coming out with products that our enduring and meet investors’ needs, and not be risky, concentrated in one sector or esoteric. You don’t see Vanguard come out with those.”

Tiwari said that rather than the low-cost approach resulting in lower-quality advice for investors, he highlights Vanguard’s advisors’ alpha concept, which focuses on the value of asset allocation and making sure your client stays the course through market volatility.

He said: “Quite frankly, the cost is very important if you follow that approach, especially if you are a fee-based advisor. You charge a client an advice fee at account level and then in the portfolio, when you’re setting up your asset allocation, if you use low-cost broad beta ETFs as the proxies within that, it’s a win, win, win all round.

“So you are going to lower the overall cost for your clients and quite likely increase their net returns because you’ve implemented an asset allocation programme using the lowest cost instruments you can. We see it more that way rather than a discussion about cost.”


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