Fund fees take a hit

Fund fees take a hit

Fund fees take a hit

The IIROC guys won’t be amused, with some ETF providers now rushing to reduce the already low cost associated with those investments.

State Street, the company behind the world’s largest ETF – SPDR S&P 500 (SPY) – announced Wednesday that it was cutting the MERs for 41 of its ETFs by 23 basis points. Many of the ETFs getting the fee-reduction treatment are international in nature and generally are smaller in terms of assets under management.

Nonetheless, it’s an indication that the push to grab market share in the highly competitive U.S. wealth management space, will soon spill over into Canada. Last year’s fee cut by iShares suggests that’s already happening.

State Street’s move only speeds up the process.

If ETF providers on both sides of the border are cutting to the bone it’s only logical that mutual fund fees are going to take a hit once the U.S. experience fully makes its way to Canada. If that doesn’t do it, CRM2s full implementation by July 15, 2016, certainly will.

The latest statistics show that the average MER for ETFs in Canada is 0.80% compared to 1.83% for the average large mutual fund. That’s a difference of over 100 basis points. In the U.S. the average ETF MER is 0.56% compared to 0.74% for mutual funds, a difference of just 18 basis points.

Like everything that happens in Canada when it comes to business, we tend to lag the U.S.

Brent Vandermeer of Hollis Wealth in Ottawa weighed-in on the subject.

“Vanguard and iShares [in Canada] have been cutting their MERs, going back and forth. I think it’s good. It’s the start of competition. Canada’s so far behind, we’re so much more expensive… I’ve talked to a lot of the fund companies and they’re ready and want to adapt but when you look at IFIC fund flows, while the growth of ETFs is enormous, it’s still not that big in terms of actual dollar values.”

So, in this advisor’s opinion, inertia has yet to set in in the Canadian mutual fund industry.

However, “it’s an inevitability.” 

  • Tony De Thomasis 2015-02-05 11:00:42 AM
    The numbers above are misleading.
    The average fund fee class F in Canada is closer to the 1.35% range than the amount stated.
    Also many class F funds like DFA, Powershares and BMO ETF funds have mers closer to the 0.60%
    Add in trading fees and trustee or custodial fees and our fund fees as above in Canada are in line with the U.S. and ETF mer fees.
    Too many stories add in the advisory fee automatically when comparing fund fees
    The future belongs to the good advisory service provider - the funds will just be a product like a canvas is to the great artist
    Now it is the master artist who will be of true value and not the blank canvas.
    The average investor is still not quipped to be a great investor - no matter what product is issued. This is not due to any lack of intelligence or information, but due to their DNA disposition to handle risk-reward properly.
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  • Kevin O'Brien 2015-02-05 11:16:23 AM
    The craze in ETF's will falter when the next big fail happens in an index aka Nortel, Bre-x Investors love to save money - even if it means putting a blinder on in regards to quality and liquidity. The risk inside of some of the new micro indexes is way past the average investors risk tolerance. Let us not forget - ETF's are a portfolio building tool to take a temporary position in a country, index or sector with little regards to the quality of the securities inside the index. I agree that fund fees must come down further and that active management of securities must perform either higher than passive or provide some tangible form of value to the investor. Active share will be the next buzz word in the industry.
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  • Will Ashworth 2015-02-05 12:05:43 PM
    Both great comments.
    The fee debate certainly is an apples-to-oranges exercise. In many ways fee stats are as pliable as baseball stats. That's what makes this subject so frustrating.
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