Canadian actively managed mutual fund costs continue downward march
Advised investor costs remain comparable to those of U.S. investors
Toronto, ON – October 4, 2017 – Canadian investors continue to see a downward trend in the cost of owning actively managed mutual funds according to an analysis by financial services research firm Strategic Insight that confirms that the cost to advised investors of owning actively managed mutual funds has dropped six basis points in Canada since 2014 and remains on par with the U.S. The report, Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios – A Canada-U.S. Perspective, 2017 Update, released today, was commissioned by The Investment Funds Institute of Canada to update an in-depth study published in 2012 that examined the relative costs of mutual fund ownership in Canada and the United States. The study was last updated in 2015.
“Strategic Insight’s 2017 analysis confirms that market forces are exerting downward pressure on fund fees to the benefit of investors,” said Paul C. Bourque, president and CEO, IFIC. “This trend to lower costs is especially noteworthy in light of interest expressed by Canada’s regulators in whether fund investors here are benefiting from competitive pricing.”
The average total cost of ownership of mutual funds for clients using advice-based distribution channels in Canada at the end of 2016 was 1.96% when taxes are excluded. This is on par with the average cost of ownership of 1.95% for clients investing in comparable actively managed mutual funds in the United States, where taxes are not levied on fees.
The analysis notes that, since 2015, Canadian mutual fund companies have adjusted the pricing of many of their products at an “unprecedented pace”. Fund companies accounting for nearly 90% of the industry’s assets have lowered the cost of their funds to the consumer. U.S. costs have also fallen, on average by five basis points since the 2015 report.
“This latest analysis by Strategic Insight confirms a key finding of the 2012 and 2015 reports – that Canadians who primarily invest in actively managed mutual funds through an advisor are paying fees in line with their U.S. counterparts,” said Bourque. “This speaks well for Canada’s mutual funds industry, especially considering the relative scale of the industry in the two countries.”
The report contains a number of other observations, including:
- In both Canada and the U.S., mutual fund assets under management increased by nearly 20% over the two year period ending December 2016;
- No-load funds and front-end fund options with waived point-of-sale commissions accounted for 83% of industry assets at the end of 2016, up from 77% in 2014;
- Over the past two decades, advisor compensation in both countries has shifted away from a reliance on sales commissions paid at the time of purchase (loads) toward asset-based fees throughout the duration of the investment, either bundled with other investment fees or paid separately.
- The scale of the mutual funds industry in the U.S. has enabled pioneering innovations in fund delivery that are reducing costs for investors outside of advice-based distribution channels.
About the Report: This report focuses on updating the cost of mutual fund ownership metrics presented in the 2012 summary document, Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios: A Canada-United States Perspective, and builds on the update published in May 2015.
The 2015 summary, and the larger report on which it was based, proposed an analytical framework for comparisons of the total cost of ownership incurred by mutual fund investors in the United States and Canada, and presented a high-level comparison of cost of ownership measures in both countries. The framework identified and highlighted the impact of structural differences between the United States and Canadian mutual fund industries, including scale, distribution channels, taxation, and distributor compensation models.
About IFIC: The Investment Funds Institute of Canada is the voice of Canada’s investment funds industry. IFIC brings together 150 organizations, including fund managers, distributors and industry service organizations, to foster a strong, stable investment sector where investors can realize their financial goals. By connecting Canada’s savers to Canada’s economy, our industry contributes significantly to Canadian economic growth and job creation. The organization is proud to have served Canada’s investment funds industry and its investors for more than 50 years.
About Strategic Insight: Strategic Insight provides critical and proprietary data, business intelligence, research and marketing services to the global asset management community. Strategic Insight delivers its products and services through four distinct divisions: SI Data, SI Research, SI Intelligence and SI Interactive. The company‘s headquarters are in New York with offices in Boston, San Francisco, Stamford CT, London, Munich, Melbourne, Toronto and Vancouver.
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Senior Manager, Public Affairs