As you may know more and more Canadians are gravitating toward low fee Exchange Traded Funds (ETFs). In fact they are now ‘out-selling’ or attracting more assets compared to traditional mutual funds. That’s good news of course as Canadians pay the highest mutual funds in the developed world. It’s likely not a surprise that those high fees are wealth destroyers.
Related post: What is an exchange traded fund?
The growth in ETFs comes by way of self-directed investors who build their own ETF portfolios and cut their fees from the range of 2% – 2.5% annual to the .15% area. Good things happen when you keep more monies in your portfolio pocket. And if Canadians wants to utilize ETFs in the way of a managed portfolio they can open up a discount brokerage account, enter one ticker symbol and get globally diversified managed portfolios at various risk levels. On that please have a read of Which Vanguard All-In-One, One Ticket Portfolio Should You Invest In? I also wrote a review on the BMO offering with BMO Keeps It Simple With Their One Ticket Portfolio Solutions.
The Canadian Robo Advisors assess the goals and risk tolerance levels of investors and create and manage ETF Portfolios for their clients. The Robo Advisors are growing at an incredible clip and are adding to the ETF assets under management in a meaningful way. Many of these firms are doubling their assets under management year over year.
Many advisors are now using or recommending ETFs. Many of the Robo Advisors offer services to manage the assets so that the advisors can concentrate on what’s important and where they can add greater value – helping the clients reach their goals thanks to those comprehensive financial plans. On that here’s the link to Nest Wealth Plus.
It’s a growing trend. Robo Advisors are also moving into the workplace group plan arena. Companies of all sizes can help their employees access lower fee investment offerings. The companies benefit from the simple onboarding processes and the digital portfolio management. There is convenience for employers and employees. Recently Justwealth teamed up with BioBenefit’s national program.
Related post: Justwealth. The Canadian Robo Advisor That Knows When To Get Personal.
All channels leading to robust growth in ETF ownership.
From an RBC presentation listing growth rates into 2017.
And the recent news continues to move in the right direction. According to National Bank, May 2019 saw near record net creations at $4.3 billion. 2019 has seen total flows of $10 billion. Recently flows to ETFs have greatly outpaced flows to traditional mutual funds. A certain kind of investor is starting to ‘get it’. Thanks to the Canadian ETF Association and their research partners here is the snapshot of those who embrace ETFs.
What’s surprising is that the ETF adopters are predominantly male, and the portfolio values can be quite generous. I am not surprised that ETF investors are more aware and more engaged. I would think and hope that most investors who discover the benefits of lower fee investing will eventually find a way to invest in a low fee manner. This move to ETFs is all about awareness. And sure there are barriers, Canadians need to stop being so Canadian.
Here’s more on the ETF investor.
It’s encouraging to see that retirees are embracing ETFs and low fee investing. Fees are always important but the effects can perhaps be felt the most in retirement. If a retiree is harvesting 4-5% of a portfolio value each year based on that 4% rule, they certainly can’t afford to hand over 2.5% in fees each year. Half for you and half for your mutual fund and adviser? That doesn’t work very well. That arrangement will greatly reduce your retirement income.
For Boomer and Echo here is my article on that 4% rule, is there a new normal for Canadian Retirees?
And we also see that the sweet spot for ETF adoption is in that early to mid accumulation stage of 35-44 years of age. These are folks (again mainly male) who are tech savvy and willing to bank online, and do most everything possible online.
Who are we missing?
While ETFs and Robo Advisors attract a certain type of investor, there are certainly many barriers and the need for more awareness. Too many Canadians do the ‘same ol’. They head to their bank and sign up for the high fee funds. As I wrote in I’m calling from a bank and we’d like to make less money from you, they are not going to offer you the lower fee investments. In fact, those sales person are not allowed to put those on the table.
Many Canadians also head to the sales offices and firms that specialize in high fee funds. Generally it’s inertia. We need to break the routine.
Sensible low fee investing brand ambassadors.
This is where you come in. There is no better trusted source than a friend or family member. The investors who are already aware of the benefits of low fee investing is a powerful army. Spread the word and explain and offer the benefits. In the advertising world we call these folks Brand Ambassadors. There is nothing more persuasive than a user who is having a wonderful experience and is sharing that wonderful experience.
You don’t have to write a blog. You don’t have to pester your co-workers for hours on end. Simply plant the seed. And don’t be afraid to have that money conversation. You’ll be surprised at how well your message will often be received.
And it’s rewarding. I had a neighbour and friend approach me the other day to thank me for the REIT idea. I had no idea what he was talking about. Apparently I had mentioned REIT ETFs. We had coached baseball together some 12 years ago. The team, and our kids made it to the Provincial finals in Niagara Falls by the way. And at the time I had suggested REITs as my friend was more into physical real estate than any other type of investing. While I would have suggested a well balanced portfolio, I have a feeling he over-weighted to the real estate.
The iShares XRE REIT ETF crushed the market over the period with annual returns that are superior to the broad market XIC by over 3% annual. The 10 year returns on XRE are at an average of 13.2% annual. Yes he had a big smile on his face. And of course, back in the day, he left his high fee mutual funds behind.
That is one example of hundreds up hundreds. Start building your own book of karma. It feels good.
For resources send them to Canadian Couch Potato/Canadian Portfolio Manager, MoneySense, Boomer and Echo, milliondollarjourney, youngandthrifty, maplemoney, getsmarteraboutmoney.ca and sure, Cut The Crap Investing. I’m happy to help on the education front or on how to leave behind those high fee funds. And for the how-to site and book, here’s my review of The Value of Simple.
Go army go!
Thanks Dale firstname.lastname@example.org