Morningstar recently released its bi-annual Global Investor Experience Study: Fees and Expenses. The news is still not good for Canadian investors but there is some slight improvement. Canada is still of the worst with respect to mutual fund fees, but they’ve handed the trophy over to Italy and Taiwan. As they say misery loves company.
Canada earns a below-average mark.
That seems a bit of an understatement. That’s like saying the ‘Titanic kind of sank’.
Canada is in last place, except for Italy and Taiwan. We’re not in good company. Misery may love company but that does not mean anything has changed for the typical Canadian investor. On median fees for asset allocation funds it appears that we are still bottom of the barrel.
And here’s the picture for equity funds.
No, things are still terrible. But we see some minor improvement over the average fees of 2.13% MER or 2.2% MER that is often thrown about as an average for fees in Canada.
What’s moving those fees lower?
‘Driving’ fees lower is the growth of F Class Shares in Canada. And that ‘s the result of the modest but growing trend of fee-for-service advice, or what’s often known as advice only. Cause of inertia is that in some markets the funds are sold not bought, of course that is the major trend in Canada. And certainly let’s lay some of the responsibility on the laps of Canadians who simply continue to be too Canadian in all of this. We need to take an interest in our personal financial affairs.
Canadian ETF usage is in the low to medium category. ETF usage is highest in the US and in other markets where fee-based advisors flourish, but mostly it’s about markets where we see that ‘engaged investor’. That’s not yet the case in Canada, but of course many are working hard to spread the good word, and to increase that engagement.
And here’s the asset weighted fee structures and penetration of fee-based advice models. In Exhibit 7 Morningstar is listing Medium level of usage for ETFs.
In the study and where Morningstar gets it wrong, or where there is a massive omission, is the commentary on our CRM2 reporting. It fails to recognize that not all of the fees are on those annual statements that Canadians receive. Those reports do include those harmful trailing (sales) commissions but not the management fees. That has led to more confusion than clarity.
What’s working to lower fees in other countries?
Moving the fees lower globally is a combination of some better rules and regulations in many nations. The proliferation of low-fee ETFs is putting pressure on mutual fund companies and the advisors who ‘recommend’ these products. Commission bans in Australia and the Netherlands are delivering good success. The importance of the regulatory environment can’t be overstated. The UK and the Netherlands have made great strides with their Clean Shares initiatives; investors can purchase funds where the ongoing commissions have been stripped out. The report states that this has led to great pressure on fees overall. So much so that that the Netherlands now has the lowest fee structure for domiciled equity funds among the 26 nations studied.
Unfortunately in Canada, the regulators are not on your side.
Let’s celebrate some modest improvement.
We’re no longer the worst in the developed world. That’s not cause for an ‘in your face big banks’ parade down Bay Street, but it’s a start. Fees are inching down. ETFs now outsell traditional high-fee mutual funds. We may have crossed the tipping point for ETFs and Robo Advisors.
Thanks to Morningstar and Morningstar Canada for conducting these studies and tracking the progress made. It’s important to see and study what works to bring down fees and put investors first.
As you may know I am in England this week and next on a wonderful trip with my daughter. But I have certainly been following my favourite blogs and the Globe and Mail and Financial Post while keeping an eye on my Twitter account.
Many reads and links are covered in the myownadvisor post that includes tips for millennial investors, an early retiree primer, asset allocation stuff and more .
On TheHub here’s an interesting post from WealthBar on how Canadian couples manage money. I’ve done a fair amount of research on this topic in preparation for a post and it is surprising how money is the greatest source of distress and separation for couples, and yet is so rarely discussed at the kitchen table. Couples have to get on the same page, or make that spreadsheet.
And here’s an inspiring financial update from milliondollarjourney as this blogger openly shares the trip and path to financial independence. Here’s the latest annual dividend income update …
And here’s a portfolio update from Mike, The Dividend Guy. Mike explains why the yield is not important. There’s some very useful tips and insights in the post for the accumulation and retirement funding stages.
Here’s Understanding the chatter around negative interest rates on MoneySense, from Bryan Borzykowksi. All stuff we can ignore from the investment angle IMHO.
Jason heath discusses the Advice Gap for the Financial Post.
And this portfolio idea is just fascinating and the returns history of the model is nothing short of incredible. Here’s the Hot Potato Portfolio. Try catching this hot potato, wow.
And before we hopped on our flight to England, on Seeking Alpha, I offered a look at our personal dividend growth portfolios.
Thanks for reading. Yesterday took us to Windsor and Windsor Castle. I’ll post more pics and trip updates on my twitter account. That was magnificent, the castle is the size of a small town. 10 Kings and Queen Victoria are buried on the grounds.
After landing on Wednesday we had some nice walks through the countryside and then I took part in a 2.5 hr. magnificent, club bike ride through country roads (hedgerow lined) and off-road through forests (in the dark with bike lamps) and long trails that line the perimeter of farmland. That’s how you stay awake after a long flight and little sleep.
Have a great weekend. Any shares of this post are greatly appreciated. Cheerio …