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.”