{"id":595,"date":"2016-05-30T10:33:05","date_gmt":"2016-05-30T17:33:05","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=595"},"modified":"2016-05-30T10:33:05","modified_gmt":"2016-05-30T17:33:05","slug":"investment-fees-in-canada-wheres-our-tipping-point","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/investment-fees-in-canada-wheres-our-tipping-point\/","title":{"rendered":"Investment fees in Canada – where’s our tipping point?"},"content":{"rendered":"

Canadian investors continue to suffer some of the highest mutual fund fees in Canada. \u00a0It’s not that there aren’t very effective low cost investment fund solutions available. \u00a0There are plenty covering most asset classes and certainly enough to give any investor a globally\u00a0diversified low cost portfolio. \u00a0We figure that for about 20 basis points (one fifth of one per cent) an individual investor could assemble a portfolio of ETFs comprising\u00a0Canadian, US and International stocks, global fixed income and real estate securities. \u00a0This compares to most mutual funds available that have a management expense ratio (MER) of somewhere between 2-3% – yes, more than 10 times higher! \u00a0 Yet the vast majority of Canadians are still invested in\u00a0the more expensive option. \u00a0So when perfectly good options exist, what prevents people from making the switch? \u00a0What will it take to bring fees down? \u00a0Will it continue to be a painful grind or will we hit a tipping point<\/em> where things start to change rapidly?<\/p>\n

Miriam Webster defines a “tipping point” as:<\/p>\n

“Tipping point: \u00a0the critical point in a situation, process, or system beyond which a significant and often unstoppable effect or change takes place”<\/p><\/blockquote>\n

What “critical point” will that be? \u00a0Regulatory changes are afoot that should\u00a0make existing fees and compensation more transparent – will investors open their statements and stare aghast at how much of their returns they are giving up in fees and charges? \u00a0Will they open their statements at all? \u00a0There are market players\u00a0like Vanguard that are introducing new products with radically lower fee structures. \u00a0Will competition drive fees lower or will the message simply not be spread broadly enough? \u00a0The reality is that\u00a0the main distribution channels for investments, like our major banks, have a strong vested interest in keeping fees as high as possible. \u00a0The largest 6 Canadian banks collectively earned $35 billion dollars in 2015, up 5% from the year before (source: CBC<\/a>) – hardly feeling the pinch of low interest rates or the\u00a0woes felt by other industries. \u00a0It always astounds us\u00a0how “proud” Canadians are of our strong and profitable banks yet continue to pay, knowingly or unknowingly, some of the highest banking and investment management fees in the world.<\/p>\n

At last week’s Vancouver Morningstar event, “Is Alpha Shrinking?”, I asked the panelists Paul Kaplan and Barton Waring (who were excellent by the way) what they believed the tipping would be to bring investment costs down in Canada. \u00a0They cited the experience in other jurisdictions such as the UK, the Netherlands and Australia where regulators have been trying to improve transparency through better disclosure but also have gone so far as to ban certain selling practices and compensation models. \u00a0In the US the department of labor is trying to impose a “best interest” standard on advisors giving retirement advice. \u00a0So far the results in other jurisdictions has been mixed.\u00a0 While\u00a0some industry players have chosen\u00a0to exit the industry, good lower cost replacement options have been slower to materialize. \u00a0So the panel’s answer was effectively that costs have to come down and regulation should be a principle driver using some combination of\u00a0\u00a0education, transparency and\u00a0the elimination of certain sales and compensation practices.<\/p>\n

We’re\u00a0not convinced that regulation alone will be sufficient to introduce a “tipping point” dynamic where unstoppable and significant change starts to happen. \u00a0Malcom Gladwell<\/a> in his debut book of the same name describes a tipping point slightly differently:<\/p>\n

“The tipping point is that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire.”<\/p><\/blockquote>\n

This suggests something less exogenous than regulation will be key, something more social or intrinsic to the industry. \u00a0Perhaps the spread of robo-advisors will introduce lower fees to enough people to help us cross this magic threshold. \u00a0Perhaps it’s a bold move by an existing or new competitor in the space. \u00a0Perhaps a more consumerist grass roots movement takes hold and drives the industry in a new direction. \u00a0However\u00a0the existing industry structure, and particularly the distribution channels, are\u00a0very entrenched and powerful in Canada. \u00a0So maybe it will have to be regulation for now but hopefully individual investors will take on the fight themselves soon after and truly move the industry towards a real tipping point and lower\u00a0costs and fees for Canadians.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Canadian investors continue to suffer some of the highest mutual fund fees in Canada. \u00a0It’s not that there aren’t very effective low cost investment fund solutions available. \u00a0There are plenty covering most asset classes and certainly enough to give any investor a globally\u00a0diversified low cost portfolio. \u00a0We figure that for about 20 basis points (one […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[17,14,13],"tags":[],"class_list":["post-595","post","type-post","status-publish","format-standard","hentry","category-costs","category-investment-industry-issues","category-regulation"],"_links":{"self":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/595","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/comments?post=595"}],"version-history":[{"count":3,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/595\/revisions"}],"predecessor-version":[{"id":598,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/595\/revisions\/598"}],"wp:attachment":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/media?parent=595"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/categories?post=595"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/tags?post=595"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}