As fee transparency shifts more Canadians toward fee-based investing, a new investment vehicle has hit the Canadian market that offers those investors a lower-cost option to actively managed funds.
Invesco Canada has launched what it calls platform-traded funds (PTFs) – mutual funds that include aspects of exchange-traded funds.
The funds, which are designed for fee-based investors who work with either discretionary or non-discretionary advisers, transact and settle similarly to ETFs. Advisers can place a PTF order through an equity trading platform as they would an ETF or a stock, using a PTF ticker symbol.
But unlike an ETF, there are no minimum-investment requirements with PTFs, and orders are filled at end of day net asset value, therefore avoiding bid-ask spreads.
"What is often overlooked when discussing fees in ETFs is the bid-ask spread, which should be considered when making an investment since the costs can significantly add up for active traders," says Peter Intraligi, president of Invesco Canada.
The biggest draw for investors lies in the PTF management fees, which range from 0.4 per cent to 0.8 per cent – approximately 28 per cent lower than typical F-class funds, says Mr. Intraligi.
(F-class funds are for fee-based investors and do not include a trailer fee paid to the investment adviser. Fees are usually 1 per cent to 1.5 per cent.)
"When we looked at the growing fee-based market, we determined that series F funds weren't necessarily always the best-constructed solution for fee-based investors, and that is how we came up with the PTF model," says Mr. Intraligi.
The industry will continue to see an increase in fee-based products as regulatory changes slated for 2016 highlight exactly what investors are paying in investments fees.
"The industry has already seen several pre-emptive moves in recent years, knowing that regulatory changes were on the horizon," says Dan Hallett, vice-president and principal with HighView Financial Group. "We are seeing more options being introduced that provide investors with reduced fees, such as the introduction of new fund series with lower costs, such as Series D for the do-it-yourself investor, or the reduced-pricing options that are now increasingly available for higher-minimum accounts."
The cost-savings of PTFs are in the delivery process of the funds. The majority of Canadian mutual funds are traded through FundSERV – a third-party platform. Along with regulators and investment dealers, Invesco spent the last 18 months developing a direct "pipeline" for IIROC-licensed investment dealers to access the PTFs, which discounts costs and also allows investment advisers to process bulk orders instead of individual investor requests.
The PTF family consists of 22 existing Invesco funds, and the company plans to expand the suite with six more funds in November. Currently, investors can access equity funds, balanced funds and fixed-income funds through the platform.