The Canadian mutual fund industry is seeing an acceleration in the number of companies lowering management fees, especially for those products that are targeting investors with fee-based advisers.
Since 2012, 10 mutual fund companies have made adjustments to their fund fees, according to a recent report by BMO Nesbitt Burns. Six of those companies made adjustments within the past year.
Five of those six providers were targeting F-class shares, which do not pay a trailing commission – fees paid to an investment adviser for every year an investor holds a specific mutual fund. F-class shares are provided to investors working with fee-based financial advisers, who charge a percentage of overall assets under management.
Fee transparency has increasingly come under the microscope and the industry has started to see an increase in advisers shifting assets into fee-based platforms.
As of July, 2016, investors will receive greater transparency around the fees they are paying for financial advice and on the performance of their investment portfolio. The initiative, known as the second phase of the client relationship model (CRM2), was introduced in 2012. It has put a spotlight on the amount advisers receive when selling funds with deferred sales charges as well as the amount they receive in mutual fund trailer commissions.
The transition to more fee-based business started well before CRM2. But with investors starting to pay closer attention to the price tag of investing, that number is only expected to rise.
At the end of December, 2014, fee-based programs represented just over 35 per cent of the $1-trillion held in among full-service brokerages. Five years ago it was 22 per cent, and 10 years ago it was less than 12 per cent, according to Investor Economic's Retail Brokerage and Distribution Report.
Many of the fund companies state that the fee reductions are in line with remaining competitive in the marketplace. As the wealth management industry continues to ramp up awareness of fees, those competitive pressures could ramp up further.
"We lowered pricing to be competitively positioned for more of the evolution towards fee-based business, a model that the industry will see an increase in business over the next three to five years," says Gordon Forrester, executive vice-president, product and marketing and head of retail at AGF Investments Inc. AGF slashed fees on its F-class funds by 10 to 55 basis points in 2014. He said the regulatory changes that will come with CRM2 will drive more transparency and will have an impact of accelerating fee-based accounts.
The most significant decline in fees was by Mackenzie Financial Corp. last September. The fund company cut management fees on a third of their assets under management, with reductions ranging from 15 to 25 basis points. The firm also lowered administration fees on its entire offering of F-class mutual funds, which consists of 87 funds.
As fee-based advice continues to be adopted by Canadian investors, Mackenzie is looking to stay competitively priced on the fee-based platform.
"We have focused in our strategy on advancing our share in the adviser channel, specifically with the fee-based advisers," says Jeff Carney, president and CEO at Mackenzie Investments. "That is a very significant growing trend in Canada, and as more advisers choose to go fee-based, we are seeing huge growth in that area."
BMO Asset Management Inc. dropped fees for its entire F-class products, consisting of 73 funds. The fee reductions varied by fund, but averaged approximately 20 basis points.
Other fund companies that lowered fees within the past year include National Bank Investments Inc., RBC Global Asset Management and Franklin Templeton Investments Corp.