Mutual fund and ETF leaders united on investor education
While mutual funds and exchange-traded funds often compete for the same retail investor dollars in Canada, leaders from both sides of the fence can agree on one point: investors need to be better educated on fees.
How the industry communicates with investors could be improved, according to Noel Archard, head of BlackRock Canada, and Eric Bushell, chief investment officer of CI Investments. The two spoke at the Bloomberg Canada Economic Summit in Toronto on Tuesday.
While lower fees are usually touted as one of the draws of ETFs, Mr. Archard said he is encountering fewer investors concerned with beating benchmarks and the price of products, and more who are focused on achieving their personal investment goals. "So the question really comes down to, do you know what you're paying, and did you get what you paid for?" he said. "As it is right now, I think the fee conversation is a bit broken."
"Fees are an issue," Mr. Bushell agreed. He described an industry in transition where the price that the market will bear for active investment management is still being determined.
"One element that I think is a little bit offside, is that in a lot of comparisons the fact that the adviser is separately charging a fee from the ETF fee is sort of left off the sheet. And I can assure you, brokers don't work for free," Mr. Bushell said. Apples to apples, ETFs are still cheaper, but it's not two-to-three-times, he said.
The asset management industry is in a state of change as investors are faced with more places to invest their money, including private equity and hedge funds, as well as ETFs and more traditional mutual products. That could lead to some consolidation for mutual fund managers, according to Mr. Bushell, as players who are perennial under-performers "bleed out."
Although the two asset management professionals agreed on improving investor knowledge, they were pitted against each other on other points, such as performance and regulation.
Mr. Bushell said there are some "perverse consequences" for the markets if the ETF world grows too large, "so we may need to put some structural caps in, limiting the growth of these things." Looking out five years, there could be financial stability challenges with the size of the passives (or ETFs) in certain asset classes, he said.
Mr. Archard disagreed with the suggestion that ETFs could cause systemic challenges. The way they're constructed mitigates that risk. "Some of the largest institutions out there are the ones trading the underlying securities in these funds to enhance their growth… that actually works as a bit of a liquidity buffer. As people bail out of the sector it diffuses a little bit of impact, versus a whole bunch of people heading for the doors," he said.
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