Jun 25, 2018
Personal Investor: Low-fee Vanguard enters Canada’s mutual fund fray
By Dale Jackson
Fee-weary Canadian mutual fund investors are getting some relief from south of the border.
U.S.-based Vanguard, one of the world’s largest active managers with over $6 trillion in global assets, has introduced four low-cost actively managed mutual funds.
Vanguard Investments Canada currently offers 36 passively managed exchange traded funds (ETFs) but this is its first foray in Canada’s mutual fund market, where Canadians pay the highest fees in the developed world. Annual fees – expressed as management expense ratios (MERs) – are typically above two per cent for the average investor.
Management fees on Vanguard’s global balanced, global dividend, U.S. value and international growth funds range are capped at half of a per cent but that doesn’t include taxes or “other fee expenses,” so it’s difficult to compare apples-to-apples.
On the plus side, there are no front or back-end fees (also known as loads) when the funds are bought or sold. There are also no embedded trailer fees – notorious in the Canadian mutual fund industry. The hidden fees wrapped in the MERs compensate whoever sold the fund and call into question whether the funds are chosen in the clients best interest or the mutual fund companies with the highest trailing commissions.
But there are also restrictions that could prevent average investors from buying into the Vanguard funds. They are only available through fee-based advisors and discount brokers. Qtrade and Questrade will offer them on their platforms.
Few investors can afford fee-based advisors because the fee is normally based on a percentage of the assets under management and few fee-based advisors will take on clients unless they have significant portfolios.
