Canadian mutual fund firms will surely loudly protest the claim that their fees are much higher than those in other countries. However, this is a wake-up call: they must face the facts, or face their own irrelevance.

Yet another study, this one global, has thrown the size of Canadian mutual fund fees into the spotlight. And it’s not a pleasant sight. Compared with investors in other countries, particularly the U.S., Canadian fund investors pay far more.

The fund industry can quibble with the methodology and claim that these comparisons are not apples to apples. But at the end of the day, the fund companies’ bottom lines tell the tale. They are cash-generating machines; and firms that do business in multiple countries enjoy far greater margins in Canada.

So, if Canadians are overpaying for their funds, why hasn’t a low-cost competitor ridden in to steal away all this bloated business, driving fees lower throughout the industry? Especially given that trends such as consolidation and technology should have made the possibility of price competition even more compelling.

In fact, this competition has arrived, but it came quietly from within the industry, not with a bang from outside it. That competition is the banks, which have always had lower fees but never knew how to sell their funds. Now that they have their distribution sorted out, they are dominating sales.

In the past, even when bank funds sold well, it was only in RRSP season and only in a handful of asset classes. But sales trends in the past couple of years have put both of those comforting myths to rest. Now, it appears that banks can sell any sort of fund at any time of year. And investors have learned the value of lower fees, which are often correlated with higher returns.

Outside of a couple of the more innovative firms, the rest of the fund industry has been slow to respond to the challenge. One of the biggest obstacles is the collective compensation system built into most funds, which entrenches bad advisors and thwarts market efficiency. Breaking that built-in blockade will be wrenching, but unless the old-time fund industry does something to overhaul its economics, most firms may be condemned to remain marginal players in the years ahead.