A HANDFUL OF MUTUAL FUND companies that traditionally have sold their products through the full-service advisor channel are recognizing do-it-yourself investors by offering Series D mutual funds with lower fees through the discount channel.
BlackRock Asset Management Canada Ltd., Invesco Canada Ltd. and Mackenzie Financial Corp. (all based in Toronto) will be offering Series D versions of their funds through RBC Direct Investing Inc. in the coming weeks, subject to regulatory approval. The discounter already has some Series D offerings on its product shelf, concentrated in its proprietary lineup of funds sponsored by RBC Global Asset Management Inc. (RBCGAM), and RBCGAM unit Phillips Hager & North Investment Funds Ltd., along with a handful of third-party funds offered by Beutel Goodman & Co. Ltd.
Series D funds offer “channel-appropriate pricing” suitable for self-directed investors who do their own research and want to invest in actively managed mutual funds, says RBC Direct’s president Rosalyn Kent. All Series D funds will be available with a minimum initial investment of $500.
The Series D funds will charge investors an imbedded service fee of 25 basis points (bps) to compensate RBC for transaction and administrative costs. This fee is considerably less than the usual trailer fees, which typically are around 100 bps on equity funds and 50 bps on bond funds.
Series D versions are available for all Mackenzie funds except for its money market funds and the corporate-class versions of Symmetry portfolios, while Invesco offers Series D on almost all funds except for its money market funds. At BlackRock, Series D will apply to its new family of seven mutual funds introduced in October. (The new low-fee Series D mutual funds are more competitive with exchange-traded funds, of which BlackRock is the largest provider in Canada.)
The Series D versions broaden the choice in the marketplace at a time when investors are becoming more aware of fees and examining the services they receive in return. The onus increasingly will be on financial advisors to provide value for service as the amounts paid in trailer and commission fees become increasingly apparent to clients as a result of the new disclosure polices that regulators are putting in place.
“The cost savings for self-directed investors are significant,” says Rudy Luukko, investment funds and personal finance editor with Morningstar Canada in Toronto. “Saving up to 75 bps a year in fees is a meaningful reduction. And, over time, those compounded savings can add up.”
Luukko anticipates that more discount brokerage firms will offer Series D funds and that the lineup of fund manufacturers offering discounted versions of their funds also will grow. Series D funds, he says, avoid the unfairness of discount brokerage clients being charged for advice they aren’t getting. Says Luukko: “RBC is taking a leading role, and at Morningstar we think it is a progressive move. The reduced fee is more in line with [discounter’s] services.”
Series D funds are good for investors who don’t want or need advice, says Dan Hallett, vice president of Oakville, Ont.-based HighView Financial Group. The competition this series poses won’t hurt advisors who provide worthwhile services for the fees they charge.
“Advisors who don’t provide value might be threatened,” says Hallett, “but they’re already under threat with new initiatives at the regulatory level on fee disclosure and growing investor awareness of the effect of fees on returns. It’s a good move, and long overdue.”IE
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