By Atul Tiwari
Special to the Financial Independence Hub
With summer in full swing, along with warmer weather and blooming gardens, it got me thinking about cycles in investing. In particular ETFs, which have been taking root in Canada over the past few years.
When Vanguard entered the Canadian market in December 2011, we were one of only eight ETF providers. Our own evolution illustrates how much has changed in just over five years: We started with six index-based ETFs and currently offer a lineup of 33 ETFs, including four actively managed equity factor-based ETFs launched in June 2016.
Industry-wide more than 500 ETFs now vie for the attention of investors and advisors. And it’s not just products that have proliferated; new ETF providers enter the industry every month. More than $130 billion in Canada-domiciled ETF assets is now divided among 24 ETF providers. And there’s room to grow. ETFs make up only 8% of Canadian investable assets while capturing 25% of industry flows for the first quarter.1
Investors have clearly grown more comfortable adding ETFs to their portfolios. While I’m not one to make predictions about whether the pace of expansion will continue, I do see three trends that tend to favour it.
1.) Greater fee transparency
Thanks to the second phase of Canada’s Client Relationship Model reforms (CRM2), investors are starting to see — in dollar terms on their account statements — what they’re paying their advisory firms. Canadian regulators are also considering a potential ban on embedded trailing commissions. This will surely generate discussion and shine an even brighter light on investment fees.
No less an expert than billionaire investor Warren Buffett extolled the long-term benefits of low-cost investing in his 2016 letter to Berkshire Hathaway shareholders. Cost plays a critical role in total investment return. The less investors pay in fees, the more of the potential returns they can keep. This is true whether you are investing in an ETF, mutual fund or any other investment vehicle.
2.) Fee-based advisors are on the rise
Driven partly by regulatory changes and heightened awareness of investment fees, many financial advisors are moving to fee-based business practices. We favour this transition as we believe it better aligns advisors with the needs of investors and creates full transparency. Continue Reading…