The cost of owning the average mutual fund

[brucecohen]

I don't know if any other country allows the offering of mutual funds incorporated elsewhere -- that is, funds designed for mass-market sale.

A technicality, perhaps, but Dublin-domiciled iShares are listed on a number of European exchanges (located in EU member states, of course), as well as in Switzerland (on the SWX), which is not a European Union member but does have a number of bilateral trade and reciprocity agreements with the EU- see here for an example.

Not really the same. iShares are ETFs, not open-end mutual funds aimed at the mass market. Every exchange-traded security is subject to oversight by the exchange's SRO. That doesn't apply to standalone mutual funds. Their only oversight is by regulators* who can act only against entities registered/incorporated in their jurisdictions.

*The relatively new US requirement that each US-domiciled mutual fund have an indepdent board of directors seems to have teeth. My nephew-in-law is a MF manager in the US and I was amazed by the amount of stress he felt over Xmas as he prepared his yearend report to the board of each fund he runs. He told me that the independent directors have the power to fire the fund's managers and take the assets away from the sponsor, moving them to another fund company.

[tidal]

Not really the same. iShares are ETFs, not open-end mutual funds aimed at the mass market.

That is not correct. ETF's (including iShares) ARE open-ended mutual funds. That does not address who the regulator is, but the reality is that because you can trade US-listed ETF's, US-based open-end mutual funds are available to Canadians...

[NormR]

Not really the same. iShares are ETFs, not open-end mutual funds aimed at the mass market.

That is not correct. ETF's (including iShares) ARE open-ended mutual funds. That does not address who the regulator is, but the reality is that because you can trade US-listed ETF's, US-based open-end mutual funds are available to Canadians...

You can also buy U.S. closed-end funds.

[Bylo Selhi]

It gets weirder. Vanguard's ETFs are just different share classes of their open-ended mutual funds. You can buy the former in Canada through a Canadian broker but you can't buy the latter even though they're essentially the same thing in terms of what they hold, how they're managed, etc. (When Canadian residents were allowed to open accounts with US brokers, that then allowed them to do another end-run and buy any of the US mutual funds that those brokers offered...)

Meanwhile you can still buy a US stock, either through a Canadian broker or directly through the DRIP/SPP transfer agent, but not through a US broker. In both cases the US sponsor has to file a prospectus and other documentation with US regulators but not with Canadian regulators. So in effect the provincial regulators have allowed non-Canadian securities to be sold in Canada to Canadians without their [the xSCs'] "protections."

[brucecohen]

It gets weirder. Vanguard's ETFs are just different share classes of their open-ended mutual funds. You can buy the former in Canada through a Canadian broker but you can't buy the latter even though they're essentially the same thing in terms of what they hold, how they're managed, etc. (When Canadian residents were allowed to open accounts with US brokers, that then allowed them to do another end-run and buy any of the US mutual funds that those brokers offered...)

Meanwhile you can still buy a US stock, either through a Canadian broker or directly through the DRIP/SPP transfer agent, but not through a US broker. In both cases the US sponsor has to file a prospectus and other documentation with US regulators but not with Canadian regulators. So in effect the provincial regulators have allowed non-Canadian securities to be sold in Canada to Canadians without their [the xSCs'] "protections."

Yabbut those "protections" are already supplied by the exchange's listing requirements and SRO oversight. Same for ETFs which, yes, are open-end funds but not aimed at a the mass market, meaning those who lack the money/knowmedge/interest to open a brokerage account.

[parvus]

tidal wrote:

That is not correct. ETF's (including iShares) ARE open-ended mutual funds.

Nope. They're stocks (albeit with special characteristics).

They're certainly not open-ended mutual funds, whereby the mutual fund issues new units for new purchases.

Nor are they quite closed-end investment funds (as the regulators have taken to calling income trust funds of funds and hedge fund products that skirt the mutual fund rules by only offering a redemption possibility once a year) that go into the market once and only, except for warrants and rights offerings and perhaps some new bought-deal new issuance.

There's a special mechanism ETFs negotiate with institutional arbitrageurs that allows for the creation/redemption of units. But, for the retail investor, that doesn't turn ETFs into mutual funds. They're still stocks, with bid/ask spreads and brokerage commissions and all the rest.

If it quacks like a duck....

[YogiBear]

tidal wrote:

That is not correct. ETF's (including iShares) ARE open-ended mutual funds.

Nope. They're stocks (albeit with special characteristics).

Dontcha just love semantic debates? Is the bloody thing a stock with special (i.e., mutual fund like) characteristics, or an open ended mutual fund that is listed and trades like a stock?

Meanwhile, the real absurdity is that:

Vanguard's ETFs are just different share classes of their open-ended mutual funds.

IOW, I can easily and legally buy VTI- which is listed on Amex in New York, not in Canada- but not the corresponding Investor Shares of the Vanguard Total Stock Market Index Fund (i.e., VTSMX). Yet, units of VTI and VTSMX represent claims on the net assets of the same underlying fund, and both are issued and regulated in the same country.

So what is the rationale for allowing Canadian investors access to one and not the other? Since any semi-literate Canadian resident with ID can open a discount brokerage account and buy VTI, no questions asked, the answer cannot logically be "investor protection" - so what is it?

[brucecohen]

Meanwhile, the real absurdity is that:

Vanguard's ETFs are just different share classes of their open-ended mutual funds.

IOW, I can easily and legally buy VTI- which is listed on Amex in New York, not in Canada- but not the corresponding Investor Shares of the Vanguard Total Stock Market Index Fund (i.e., VTSMX). Yet, units of VTI and VTSMX represent claims on the net assets of the same underlying fund, and both are issued and regulated in the same country.

So what is the rationale for allowing Canadian investors access to one and not the other? Since any semi-literate Canadian resident with ID can open a discount brokerage account and buy VTI, no questions asked, the answer cannot logically be "investor protection" ( )- so what is it?

I still maintain the rationale is "investor protection" though ineptly designed, inadequately enforced and in many cases unwarranted. When the laws and regulations were written, the authorities had no way of foreseeing that one day a mutual fund company would package its funds two ways. Indeed, legislation and regulations are typically focused on shutting barn doors, not looking ahead. The regulators who steer the legislators on such matters like to confine market participants to organizations and individuals they can act against, if need be. While VTI can be sold in Canada, it can't be sold directly. It must be sold through a brokerage that's regulated by the IDA and also by the regulators and that particular purchase must conform to the KYC form you completed. The regulators can also take comfort in the fact that VTI and those behind it have been vetted by the exchange on which it's listed (NYSE or AMEX?). I don't know if all US-domiciled funds have to be registered with the SEC, or if a state registration is sufficient. If the latter, there's the risk -- a horrible one in our regulators' eyes -- that naive Canadians will blow their wad on some semi-fraud of a fund created by a used car salesman in Nevada or Florida. There's also the problem that the law restricts sales here to domiciled funds. Even if a reasonable official at the OSC was willing to let you buy units of a Vanguard fund, he/she couldn't until the legislature changed the Act -- and on technical matters like this the MPPs pay far more attention to the needs of the industry and its lobbyists than they do to the needs of individual investors. As well there's the issue of reciprocity. Having been burned by Cornfeld's Canadian-incorporated fund, US regulators and lawmakers are unlikely to be willing to expose innocent Main Street investors to evil foreigners. IIRC, in the mid-90s it was several state financial regulators -- not their Canadian counterparts -- who made the first move in blocking Canadians living in the US from giving buy/sell orders for the RRSPs and RRIFs they left up here. Even now, the federal SEC will let those people place buy/sell orders but their state regulators won't unless their Canadian advisors or dealers register with those state bodies.

The bottom line: We can't buy a Vanguard mutual fund as a regular mutual fund, and never will as long as we live in Canada. Get over it.

[YogiBear]

The regulators who steer the legislators on such matters like to confine market participants to organizations and individuals they can act against, if need be. While VTI can be sold in Canada, it can't be sold directly. It must be sold through a brokerage that's regulated by the IDA and also by the regulators and that particular purchase must conform to the KYC form you completed.

The same set-up could apply to US-domiciled mutual funds, of course- just as many Canadian fund families are available for purchase within discount brokerage accounts. That would immediately solve the "responsible intermediary" issue.

The regulators can also take comfort in the fact that VTI and those behind it have been vetted by the exchange on which it's listed (NYSE or AMEX?). I don't know if all US-domiciled funds have to be registered with the SEC, or if a state registration is sufficient.

I refer you to the source:

Mutual funds are subject to SEC registration and regulation, and are subject to numerous requirements imposed for the protection of investors. Mutual funds are regulated primarily under the Investment Company Act of 1940 and the rules and registration forms adopted under that Act. Mutual funds are also subject to the Securities Act of 1933 and the Securities Exchange Act of 1934. You can find the definition of "open-end company" in Section 5 of the Investment Company Act of 1940.

Since that is the same SEC that is regulating ETFs, using many of the same provisions of the same laws, I still fail to see a policy-driven reason to differentiate between the two types of funds for Canadians.

There's also the problem that the law restricts sales here to domiciled funds.

Well, yes, that is the point I am trying to understand.

As well there's the issue of reciprocity. Having been burned by Cornfeld's Canadian-incorporated fund, US regulators and lawmakers are unlikely to be willing to expose innocent Main Street investors to evil foreigners.

WADR, the job of Canadian regulators is to look out for Canadian investors, not American ones, so how would reciprocity matter? And given cost differences (pace critics), how much interest would there actually be in Canadian funds south of the border?

I still maintain the rationale is "investor protection" though ineptly designed, inadequately enforced and in many cases unwarranted. When the laws and regulations were written, the authorities had no way of foreseeing that one day a mutual fund company would package its funds two ways. [emphasis added]

Yes, I agree- in particular with the way you characterize the stated rationale as "unwarranted". Pressure from Canadian fund firms anxious to maintain their profitable grip on the home market in the face of potential competition from larger and lower-cost US competition would no doubt have played a role as well.

[Norbert Schlenker]

The crucial legal difference between buying VTI on an exchange and buying VTSMX from Vanguard is that the purchase on the exchange is of existing securities while the purchase from Vanguard is of securities created de novo for the purpose of the sale. Securities law regulates the latter much more closely than the former.

[brucecohen]

OK, let's try this. Here's a speech by a guy from the SEC on why they won't let foreign investment companies sell their funds inside the US. Just change the name of the country and the Act.

It turns out that, technically, a foreign fund company can sell inside the US, BUT they haven't since 1973. That's because the regulators interpret the law as requiring the foreign company to dot every i and cross every t of the U.S. requirements as well as those of its homeland. The law can only be changed by Congress, which has shown zero interest in doing so.

ISTM the same situation exists in Canada though I don't know if there is the same technical window through which a US company could move. Probably not as evidenced by Fidelity's creation of a company from scratch when it decided to come here. Even if there is such a window, there's not enough business in Canada to justify dotting every Canadian i and crossing every t. There's also the point that many of the US fund companies are already making good money here by acting as sub-advisors to Canadian domiciled foreign funds. So they're collecting mgmt fees without spending anything on infrastructure or distribution.

Meanwhile, take the compliance issue raised by the SEC guy, multiply it by 10 or so provincial securities commissions and, to ice the cake, add the requirement that all prospect and unitholder communications be produced in French as well as English. (IIRC, a few years ago -- the BC Securities Commission expressed interest in allowing sale of US domiciled funds but obviously went nowhere with it.)

Here's the relevant quote from Mr SEC:

The agenda for today's program refers to Section 7(d) of the Investment Company Act as "the obstacle to direct access" to the U.S. marketplace. Certainly Section 7(d) has prevented foreign advisers from directly offering their foreign funds to a large number of U.S. investors.

Under Section 7(d), only funds organized under the laws of the United States, or any state, are permitted to offer shares in the United States. However, Section 7(d) authorizes the Commission to issue orders permitting foreign-organized funds to offer shares in the United States if the Commission finds that, by reason of special circumstances or arrangements, it is both legally and practically feasible effectively to enforce the provisions of the Investment Company Act against the foreign fund and that permitting the foreign fund to offer shares in the United States is consistent with the public interest and the protection of investors. Thus, Section 7(d) ensures that U.S. investors receive the same essential investor protection whether they acquire shares in a foreign fund or U.S.-organized fund.

This standard has proved to be extremely difficult to meet, primarily because foreign funds are unwilling to submit to having all provisions of the Investment Company Act imposed on them, especially when the provisions of the Investment Company Act may conflict with-or at least be perceived as being more stringent than-the regulations of their home jurisdiction. In fact, only 19 foreign funds, most of them from Canada, have ever received orders under Section 7(d). The Commission issued the last such order in 1973.

Section 7(d) is statutory, rather than a Commission rule. Therefore, an amendment to Section 7(d) requires an act of the U.S. Congress, and there has been limited interest in effecting this change in recent years. The U.S. mutual fund industry generally has been reluctant to support efforts to relax Investment Company Act regulation to permit offerings of foreign mutual funds in the United States.

In a 1992 study entitled Protecting Investors: A Half Century of Investment Company Regulation, the Division of Investment Management recommended that Section 7(d) be amended to authorize the Commission to enter into bilateral regulatory memoranda of understanding that would create a framework for regulatory cooperation and mutual recognition of investment company regulation. The Division further recommended that Section 7(d) be amended to give the Commission greater flexibility to permit foreign funds to register in the United States. Consistent with this approach some have argued that investment funds under the UCITS Directive, for example, provide under a completely different regulatory framework, for the same level of investor protection as funds under the 1940 Act. In other words, no specific issue should be singled out of a regulatory framework to gauge the level of investor protection; the framework must be evaluated as a whole. Again, there has not been sufficient impetus for embracing such an approach in the United States and revising Section 7(d).

[Bylo Selhi]

(IIRC, a few years ago -- the BC Securities Commission expressed interest in allowing sale of US domiciled funds but obviously went nowhere with it.)

Indeed they did as part of their push to principles-based, rather than rules-based, regulation. They were so anxious to lead the way that they held hearings across the country. I went to the one in Tronno in early 2002. As far as I could tell I was the only individual investor there. Naturally I (along with the BCSC contingent) was the only attendee in favour of that proposal. The "industry" had all sorts of silly objections. Interestingly even the OSC lawyer there, as best as I could determine, was herself personally in favour, but in her capacity of OSC advocate was dead against on the grounds that they have to protect the ignorant natives from exploitation by the big bad US imperialist dog fundcos

The "biz" in Canada is a small, tight-knit club. [s]Customers[/s]Sheep, who are expected to put up all the money and take all the risks aren't invited

[parvus]

yogi wrote:

Dontcha just love semantic debates?

Naturally! But ETFs are not open-ended mutual funds, even if they resemble an open-ended index fund. Norbert gets to that point a little later in the thread. OTOH, in SEDAR, ishares are grouped with investment funds: as the regulators try to figure out what is an "investment fund," what is a stock and what is a private placement, and what investor protection should ensue therefrom.

If I get this right, it goes like this:

1) Mutual funds are sacrosanct, absolutely liquid and totally safe for retail investors: except when a Zenith or Norbourg or @rgentum happens, where we had suspicions (some of our employees were being courted at Montreal strip clubs) but weren't paying attention as closely as we should have been, despite our [s]ext[/s]expensive prospectus-vetting and auditing process. In which case, we'll put the funds into receivership and you'll get some of your money back, if the liquidator can find any.

2) With stocks, you have legal rights to sue for prospectus and disclosure misrepresentation, but of course there's Bre-X and YBM-Magnex and Cartaway Resources, in which case you can sue your broker — you might as well, since it will take us 10 years to finish our own court cases — for not understanding the prospectus we vetted.

3) As for private placements, we warn you you could lose all of your investment, that's why we require big money upfront — because they're really not our responsibility, and if your brother and a bunch of his friends are raising capital, well, that's a private transaction, although we do like to keep track of these things — hoping you'll do your due diligence, but hey, if you lose, you can still sue your broker for only having told you twice, but not three times, that you could lose all your money.

Is that about right?

So what is the rationale for allowing Canadian investors access to one and not the other? Since any semi-literate Canadian resident with ID can open a discount brokerage account and buy VTI, no questions asked, the answer cannot logically be "investor protection" - so what is it?

Years ago, I was at the OSC's annual dialogue where the lawyers, all gone now, admitted that it was absurd that retail clients could do everything a hedge fund did in a discount or full-service brokerage account on their own, but what they couldn't do was get professional advice on what they were doing. You could read newspaper articles or the short interest reports, or hell, even listen to Michael Holoday. They have yet to resolve that little bit of regulatory arbitrage — and if I'm not mistaken, that's the loophole Portus tried to get through, with it's $2000 minimum "managed accounts."

On the other hand, I second Bruce's research. My reading of SEC rules was that they were aimed to prevent unscrupulous Canadian (or other) promoters taking advantage of U.S. clients, and then having no civil or criminal recourse. (Of course, unscrupulous U.S. promoters can do all of this, but the catch is they might(?) one day be brought to book for promoting a hedge fund run out of a garage. )

Canadians like to pretend it's the same thing, that it's all about investor protection. But it's an elephant & mouse situation, IIRC (the details are a little vague to me right now): The [s]boy's club[/s] regulators and brokers are all in favour of direct U.S. market access from Canada, (providing it goes through Canadian brokers), but only if U.S. brokers reciprocate and have direct TSX market access terminals (naturally, on the desks of those few brokerages that follow the Canadian market). The philosophy seems to be: we'll let retail access your market, but only if you switch trading volume up here, and, through us.

I suppose the evolution of ECNs and "dark-liquidity-pool" providers, along with decimal pricing, is forcing the issue in the U.S., where best execution is trumping old monopolies. Maybe it will happen in Canada too.

But I'm not sure our regulators are ready to let us invest in U.S. mutual funds, given that they would have to be bought through a U.S. brokerage. (It works in reverse: for a long time, as Bruce notes, Canadian residents were forbidden from transacting with their Canadian brokers while resident in the U.S.!)

Hell, they can't even figure out whether a seg fund is an expensive investment or an insurance policy.

[YogiBear]

So, to summarize: it is rather easy to state "this is what the rule is", and rather less easy to explicitly define "this is why the rule is the way it is"- aside from mother and apple pie references to "investor protection". And no, I'm certainly not blaming BruceCohen- he is neither the legislative rule-maker nor the regulatory rule-applier, after all.

If I am honest, my questions were certainly predicated on the "Vanguard" issue- IOW, we are talking about low-cost US funds subject to SEC regulation, and that implictly means (rightly or wrongly is another matter entirely) as much investor protection as the XSCs here provide. My interest in opening the Canadian retail markets to foreign (non-US) funds is somewhat less ... So "investor protection" does mean something real at some level.

OTOH, Bylo's anecdote is suggestive of the interests aligned against US-domiciled funds being available in Canada, starting with XSCs defending their regulatory turf and Canadian fundcos defending their captive clientele. In that case, "investor protection" sells well as a justification to legislators ... and we will have to stick with the ETF share class of the Vanguard funds. Could be worse, I suppose.

(Thanks for your input Bruce, Bylo, Norbert, and parvus).

[NormR]

We're No. 1: Why do Canadians pay the world's highest mutual fund fees? Doug Steiner in the G&M.

It's now pretty much official: Canadians pay the world's highest mutual fund fees. A draft paper released this past summer confirmed that Canada is No. 1 by a huge margin. The paper was written by three academics--Ajay Khorana of Georgia Institute of Technology; Henri Servaes, from London Business School; and Peter Tu-fano of Harvard Business School--and it's one of the most exhaustive studies ever done on global mutual fund fees.

The trio examined 46,799 funds offered in 18 countries. Researchers calculated an annual "total shareholder cost" (TSC) for each fund by adding the yearly fees charged by the fund (known in Canada as the management expense ratio, or MER) and any one-time commission paid to the seller of the fund. The commission was divided by an assumed holding period of five years.

The average TSC for funds sold in Canada was 4.7%, far ahead of second-ranked Ireland, at 2.7%, and the overall average of 1.9%. Some Canadian fund analysts questioned the percentages in the study, but even they agreed that Canadian fees are relatively high. You can almost see the authors of the study raising their eyebrows at our fees in a section of the paper titled "A tale of two North American neighbours."
...

Mutual Funds Fees Around the World (May 1, 2007)

Lookie lookie, the 4.7% TSC fee is now 2.41% - a difference of about 2.3 percentage points. I now expect to see a raft of corrections from the folks who wrote the articles highlighting the 4.7% figure.

Oh, and where did the "tale of two North American neighbours" go? It's not to be found in the May 1, 2007 draft ...

And here's a charming warning in the new draft, "The raw national comparisons reported in Table 2 do not control for fund size, complex size, or type of clientele and therefore should not be overemphasized."

[Norbert Schlenker]

Well, Norm, you can control for all those things by eye. Further assume that they're still not counting up distribution costs correctly in Canada's case and you still find that Canada stacks up tied for [s]worst[/s] first with such notables as Luxembourg and Spain. Is there something that mandates we could not have fees more like Australia?

[Bylo Selhi]

Is there something that mandates we could not have fees more like Australia?

The cost of paying off the dozen or so provincial regulators who run investor protection rackets?

[Bylo Selhi]

New draft says fund sector still world's most expensive

Three professors who declared Canada's $690 billion mutual fund industry the most expensive in the world are sticking to their depressing findings. "We have re-estimated our tests in many ways, and our results are robust," Ajay Khorana, Henri Servaes and Peter Tufano have replied to several pointed criticisms from the lobby group for the Canadian fund industry. "Total shareholder costs in the Canadian industry in 2002 were higher than those in Australia, Austria, Belgium, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom, the United States and the so-called offshore-domiciled funds from Dublin, Luxembourg and the various island offshore locations."

Joanne De Laurentiis, president of the Investment Funds Institute of Canada, or IFIC, has claimed the draft report "was not a credible study."

"We strongly disagree with your characterization of our work," said Khorana of the Georgia Institute of Technology, Servaes of the London Business School and Tufano of the Harvard Business School. "If you disagree with our results, we encourage IFIC to conduct its own cross- country study to advance our understanding of the fund industry."...

Meanwhile, a Canadian pension expert and a Dutch finance professor have released another damning indictment of the country's retirement-savings industry. Keith Ambachtsheer and Rob Bauer estimate in Losing Ground [PDF], an article in the April edition of Canadian Investment Review, that poor investment performance relative to pension plans is depriving Canadians of 22 per cent to 64 per cent of their potential retirement income...

He applies the wide gap in performance for equity returns to the total of all assets in mutual funds, and suggests the transfer of wealth from fund holders is equal to nearly a quarter of personal income taxes paid to Ottawa last year. His proposed solution is to follow the lead of Australia and the Netherlands and require participation in industry wide pension plans, instead of leaving retirement savings to the self-interested mutual fund sector...

Added: The mutual fund sucker factor: Either way, we're No. 1 in fees paid

Where does the Canadian fund industry rank on a global basis, then? Ms. De Laurentiis said IFIC hasn't done any research of its own, but her own investigations suggest Canada is quite competitive with the rest of the world. "The anecdotal data that our members give us is that they don't think we're higher than any country."

So who to believe? A trio of academics whose methodology is open to review, criticism and refinement? Or some industry mouthpiece with a humungous conflict-of-interest who apparently relies entirely on the anecdotes of her fundco employers?

C'mon Norm. You can do better

[scomac]

One thing I found curious about this report was the contention that fund expenses are higher in jurisdictions where the banks are heavily involved in the fund industry and brokerage business. ISTM, in Canada at least, that the banks are more competitive in fund fees than the independants (excluding the boutique firms like Mawer, PH&N, Saxon, et al).

[AltaRed]

The Canadian industry will not change as long as the fundcos continue to add net sales each month. Each will tweak their product stream if they are not capturing their proportionate share of sales but no one is about to arrest the march of the lemmings.

[NormR]

So who to believe? A trio of academics whose methodology is open to review, criticism and refinement? Or some industry mouthpiece with a humungous conflict-of-interest who apparently relies entirely on the anecdotes of her fundco employers?

C'mon Norm. You can do better

Given past errors, I am highly suspicious of the quality of the work of these academics. But I'll have to read the paper thoroughly before coming to any firm conclusions.

Let's just say that being wrong - by almost a factor of 2 - should be embarrassing. I've also yet to spot an apology for the mistake. It seems to be far better to rely on one's status as a prof to win arguments and sweep giant errors under the rug.

It strikes me that many people who believe that fund fees are too high have jumped on this "study's" bandwagon uncritically. It would seem that the truth doesn't matter if you're arguing for lower fees. Oh well.

But let me remind everyone reading the popular press about the authors' warning, "The raw national comparisons reported in Table 2 do not control for fund size, complex size, or type of clientele and therefore should not be overemphasized." I bet you'll see some overemphasizing going on.

[YogiBear]

I think that might reveal somthing about the character of the paper's authors. But I'll have to read the paper thoroughly before coming to any firm conclusions. [emphasis added]

As opposed to drive-by potshots ("somthing [sic] about the character of the paper's authors") ...

Let's just say that being wrong - by almost a factor of 2 - should be embarrassing. I've also yet to spot an apology for the mistake...

It strikes me that many people who believe that fund fees are too high have jumped on this "study's" bandwagon uncritically. It would seem that the truth doesn't matter if you're arguing for lower fees. Oh well.

But let me remind everyone reading the popular press about the authors' warning, "The raw national comparisons reported in Table 2 do not control for fund size, complex size, or type of clientele and therefore should not be overemphasized." I bet you'll see some overemphasizing going on.

ISTM that misses the crucial point, however. Even given a substantial downward correction in the calculated cost of Canadian funds, they would still be among the most expensive. If the publicity surrounding this study, in all its versions, leads to greater awareness among retail investors in Canada of the cost of their mutual funds- and corresponding pressure over time on fundcos to reduce costs as investors seek out less pricey funds- then that should be a welcome result (unless one is a fundco shareholder, of course ... ).

In other words, while the precise details of the study versions may present grounds for an interesting academic debate, the general conclusion that Canadian funds are comparatively expensive (and the positive consequences for Canadian retail investors that just may flow from publicizing that conclusion) is the important point as a practical matter- unless, that is, one prefers the fund cost status quo.

[Norbert Schlenker]

Given past errors, I am highly suspicious of the quality of the work of these academics.

And, given the history, you're not highly suspicious of anything IFIC says?

Let's just say that being wrong - by almost a factor of 2 - should be embarrassing.

Right. So academics should be embarrassed that the first draft of a working paper has gross errors in it. (Never happened to you in academe, I guess.) Should IFIC be embarrassed that, in a country about the same size in area and population and with a legal system and average fund size and GST comparable to Australia, somehow the Canadian industry charges twice as much? Are they? Would they ever be?

We can argue about the study and academic piety and errors and apologies if you like. It seems to me more productive to argue about appropriate fee levels. What justifies average annual fees of 2.5%+ on domestic equities?

[NormR]

I think that might reveal somthing about the character of the paper's authors. But I'll have to read the paper thoroughly before coming to any firm conclusions. [emphasis added]

As opposed to drive-by potshots ("somthing [sic] about the character of the paper's authors") ...

I was incorrect in my quick observation and removed the comment.

[NormR]

Given past errors, I am highly suspicious of the quality of the work of these academics.

And, given the history, you're not highly suspicious of anything IFIC says?

Let's just say that being wrong - by almost a factor of 2 - should be embarrassing.

Right. So academics should be embarrassed that the first draft of a working paper has gross errors in it. (Never happened to you in academe, I guess.)

No, not to my knowledge. In physics we didn't publish draft papers. We sent our work to peer review and it was accepted or rejected. There was none of this weird business of constant revision over many years.

Should IFIC be embarrassed that, in a country about the same size in area and population and with a legal system and average fund size and GST comparable to Australia, somehow the Canadian industry charges twice as much? Are they? Would they ever be?

We can argue about the study and academic piety and errors and apologies if you like. It seems to me more productive to argue about appropriate fee levels. What justifies average annual fees of 2.5%+ on domestic equities?

Ah, so you can say anything as long as you are arguing for lower fees?