No More Excuses for Mutual Fund Advisors

With the increased popularity of ETFs and index funds, traditional commission-based mutual fund advisors must be feeling the pressure. The problem for many of them is that they do not have the infrastructure to buy ETFs for their clients. Fortunately, RBC has a suite of Series F (fee-based account) index mutual funds that are comparable in cost to ETFs. This means that any financial advisor who is licensed to sell mutual funds is able to build a portfolio of low-cost index mutual funds for their clients. These are Series F funds, so the advisor would need to be able to offer fee-based accounts; most mutual fund advisors should have access to fee-based accounts for their clients.

For any investor who values the non-investment financial advice that they receive from their financial advisor, but wants to be in lower-cost investment products, I think that this is a solution.

The RBC index funds track the FTSE Canada All Cap Domestic Index, the FTSE USA Index, the FTSE Developed ex North America Index (hedged to CAD), and the FTSE Canada Universe + Maple Bond Index. Each of these indexes are total market indexes, meaning that they cover nearly 100% of the stocks that exist in each market. This is a desirable trait for an index fund to have.

Notably there is no Emerging Markets index fund in RBC’s lineup. While this is unfortunate, the portfolio of index funds that are available still have a far better expected outcome than any actively managed mutual fund at 2.20%. The International equity index fund is fully currency hedged, which is not something that I would generally recommend, but again, this is still far better than an actively managed mutual fund.

A fee-based mutual fund advisor could build a well-diversified portfolio for their clients for between 19 and 22 bps using these funds, depending on the desired mix between stocks and bonds. In a typical fee-based arrangement – with a 1% fee for advice – these index funds could drop total costs from the typical 2.20% for an actively managed commission based mutual fund, down to around 1.2% for a fee-based advice arrangement and a low-cost index fund portfolio.

I think that the availability of these products gives any investor leverage to tell their financial advisor that they want index funds – being restricted to mutual funds is not an excuse that can be used.

Any investor who likes their financial advisor, but dislikes their advisor’s investment advice, should present these index fund portfolios as an option.

It is important to note that the fees listed below are for Series F versions of these funds. That series is only available through a fee-based mutual fund advisor. The table shows portfolios with asset mixes listed as stocks/bonds (40% stocks, 60% bonds is the first column).

	Fund Code	40/60	50/50	60/40	70/30	80/20	100/0
RBC CANADIAN INDEX FUND	RBF5733	13%	17%	20%	23%	27%	33%
RBC U.S. INDEX FUND	RBF5737	14%	17%	20%	24%	27%	34%
RBC INTERNATIONAL INDEX CURRENCY NEUTRAL FUND	RBF5736	13%	16%	20%	23%	26%	33%
RBC CANADIAN BOND INDEX FUND	RBF900	60%	50%	40%	30%	20%	0%

Management Expense Ratio		0.19%	0.19%	0.20%	0.20%	0.21%	0.22%

Benjamin Felix
Portfolio Manager, Head of Research, MBA, CFA, CFP, CIM

Benjamin Felix is the Head of Research at PWL Capital, a Canadian wealth management firm known for its publicly available thought leadership. PWL creates resources for Canadian investors including white papers, model portfolios, and research content. Benjamin co-hosts a podcast, the Rational Reminder, and is the host of a YouTube channel which together reach hundreds of thousands of people in Canada and around the world. Benjamin joined PWL Capital in 2013 after completing a degree in mechanical engineering and an MBA in financial management. He is a CFA charterholder and a CFP professional.

Contact Benjamin