In a new study that challenges previous comparisons of Canadian and U.S. mutual fund fees, researchers suggest that the cost of owning mutual funds purchased through a financial advisor in Canada compares favourably with U.S. costs.

The study, which was conducted by business consulting firm Bain & Co. and commissioned by Mackenzie Investments, seeks to provide an accurate comparison of mutual fund fees in Canada with those in the U.S.

“There was a desire to make sure we had an apples-to-apples comparison of the cost of ownership of mutual funds in Canada and in the U.S.,” said Antonio Rodrigues, a partner at Bain & Company in Toronto, in an interview on Thursday.

Several previous studies on mutual fund fees, including one conducted by Morningstar Inc. last year, conclude that fees and expenses in Canada are substantially higher than those in other countries.

The new Mackenzie study argues that commonly referenced mutual fund expense ratios cannot be used to accurately compare fees in Canada with those in the U.S. This is because of differences between the countries in fee structures, tax regimes and the ways mutual funds are purchased.

In order to compare the true cost of owning a mutual fund in Canada versus in the U.S., the study says investors should examine the sum of ongoing compensation and amortized load charges, rather than the MER.

“U.S. expense ratios are not comparable to Canadian ones, and the expense ratio is not an accurate measure of the true [cost of ownership] of U.S. mutual funds,” the report says.

When comparing the average cost of ownership for Canadian mutual funds with those offered by 15 of the largest U.S. fund managers, the report concludes that for most Canadian investors, the costs are very comparable.

A key difference between fees in Canada and the U.S. involves the front-end load, which is the most common sales structure of mutual funds in both countries. In Canada, front-end load charges are negotiable, and are waived 95% of the time, according to the report. Instead, dealer and advisor compensation is generally included in the expense ratio in the form of annual compensation equal to 1% of assets. In cases where front-end loads are charged in Canada, the amount is typically 2% or less.

In contrast, U.S. advisors receive compensation through a combination of 12b-1 fees, which fund managers report inside the expense ratio, and through the load charges, which are reported outside of the ratio. The bulk of the U.S. advisor’s compensation typically comes from front-end load charges, which are non-negotiable in the U.S., and typically range from 4.25%-5.75% for equity funds. But these hefty charges are not included in the management expense ratio.

Another important difference is that Canadian expense ratios contain embedded GST, unlike in the U.S., where mutual funds are not subject to value-added sales tax. This difference accounts for approximately 0.10% of incremental cost of ownership in Canada versus the U.S., according to the study.

It notes that the introduction of HST in certain provinces will further increase Canadian cost of ownership.

It’s important for investors to consider these types of differences when comparing mutual fund fees across borders, Rodrigues said.

“There are differences in the markets,” he said. “There probably is a need to better understand how the two markets differ and how that impacts what is commonly looked at in terms of the cost of ownership.”