Half a century after the company’s founding, there is still life in the so-called Vanguard effect.
The low-cost asset manager shook the American ETF market in February by enacting a fee cut billed as the largest in its history, reducing fees on 168 share classes across 87 mutual funds and ETFs, at a combined cost of US$350 million in the first year.
The aftershocks were felt north of the border, according to Raghav Mehta, vice-president, ETF strategist at Global X Investments Canada Inc. The firm announced its own set of management fee rebates in the following weeks, taking between 13 and 40 basis points (bps) off the fees on seven funds in its Best of Canada ETF suite through the end of 2025.
Further reductions followed in the summer as BMO Global Asset Management permanently reduced the management fee on its four asset allocation ETFs to 0.15% from 0.18%. Ninepoint Partners LP launched its single-stock ETF collection HighShares with a waiver in place on the 0.29% management fee until the end of February 2026.
“What’s driving this recent wave is essentially economies of scale,” Mehta said, explaining that rapid growth in assets under management (AUM) has allowed ETF providers to spread their fixed costs across a larger pool of assets.
“Vanguard in February, and even our own move is a signal that the benefits of economies of scale can be passed on to investors in the form of meaningful savings,” he added. “When we end up reducing fees, either temporarily or permanently, it could potentially be costly for other competitors to ignore it.”
“I think we take some credit,” said Vanguard Canada’s head of product, Sal D’Angelo, adding that fee cuts are “part of our DNA.”
Mehta said the Canadian market has been primed for fee compression over the last few years, thanks to massive inflows that have driven ETF AUMs to record highs. By the end of September, year-to-date ETF inflows had passed the 2024 total, pushing the Canadian ETF market up over the $600-billion mark, roughly double the size it was three years ago.
‘Hyper-competitive’
But with more than 1,700 ETFs to choose from and an average of around 1.4 brand new Canadian products launching into the ETF market every trading day, Mehta said a significant, time-limited fee waiver is also a useful marketing tool for new or niche ETFs to stand out from the crowd.
“At the end of the day, it’s a competitive market, and becoming hyper-competitive,” he said. “Until you get to a point where the product has developed that track record and reaches the break-even point, a tactical rebate or promotion can help you hit meaningful scale faster. It also helps us to win advisor shelf space.”
Invesco Canada beat Vanguard to the punch with its most recent fee waiver, announcing an extension on the 34 bps reduction it introduced last year on its S&P 500 Equal Weight Income Advantage and NASDAQ 100 Income Advantage ETFs a few days before Vanguard’s bombshell.
Pat Chiefalo, the company’s head of product, said that clients are interested in much more than fees when investing in an ETF product.
“It’s important to us to think about the total client experience, how they’re going to experience the product and whether it’s a fit for their portfolio,” he said.
“Price is no doubt an important aspect that directly affects the client’s total return, but it’s just one,” Chiefalo added, pointing to an even earlier fee reduction as an indicator of how Invesco Canada approaches pricing decisions.
During the 2022 equity market sell-off, he said Invesco wanted to direct clients who were interested in capital preservation towards its Canadian Government Floating Rate Index ETF (TSX: PFL).
“We made an assessment that this was a critical product clients should have in their portfolio and we made the decision to put a fee waiver on,” Chiefalo said.
During the next 12 months while the waiver was in place, Invesco conducted a market assessment and decided to reintroduce the management fee at a reduced level of 12 bps.
“The strategy was the starting point. Without that, clients wouldn’t have cared what the fee was,” Chiefalo said.
Kevin Prins, managing director, head of ETF and managed accounts distribution at BMO Global Asset Management, said the firm focused its recent cuts on its asset allocation ETFs because it sees them as the “core building blocks” of client portfolios.
“That’s where investors are looking for simplicity and cost matters the most,” he said.
While the three-bps drop sounds less spectacular compared with other firms’ double-digit fee waivers, Prins was keen to highlight the permanence of BMO’s ETF management fee cuts.
“Even a small reduction in fees can be compounded over time,” he said. “It helps somebody get to their goal faster and their money can last longer, so everybody benefits.”
Piquing investor interest
According to veteran ETF industry watcher Rudy Luukko, continuing and permanent fee reductions like BMO’s are generally more meaningful to investors. But the former editor for Morningstar Canada said the unique profile of the ETF investor market helps explain why temporary fee rebates remain a popular tactic with so many providers.
“It does help draw attention to a new launch, given that, within the retail investment fund industry, ETFs are more price sensitive. Some of these moves would also be aimed really at direct investors, who are a very important segment of the ETF market,” Luukko said.
“Fee reductions are worth paying attention to when they occur, but they should only be one of the criteria that advisors and their clients consider in making investment decisions,” he added.
Although his clients already typically view ETFs as a low-cost option, financial planner Jason Heath said he would not be surprised to see the fee slide continue, especially among larger providers whose ETF suite is just one facet of a comprehensive financial services offering.
“It certainly seems like a race to zero,” said Heath, managing partner at Objective Financial Partners Inc. in Toronto. “There may be some providers that could use zero fees to attract clients into their ecosystem, effectively as a loss leader, and make money from them in other ways.”
However, fee cuts are not necessarily all good news for investors, Heath warned.
“One of my concerns with fee compression is that when you get to the point where ETFs are not profitable enough or you need to generate income from other parts of the business, then that could impact innovation in the ETF industry,” he explained.
Outside of the core asset allocation space, Vanguard Canada’s D’Angelo says there’s still plenty of room for further fee compression.
“Pure index is in a decent spot in Canada, where the opportunity lies more on the active side,” he said. “There are certain categories which are probably ripe for disruption. There are still ETFs charging 50 to 100 bps. Now they are active, but even still, active at 100 basis points is a lot.”
Meanwhile, the upcoming implementation of the Canadian Investment Regulatory Organization’s CRM3 rules — giving investors easier access to information about embedded fees they pay on funds, including ETFs — could also help prolong the industry enthusiasm for lower-fee products, D’Angelo said.
“With CRM3 coming, I think fee transparency and lower costs will only accelerate this shift,” he said. “We do speak to a lot of advisors who are thinking, ‘OK, the client will see my full total cost — not only my advice cost, but also product cost. How can I present a fairer value option to them?’”
“It might make advisors migrate to lower cost options,” D’Angelo added.
This article appears in the November 2025 issue of Investment Executive. Read the digital edition or read the articles online.