Why Canadians might actually say “No” to Vanguard
Canadians, it seems, would swarm around a newly proposed Vanguard investment option like a batch of northern Ontario mosquitoes to an open arm.
And why not? As the famous, low cost provider of index funds, there’s no doubt that Vanguard offers the cheapest investment services on the planet.
But if Vanguard moved to Canada, would they treat us like brothers or cast us off as undesirable outback dwellers?
We have reasons to suggest they could choose either option.
Yes, Vanguard funds in Canada could end up being cheap
Sailing to the UK to open shop, Vanguard offered low cost indexed products that put Richard Branson’s Virgin indexed products to shame. It was Branson who said in his autobiography: “After Virgin entered the financial services industry, I can immodestly say it was never to be the same again…We never employed fund managers, some of the world’s most highly paid people, since we discovered their best-kept secret: they could never consistently beat the stock market index” (pg. 405, 2007)
Right you are, Sir Richard!
I’m a huge fan of this adventurous billionaire, but charging 1% annually for a UK index fund is just a tad… rich. … read more
Vanguard UK, on the other hand, looks a lot like Vanguard USA. With a UK index charging just 15 basis points, Sir Richard’s UK index is 566% dearer. With costs like that adding up, Branson could transcend from famous balloon travel to famous space travel—thanks to the profits he makes.
But if Vanguard jumped the border to Canada, could they end up gouging Canadians?
OK—this is all going to be relative. Canadians pay the highest investment fees in the world, so just about anything will be an improvement. But what if Vanguard Canada charges the same fees that Vanguard Australia does?
First of all, fees Down Under for actively managed “Unit Trusts” (mutual funds) rival Canada’s anyway. They’re regularly more than 2% annually. But Vanguard Australia has some ridiculously expensive products.
Their Australian shares stock index charges 75 basis points for accounts below $50,000. And even though the fees lower as the account grows, they still get 0.75% on the first $50,000 every year.
Vanguard Australia management costs:
- First $50,000 is 0.75% p.a
- Next $50,000 is 0.50% p.a
- Balance over $100,000 is 0.35% p.a
So what do you think? Would Vanguard give us a gentleman’s shake—or toss us into The Outback? What’s your call?