BMO launches reduced-fee funds for self-directed investors

For now, Series D is available only at BMO InvestorLine.

Rudy Luukko 9 April, 2014 | 5:02AM
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BMO Investments Inc. today launched a reduced-fee Series D of mutual funds for self-directed investors. The savings on management fees range anywhere from 30 to 115 basis points when compared with Series A funds sold mostly through bank branches. The 33 funds in Series D start off with only one distributor, the discount-brokerage affiliate BMO InvestorLine.

Mark Raes, head of product for BMO Investments, noted that since discount-brokerage clients aren't using advisory services, it's appropriate for them to be paying lower fees.

While the new Series D starts off as an exclusive BMO InvestorLine offering, BMO hasn't closed the door to other distributors. "We can certainly consider down the road looking at other discount brokerages," Raes told Morningstar. Whether that comes about, he says, will depend on client interest and whether other discounters are interested in carrying BMO's Series D.

BMO's discounted fees represent savings being passed on to self-directed investors from the much reduced trailer commissions payable on sales of Series D. For most equity and balanced funds, BMO's Series D pays a trailer fee of 0.25% annually, compared with up to 1% for Series A or the Advisor Series sold through commissioned brokers and dealers.

For Series D of fixed-income and equity-index funds, trailer fees are either 15 or 20 basis points, which again is sharply lower than the fees for fund series distributed through bank-branch or advice-giving channels.

Among BMO's large stand-alone mutual funds, examples of the Series D fees include BMO Dividend at 0.95%, down from 1.50% for Series A; BMO Monthly Income at 0.80%, down from 1.30% for Series A; and BMO Asset Allocation at 0.75%, down a full percentage point from 1.75% for Series A.

The fund with the biggest discount in absolute terms for self-directed investors is BMO U.S. Equity, whose management fee is 0.85% for Series D, compared with 2% for Series A. (The above examples do not include administrative fees charged to the funds to cover operating expenses.)

Raes characterized the Series D offering as a full range of investment solutions, though he also acknowledged that fewer than half of BMO's full line-up of mutual funds have Series D versions. BMO chose not to create Series D versions of corporate-class funds, and various portfolio funds and specialty funds. Raes said that for operational reasons, BMO opted in its Series D launch to focus on funds for which it believed there would be more interest on the part of investors.

Also today, BMO announced that fee waivers implemented in September 2013 to reduce fees for its F-series funds will be made permanent. This decision affects BMO's full line-up of 67 mutual funds (including 10 U.S.-dollar versions) distributed through fee-based advisors.

With its F-series and its $13.3-billion family of 58 ETFs, BMO Investments now provides an extensive offering of investment choices for investors in fee-based accounts.

Raes said BMO believes that the fee-based segment of the advice-giving market will continue to grow, and to better serve this segment the company opted for across-the-board fee reductions for its F-series rather than only for selected funds or for new accounts.

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About Author

Rudy Luukko

Rudy Luukko  Rudy Luukko is a freelance writer who contributes to on topics involving fund industry trends and regulatory issues. He retired in May 2018 from his position as editor, investment and personal finance, at Morningstar Canada, where he had worked since 2004. He has also worked as an editor and writer for various general, specialty and institutional media, and he has co-authored courses for the Canadian Securities Institute. Follow Rudy on Twitter: @RudyLuukko.

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