by Scott Ronalds
Let me start by saying that a fee increase is never a popular decision for a firm that prides itself on being highly investor-centric.
But in the case of our Savings Fund, it’s time. After 14 years of charging a reduced fee on the Fund, we will be increasing it effective July 1, 2023. The ‘One Simple Fee’ (what other firms refer to as a Management Expense Ratio, or MER) will increase from its current level of 0.20%, to 0.45%.
The current fee was instated as a temporary measure back in 2009 in response to record low short-term interest rates. We reduced the fee from 0.65% (its original figure) to 0.20% to ensure that unitholders would receive a positive return, even if it meant that we had to subsidize the Fund internally. Our intention was always to reinstate the initial fee when rates returned to more normal levels. This, however, took much longer than expected.
We have decided that it’s now an appropriate time to partially restore the fee, given today’s higher interest rate environment. Note that the new fee of 0.45% will still be lower than the original fee of 0.65%.
If this all sounds a little confusing, some history may help.
Back in the spring of 2007, the Bank of Canada’s key lending rate (“policy rate”) was 4.25%. Most money market funds such as our Savings Fund had a similar yield to this and charged a fee in the neighbourhood of 0.5% to 1.0%. Investors were receiving a decent net return on their cash in this environment.
Then the Global Financial Crisis hit and central banks around the world began reducing their policy rates to help stimulate economic activity. In Canada, our central bank started its rate-cutting program in late 2007, and by April 2009, the benchmark rate had come down to 0.25%. Consequently, money market investments such as T-Bills and short-term corporate paper were offering rock-bottom yields.
Money market funds were in a bind, as even a modest fee was eating up most or all the returns. In response, we temporarily reduced the fee on our Savings Fund from 0.65% to 0.30% in April 2009, and subsequently reduced it further to 0.20% in November of the same year.
We chose to keep the fee at 0.20% until the present day, as interest rates remained at below-normal levels throughout much of the period. With short-term rates now much higher—the Bank of Canada’s policy rate currently sits at 4.50%—it’s a logical time to make the fee adjustment.
We feel that 0.45% is a reasonable fee. It is comparable to, or lower than, most of our competitors. Further, most Steadyhand clients pay a reduced rate thanks to our Fee Reduction Program.
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