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Rob Carrick.

Brigitte Bouvier/The Globe and Mail

Memo to the ETF industry: Stop blowing smoke at investors by prominently displaying your management fees.

I once wrote this about the mutual fund biz. What a sad state of affairs that this must also be said to companies offering exchange-traded funds, which are supposed to be a model of simplicity and transparency.

Management fees cover the cost of running an ETF and are a major factor in the management expense ratio (MER), which is a definitive measure of how much it costs to own an investment fund of any type. Other components of the MER are operating costs (mainly admin-related) and taxes. A low cost of ownership is the Number One attraction for ETFs, and that means investors researching these products will want to do a careful MER comparison.

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And yet, some ETF companies decline to be upfront about MERs in the online fund profiles they all offer. Instead, they show the management fee and relegate the MER to disclosure documents that investors must unearth on ETF company websites.

Want to know who's doing a good job with fee disclosure? Let's look at the websites of ETF companies active in the Canadian market:

BlackRock (iShares), Vanguard and RBC
Both MERs and management fees are clearly and prominently labelled.

BMO
MERs are provided in the master list of ETF products online, while management fees are shown in individual fund profiles.

Horizons
Management fees are shown in fund profiles; you have to click on the "Resources" tab and then look under Fund Summary Documents to find MERs.

PowerShares
Like Horizons, they use management fees in their product profiles.

First Trust and First Asset
Both are newer players and are showing management fees in their fund profiles; definitive MER data is available after a fund has been operating for a year or more.

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Purpose Investments
They're brand new, but given the vast ETF industry experience of the principals, one would hope they come across with MER information.

Frankly, the difference between the management fee and the more complete MER isn't that much for most ETFs. With the gargantuan iShares S&P/TSX 60 Index Fund (XIU), the management fee comes in at 0.15 per cent and the MER at 0.18 per cent.

Full fee disclosure is a matter of principle, though. ETFs are supposed to be a better way to invest than mutual funds in a whole bunch of ways, including lower costs and more transparency. The ETF companies blowing smoke at their clients by showing management fees should remember that.

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About the Author
Personal Finance Columnist

Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998.Rob's personal finance columns appear in The Globe on Tuesday and Thursday, and his Portfolio Strategy column for investors appears on Saturday. More

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