A new investment fee charged by the British Columbia securities regulator to help offset its growing operating deficit is being met with resistance from Canada’s largest money managers who claim the “unreasonably high” charges are not being calculated accurately and over time will negatively impact returns for investors.
The fee change was first announced in 2024 for exchange traded fund providers, and began to financially hit asset managers this year, adding about $4.6-million to annual costs for companies that sell ETFs in B.C., according to the BC Securities Commission, or BCSC. The industry says the same increase has not happened in other provinces.
Canadian ETF Association, or CETFA, executive director Eli Yufest said in an interview the BCSC introduced the fee without consulting the industry, or holding a public comment period.
“Regulatory design choices that raise operating costs flow through to investors,” Mr. Yufest said. “This fee increases the risk of eroding returns for Canadians and undermines the competitiveness of Canadian ETFs.”
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Shortly after the rule was finalized in 2024, some of the country’s largest asset managers – including BlackRock Asset Management Canada Ltd. BLK-N, Vanguard Investments Canada Inc. and Global X Investments Canada Inc. – sent a confidential letter to the BCSC opposing the plan.
The letter, which was obtained by The Globe and Mail, was submitted through law firm Borden Ladner Gervais LLP and said the new fees are unreasonably high given the regulator’s projected losses, do not take into account the different trading activities of ETFs compared to mutual funds (which pay similar fees), and are disproportionately high, relative to the benefit that ETF providers obtain from B.C.’s capital markets. The letter also argued the fees are not being accurately calculated.
The industry letter asked the BCSC to make further amendments to “fairly reduce the fees.”
At the same time, CETFA, along with the Securities and Investment Management Association and Portfolio Management Association of Canada, sent a second letter, endorsing the BLG letter. It said their members – who account for a large majority of financial services companies in Canada – supported the recommendations to lower the proposed fee.
All registered firms, including ETF managers, must pay an annual participation fee in certain provinces, such as Ontario and Alberta. B.C. does not does charge this fee.
In addition, certain provinces require fund companies to pay annual prospectus filing fees for each ETF they operate. For example, in Ontario, that fee is $3,800 per prospectus, and $650 for each ETF under that prospectus.
However, BLG wrote in its letter that three of Canada’s biggest ETF companies have reported that the new B.C. fee is greater, and in some cases “significantly greater,” than the total fees they currently pay to their principal regulator in Ontario for the same products.
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The BCSC said it made the change in order to account for a $9.3-million operating deficit for its fiscal 2024 year, which ended March 31, 2024. It was estimated the fee change would collect about $4.6-million.
BCSC spokesperson Brian Kladko told The Globe it was not required to consult the industry prior to making such a change, and the fee revenue for all fee changes was $4.6-million, as estimated. He expects results for the current year to be similar.
Despite the increase, the regulator reported in its service plan that it still had a budgeted deficit of $10.7-million for 2025, and projected losses of $12-million and $13-million in 2026 and 2027, respectively.
BCSC’s Mr. Kladko said the fee adopted for ETF distribution is unique to the province. It was introduced as “in most cases” ETF providers weren’t paying any fees on proceeds of distribution, because it was “challenging or even impossible” for them to identify B.C. purchasers in ETF distributions.
“The BCSC is not taxpayer funded, and market participants pay fees that are used to recover the BCSC’s cost of administering the securities act, including enforcement, compliance, investor education and policymaking,” he added.
However, asset managers are criticizing the BCSC for calculating the fee using an ETF’s gross sales over the course of a year, which does not deduct the amount investors have taken out of a fund during the year.
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Mr. Yufest said the calculation should be based on net sales to prevent ETF providers having to pay higher fees on funds that saw more money flow out when investors sold during the year.
Many of these regulatory fees are passed down to investors as part of the ETF’s operating fee. Rohit Mehta, head of ETF provider Global X Canada, said even small incremental costs can erode long-term returns over time.
“This is a serious concern. Canadian ETFs already compete against much largest U.S. funds, which often operate at lower costs due to economies of scale and favourable tax treatment,” Mr. Mehta said in an interview.
“If domestic regulatory fees are higher than necessary, it risks making U.S.-listed ETFs appear more attractive.”
CETFA’s Mr. Yufest agrees that that fee increases could sway Canadian investors to look south of the border for U.S.- listed funds.
“Canadian investors already weigh total cost and after-fee performance,” he said. “By imposing additional regulatory fees that get passed through to investors, the BCSC risks driving investor dollars into the U.S.”
Arnie Hochman, general counsel at Securities and Investment Management Association, declined to comment on the BCSC fee changes, but said the “patchwork” of different fee structures across the country has created inconsistencies and additional costs for national firms that ultimately flow through to Canadian investors.
“Aligning fee structures across jurisdictions would reduce duplication, improve fairness, and ensure Canadian investors are not disadvantaged by uneven regulatory charges depending on where they live or invest,” he said.