Fee-based IIROC advisors have a new way to access mutual funds.
Invesco has launched Platform Traded Funds (PTFs), which are mutual funds that trade through an IIROC dealer’s equity trading platform, bypassing FundSERV. They’re less expensive than F-class funds, and Peter Intraligi, president of Invesco Canada, says that one day, he “could see the [Series] F becoming completely obsolete” for fee-based IIROC advisors.
PTFs transact like stocks and ETFs, except PTFs are not publicly listed. Settlement occurs through CDS. Advisors would place orders on a dealer’s equity platform using each PTF’s ticker. Each order is filled at end-of-day NAV, so there’s no bid-ask spread. There would be no minimum investment requirement, and advisors would also be able to perform bulk trades (discretionary advisors could take a position across multiple client accounts with a single transaction).
The PTFs’ management fees and operating expenses, less taxes, range from 0.6% to 1.1%. Based on Morningstar data, those fees are, on average, about 23% lower than comparable Series F MERs.
Intraligi says being listed only on dealer platforms stripped out costs. “Once you have an exchange-traded security, there are listing fees, and once you have intraday liquidity, there are also bid-ask spreads. Those [features] layer on costs, but they’re not important [for mutual funds].” He says his team found that fee-based IIROC advisors primarily use mutual funds in model portfolios, “and it’s a buy and hold transaction, so trading throughout the day is not a priority.”
PTFs are also cheaper because they do not offer administrative reporting, such as tax slips and statements. “We’re only offering investment management,” says Intraligi. Dealers, instead, would offer the reporting as if the PTF were a stock or ETF. “We’re leveraging the existing infrastructure.”
The PTF process is patent pending, and “we are actively working with some of our competitors on whether they want to use this platform,” Intraligi says. “I see this extending across the industry.”
Invesco is launching with “a couple of national dealers on board,” and it expects to be able to offer the platform to all dealers by mid-November.
There are currently 22 PTFs covering the fixed-income, domestic and global equity, balanced and sector categories. Intraligi says the funds were chosen because they were commonly used in model portfolios.
He hopes PTFs’ advantages will increase mutual fund use among fee-based advisors. “Only 13% of [fee-based advisor] assets are in actively managed mutual funds,” compared to 23% for all advisors, he says, citing Investor Economics data.