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With actively-managed ETFs still a relatively new product, providers are trying hard to garner investor interest through many different means. One of those is by lowering the expense ratio of the Active ETFs temporarily through fee waivers. Fee waivers are common in newly launched actively-managed ETFs where the ETF manager provides a reimbursement of some portion of the gross expense ratio, for a contractually set period of time, in order to make the product more competitive. The hope is that the “discount” would help attract investors up front into the fund. However, what’s important to note for investors is that those fee waivers can be removed at the discretion of the issuer once the contractual period – which is usually about 1 year from launch – expires.

Where to find disclosures on fee waivers?

Example of prospectus fee table

The above snapshot from a prospectus is what the typical expense disclosure section looks like for an actively-managed ETF. As you see in this case, the total annual fund operating expenses, or what may also sometimes be called the “Gross Operating Expenses”, are 1.27%. That figure includes the management fee for the advisor and any operational fees that would be a part of “Other Expenses”. Below the total expenses line, you see a line for “Less Reimbursement” and that is what represents the fee waiver provided by the advisor, if there is one. In this one, there is a fee waiver of 0.02%, which effectively reduces the “Net Operating Expenses” to 1.25%.

The more important point to note is the disclosure that accompanies any fee waiver, in this case in disclosure (b). The disclosure provides details on the fee waiver. As indicated, the fee waiver is contractually agreed upon to keep the net expenses under a certain limit. The key piece of information to take note of here is the end of the contractual period for the fee waiver – in this case May 6, 2011. That represents the date on which the advisor may either renew the fee waiver for an additional period of time or let it expire. Letting the fee waiver expire would mean that the ETF’s expenses would rise to the “Gross Operating Expenses”. As such, if investors are not aware of the pending review of the fee waiver, they might well see their expenses rise and be in for a surprise.


While the fee waivers no doubt are a benefit to investors, investors have to be wary of what’s to come once the contractual agreement providing those fee waivers expires. Most actively-managed ETFs that have not had much success attracting assets are likely to extend the fee waivers, but others may not, resulting in higher expenses than before.

In general, a good guideline when going about choosing Active ETFs to invest in, would be to ask yourself if you would still be investing in the fund if there was no fee waiver to reduce the gross operating expenses. If no, then you would definitely want to keep an eye out on how the advisor reacts once the fee waiver agreement expires.

Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.

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