A financial advisor is recommending an investment to a client with a moderate risk tolerance, seeking broad market exposure with low costs. The advisor is comparing an S&P/TSX Composite Index mutual fund with an S&P/TSX Composite Index ETF. Which of the following is a primary advantage of the ETF for this client, assuming both track the index effectively?

Question: A financial advisor is recommending an investment to a client with a moderate risk tolerance, seeking broad market exposure with low costs. The advisor is comparing an S&P/TSX Composite Index mutual fund with an S&P/TSX Composite Index ETF. Which of the following is a primary advantage of the ETF for this client, assuming both track the index effectively?

Answer options: ✅ The ETF will likely have a lower Management Expense Ratio (MER) due to its structure.

• The ETF offers front-end load options, reducing trading costs.
• The ETF will automatically reinvest dividends without incurring tax implications.
• The ETF provides daily interest payments, unlike the mutual fund.

Correct answer: The ETF will likely have a lower Management Expense Ratio (MER) due to its structure.

Explanation: Index ETFs typically have lower MERs than comparable index mutual funds due to their pass-through structure and lower administrative overhead. ETFs do not have front-end loads, and dividend reinvestment or distributions are taxable.