The scandal engulfing the U.S. mutual fund industry apparently has some international investors worried: yesterday Bank of Montreal announced that it has fired Putnam Investments as manager of its $463-million BMO International Equity Fund.

According to various news reports, the bank is looking for a new manager and has assigned in-house managers to the fund during the search. U.S.-based subadvisors are common in Canada, often managing foregin equity funds held in Canadian RRSPs as part of the 30% foreign content limit.

BMO Investments' chief executive, Ed Legzdins told the International Herald Tribune that the Bank of Montreal fund was not affected by alleged trading improprieties but that a change in managers was "in the best interests of unit-holders at this time.”

But, BMO’s decision could have also been influenced by the Ontario Securities Commission’s recent decision to give fund companies until mid-December to prove that they will not become the next Putnam.

According to the National Post, several Canadian managers have been caught for iffy pricing practicies. RT Capital was caught manipulating stock prices to artificially boost performance, while Strategic Value Corp. was caught manually changing prices on some of the stocks in its funds to inflate performance.

Still, Candian experts believe the the Canadian fund industry has larger issues to deal with, such as high management expense ratios (MERS) and equity fund bias. Equity funds in Canada have the highest MERS and pay higher commissions and trailer fees.  

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