Managed Money Reporter Newsletter
Editors: Carl Spiess & Allan McGlade
By Carl Spiess, CFP, CIM, FMA, FCSI, MBA
The 2013 Federal Budget was released last week. Key points for individual investors/consumers include:
That last item may affect some clients. Some bond and income mutual funds currently use forward contracts to re characterize interest income as capital gains. This use of forward contracts has been a long-standing and tax effective practice in the fund industry. Tax and legal experts at many firms are reviewing the impact on their funds and we will share updates with specific fund holders once it is available.
Importantly, according to last week's budget announcement, the change in rules does not immediately affect such contracts that were in place before budget day. It is also very important to note that the budget change does not affect the corporate class structure. The key features of corporate class fund families remain in place (deferring capital gains, tax free switching, sharing of income and expenses etc.). See our Tax efficient investing page for more on these investment structures.
Overall, the projected budget plan is to have balanced finances by 2016 which should help Canada's economic position. You will find all the details on the budget in the attached pieces.
A reminder that April 30th is the deadline for filing your 2012 income taxes. Most tax slips have now been mailed, however clients with certain flow through investments may still be receiving tax slips in the first part of April. If you have questions about your tax reporting, please contact us directly.
Canada Revenue Agency and Service Canada offer a suite of good resources for you online. If you have never been inclined to sign up for CRA's My Account, Scotia OnLine now makes it safer and simpler.
Now you can access government websites using your ScotiaCard® and Scotia OnLine password. This is part of the government's push to minimize the risk of identity theft. Rather than trying to develop the expertise themselves (with perhaps less than stellar results), the federal government has contracted with certain third parties (mostly financial institutions) with known expertise in user authentication and fraud prevention. In a sort of blind set up, the authentication is done through a secure portal (SecureKey Concierge) so that Scotia doesn't know which government service you are logging into and the government doesn't see your bank login information. If you can pass the bank's security measures, they vouch for you and the government website allows you to login.
Now, when logging into CRA's My Account you will find two options; Sign-In Partner Login and CRA Login. To login with your online banking information, select the "Sign-In Partner Login" button. You will be routed to SecureKey Concierge, where you simply select Scotiabank and log in. If this is your first time using your banking information at the CRA, you will be asked to identify yourself by providing some personal information. You will be mailed a CRA security code that you must enter to complete your registration.
For more details and to find out how this can work for you, visit these resources:
ScotiaMcLeod's fund research team has updated their recommended list for 2013. In the next issue of the Managed Money Reporter Allan, Andrew and I will review any changes that we'll be making to our own recommended list as a result. Most notable is the performance watch being placed on Fidelity Canadian Asset Allocation, one of Canada's largest mutual funds. We have recently met with the managers of that fund and will also be contacting clients directly with a follow up to our performance monitoring update from last year.
See the full recommended list update here:
Canadian securities regulators have published a discussion paper on mutual fund fees (press release). It is hard to have missed the articles over the years discussing whether Canadian fund fees are too high, and whether having service/trailer fees embedded in the fund's Management Expense Ratio (MER) is a good or bad thing.
Our view is that fees on many funds are too high, and where possible over the years we have recommended lower fee funds over higher fee funds where the performance advantage has not been in our client's interest. But a race to the bottom of simply looking for the cheapest investment option doesn't necessarily benefit the overall returns in a client's account either. We do have some concerns that mutual funds are being singled out: segregated funds, closed end funds, exchanged traded funds all have fees as well. Reporting requirements should apply to all kinds of available investments. If you have questions about the costs of your mutual funds, exchange traded funds, segregated funds or other securities in your account, please contact us for simple answers.
Below is the detailed discussion paper. It has some good insights into the challenges for fund investors and firms helping those investors. The report does seem to long for the days when front end or deferred transaction commissions were more popular. We disagree. We frankly think investors are better served in funds without front or rear end loads - where the compensation/fees on the account only increase as the assets goes up in value, not by how often it is traded. The part about why fees are higher in Canada is well balanced. The paper also notes that more and more funds are being offered in High Net Worth versions with lower cost structures - thus the trend from year 2000 on, where management expense ratios are steadily declining:
Comments are open until April 12th but stunningly few comments have been submitted so far.
Advisor.ca, an industry publication, had a good editorial on the discussion paper and the unintended consequences of over regulation.
In general, of course everyone must agree that providing more information to investors should be a good thing. But long term, as the reporting requirements expand, eventually the number of reports generated become just too much background noise. The most recent addition to the documents a fund company must provide is the "fund facts". Take a look at the number of documents new fund company PIMCO has to produce regularly:
The most recent regulatory addition to fund disclosure is the Fund Fact Document. Really, did moving from 11 pieces of fund information to 12 pieces help investors know more about their holdings?
It is quite incredible in fact how many documents every fund has to create and keep updated - the information is definitely there. And will a new set of proposed enhanced reporting requirements help investors or just mean even higher costs on the fund companies and investment firms that continue to be in business. Is it any surprise that many low cost US fund managers resisted coming to Canada and that our costs of having 10 provincial securities regulators result in us having higher fees?
This proposed disclosure will help to drive a trend in which we are already participating. While there is no single solution that minimizes fees for all clients, we are presenting the pros and cons of separating the ScotiaMcLeod advice component of the investment account from any investment product management fees to clients when we meet with them. For some clients, fees are minimized by holding regular mutual funds where the cost of advice is built into the MER. For others, it is cheaper to pay for the advice separately. The least expensive option depends on your portfolio. Recently, we have been providing "fee-based" account solutions for many clients, utilizing exchange traded funds or "F" class versions of funds. ScotiaMcLeod's fee-based accounts have cost structures that start at 2.5% for smaller portfolios, and similar to other investment counselors and investment programs, fees drop to under 1% for large accounts. Here the advice cost is billed directly (and can be tax deductible).
If you have questions about the costs of mutual funds, exchange traded funds, segregated funds or other securities in your account, or whether a fee-based solution like our Partnership Plus program is in your best interest, please contact us. We would be happy to go through the numbers with you.
We are pleased to report that Jack Calvert (7 lbs) arrived February 11, 2013. Christina and baby are both doing well. Dad, Trevor, and big sister, Sarah, are over the moon! Grandma Sharon has an extra spring in her step around the office so it's clear she is pretty excited, too! Christina will be on maternity leave, returning for RRSP season next year. Congratulations to the whole Calvert family!
We are pleased to note that after 16 years of continuous service to our clients, Allan McGlade will be taking some extended time off this summer. From May 10th through to the end of September, Allan will be away from the office. His plans during this time are to travel to his birthplace (Scotland some 50 years ago) with his wife Kim to play historic golf courses and explore the Isle of Skye and visit with family.
When he returns from his month long trip he plans to go up to his cottage and work on a few projects that will test his limited experience in working with his hands. When not laying hardwood flooring or building a stone pathway, he has several books that he has accumulated over the past couple of years that deal with some of the big picture concepts that are likely to shape the financial world in the coming years. Oh, and a couple of books about his favourite team. He claims he will be able to quote any stat about the Leafs when he comes back.
To ensure continued service to all our valued clients, Andrew and Carl will be taking over Allan's primary daily client contact responsibilities during his leave. Andrew and Carl will be supported (as always) by the rest of the team, virtually unchanged from 2003. We wish Allan all the best during his time off and will look forward to his return.
The Financial Services Commission of Ontario helps serve and regulate many services we use such as insurance, pensions, mortgage brokers, and trust companies. They have good information about preventing fraud and other good consumer protection information. See:
(Note the FSCO is separate from the Canadian Securities Regulators who are reviewing fund disclosure in the article Comment period for mutual fund disclosure ends April 12th, above, and the many other organizations listed below)
The FSCO website is worth looking at, and if you don't find what you are looking for, they are having a survey to get ideas from the public about what they could improve. This link will take you to the survey:
For our other securities regulation organizations please see their sites:
ScotiaMcLeod is a division of Scotia Capital Inc., member of CIPF.
By continuing through this site you acknowledge that you agree to the terms in the Legal Notices.