Tag Archives: mutual funds

Weekly Wrap: Census; Estate planning; Trump’s succession plan; Mutual Funds embrace ETFs

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Based on the widespread media coverage of the 2016 Canadian census this week, Canada’s baby boomers are going to be just as much of a demographic force as ever once they enter their golden years. For the first time, our seniors now outnumber our kids, the CBC reported.

Not all seniors are baby boomers, of course, but sadly the reverse will soon be true: most if not all baby boomers will be seniors. For this generation retirement (or semi-retirement) is a huge looming event, as a quick browse of this site will establish. Hey, just this week I got a package from Service Canada advising me that I will be able to draw Old Age Security (OAS) when I turn 65 next April. And I intend to take it then too, as I wrote in MoneySense last August: Why I’m taking OAS right at 65.

Boomers need to face up to their own mortality

All of which suggests it’s time for Canadian boomers to start looking more seriously at their own mortality and the admittedly dreary topic of estate planning. I covered this Thursday in my latest MoneySense Retired Money column: Retirees need to start thinking ahead.

In my Financial Post article that ran on Wednesday, I looked at estate planning from a different perspective: how the original “Wealthy Boomer” —  Donald Trump —  is tapping his family members for senior roles in his administration and possibly for his business succession planning. Click on Donald Trump is upping the ante in the Wealth Transfer game.

Ian Campbell

One of the sources for the FP piece was business transition and valuation expert Ian Campbell, pictured. (He himself admits to his strong resemblance to investing legend Warren Buffett!). By coincidence I reached out to Ian about the Trump piece just as he had published a blog on that very topic. It ran on the Hub Wednesday under the headline Generational Business Transaction: The Apprentice. Check the links to his site for his free newsletter.

The Truth about Working in Retirement

Our best-selling (G&M, Amazon among others) book, Victory Lap Retirement, continues to get some positive reviews. Earlier this week Ellen Roseman of Toronto Star fame wrote the following review on Golden Girl Finance: The Truth about Working in Retirement. As Ellen recounts, she herself has retired from her full-time newspaper gig but continues to be fairly busy in the semi-retirement described in our book.

Mutual fund companies Excel Funds, Franklin Templeton enter ETF business

Finally, some big news in the asset management industry, where it was announced that two Canadian mutual fund companies — Excel Funds Management and Franklin Templeton Investments — are entering the ETF business. The Globe & Mail’s Clare O’Hara reported this on May 2nd. Click on Franklin Templeton, Excel Funds to enter Canadian ETF market.

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How to add value in the Great Migration from mutual funds to ETFs

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By Luciano Siracusano III, Chief Investment Strategist, WisdomTree

and Christopher Carrano, Investment Analyst

 

Over the past few years, as hundreds of billions of dollars has flowed out of equity mutual funds and into exchange-traded funds (ETFs), a great migration of assets has been under way in the asset management business. This is occurring because of the changing business models of advisors and brokers-dealers and because of the unique benefits that ETFs can bring to investors, including relatively lower fees1, transparency of holdings, intraday liquidity and the potential for greater tax efficiency.

In many cases, “low-cost beta” ETFs, which track broad indexes, have outperformed the vast majority of active managers over time.2 This has made the decision to move assets from actively managed mutual funds into ETFs not just a decision based on cost, but also one based on performance.

But investors making this migration today have a choice that goes beyond just low-cost beta. For the past 10 years, WisdomTree has been showing investors ways to generate “low-cost alpha” in the form of fundamentally weighted ETFs that provide broad market exposure but that rebalance equity markets based on income, not market value. In recent years, other ETF managers have followed similar paths, creating narrower exposures that seek to tap into return premiums such as value, size, quality, momentum or low volatility—all of which have been associated with generating excess returns versus the market over time.

In the table above, we show how portfolios targeting value, size, quality, momentum and low volatility have performed compared to the S&P 500 Index in each calendar year since 2000. The last column on the right shows the annualized returns of these factor-based baskets over the 16-year period. Note that in each and every case, the annualized returns exceeded those of the broader market over the entire holding period.

Factors’ long-run performance

Yet, it is important to note that, despite all five of these factors outperforming the S&P 500 since 2000, they did not do so in each and every year. Factors are subject to the ebbs and flows of the business cycle, much like the sectors of the S&P. But, unlike factors, it is impossible for every sector of the S&P 500 to individually and collectively outperform the entire S&P 500 Index over time. The appeal of factor-based investing is that these major return premiums, based on decades of data, appear not to be subject to this same constraint.

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Why aren’t robo-advisors being used by those who need them most?

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By Edward Kholodenko,  Questrade

Special to the Financial Independence Hub

Uber has quickly become the largest personal transportation company in the world, yet it  doesn’t own a single vehicle. That’s because there’s more to Uber than just hailing a ride from your phone. It’s providing more convenience at a lower price and in turn, transforming the transportation industry.

Substitute Uber for Amazon, Airbnb, or any other tech disruptor and a common theme emerges. On the road to becoming mainstream, applications that reduce cost and improve convenience are often first adopted by millennials and the tech-savvy. While the early adopters reap the many benefits of these innovations, those who hesitate are missing out.

Retirement challenge and the Robo-Revolution

When it comes to financial technology, there are certain populations that can no longer afford to be late adopters. Thanks to the innovation in the investment space, preparing for retirement has become easier than ever. Enter robo-advisors: an online wealth management service that provides diversified investing, much like a mutual fund, but at a much lower cost.

Given the current state of retirement savings in Canada, it’s apparent that this technology has great value to those willing to take the leap.

There is concern that 80 per cent of middle-income Canadians nearing retirement won’t have enough to support themselves. The average Canadian’s retirement savings of $71,000 will last only a few years, and, 50 per cent of Canadians are not confident they will have enough to retire comfortably.

Not only are Canadians saving far too little for their retirement, but also many can no longer depend on company pension plans to provide the income needed to stop working.  Our golden years are increasingly self-funded and investment decisions now fall on the shoulders of the individual. There’s a fantastic opportunity for new solutions in this space, and those willing to embrace a solution provided by fintech providers are reaping the reward.

Robo-advisors, in spite of the name, aren’t actually robots. Professional (human) portfolio managers handle all of the investments. In fact, there are two types of managed robo-advisor accounts: actively- and passively-managed:

Actively-managed advisors have a dedicated team of portfolio managers who select investments and adjust the portfolio to take advantage of market opportunities, all of this at a low cost. Passively-managed advisors typically invest according to set investment rules that only track the market.

These advisors use leading technology and proven strategies to provide a better investment experience at a lower cost to the consumer. And, by reinvesting the money you save in fees, individuals are able to increase their retirement savings and returns.

Robo-advisors are helping Canadians retire wealthier

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“Botched” CRM2 implementation just adding to investor confusion: veteran adviser

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Tim Paziuk

By Tim Paziuk

Special to the Financial Independence Hub

After 37 years in the financial services industry I realize I shouldn’t be surprised, and I’m not. I’m shocked. Shocked by the confusion created by the very people who are charged with the responsibility of watching out for us, mainly the Canadian Securities Administration (CSA).

Here is the first paragraph from the overview on the CSA website

The Canadian Securities Administrators (CSA) is an umbrella organization of Canada’s provincial and territorial securities regulators whose objective is to improve, coordinate and harmonize regulation of the Canadian capital markets.

I draw your attention to the words ‘improve, coordinate and harmonize’. In my opinion, they have done more to hinder and confuse the average Canadian than to provide clear and complete information.

Let me give you some background on the recently implemented program referred to as the Client Relationship Management Model – Phase 2 (CRM2).

According to the Ontario Securities Commission:

The Client Relationship Model – Phase 2 (CRM2) amendments to NI 31-103 that came into effect on July 15, 2013 are being phased-in over a three-year period. These amendments introduce new requirements for reporting to clients about the costs and performance of their investments, and the content of their accounts. The requirements apply to dealers and advisers in all categories of registration, with some application to IFMs as well. For more information about these amendments, see CSA Notice of Amendments to NI 31-103 and to 31-103CP (Cost Disclosure, Performance Reporting and Client Statements). Continue Reading…

Banning Investment Commissions – moving beyond “if” towards “how”

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On Tuesday,  the Canadian Securities Administrators (CSA) released a much awaited consultation paper, “Consultation on the Option of Discontinuing Embedded Commissions.”

We say “much awaited” half tongue-in-cheek.  Much in the same way that a large number of Canadians have no idea how or how much they pay for investment products / advice, we expect even fewer are aware of the potentially seismic shifts that are taking place in the regulation of investment advice and advisor compensation practices!

As the title of the paper suggests, the regulators are considering banning the practice whereby investment advisors are compensated by investment product dealers directly through the payment of commissions embedded in fees charged on products such as mutual funds, structured products and others.  Conflict of interest is the key issue that the paper’s summary highlights, as follows :

1.) Embedded commissions raise conflicts of interest that misalign the interests of investment fund managers, dealers and representatives with those of investors;

2.) Embedded commissions limit investor awareness, understanding and control of dealer compensation costs;

3.) Embedded commissions paid generally do not align with the services provided to investors.

The discussion is moving past “if” and heading towards “how” embedded commissions should be banned

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