There’s an old saying that if you want to beat the market you can’t be the market. The only way to do better than everyone else is to be different.
All winning organizations have an “unfair” advantage that others can’t copy. Often what makes them successful is deceptively simple – easy to understand but hard to replicate. In this commentary, I want to discuss one deceptively simple idea. Why time, specifically using more of it, is the most powerful advantage an investor can have. Read the full report by Andrew Pastor, Portfolio Manager with EdgePoint, link above …
EdgePoint is one of our strategic partners for global equity investments in our Managed Portfolio Program.
Most fees and costs relating to investments fall into five categories: costs to buy an investment; costs when you sell an investment; investment management fees; financial advisor fees; administration fees for registered plans. Not all types of costs apply to all investments. In some cases, costs such as sales commissions are included in the price you are quoted to buy the investment. This is generally the case for bonds.
If you buy investments such as stocks and exchange-traded funds, you will usually pay a trading fee every time you make a purchase. For this reason, it is better to limit the frequency of your purchases. Brokerages and investment firms set their own fees, so the amount will depend on the company you use.
For “no load” mutual funds, there is no fee to purchase units.
Other mutual funds charge “front-end load” fees when you buy them. The fees are generally a percentage of your purchase price.
With some mutual funds, instead of paying a fee when you buy the investment (“front-end load” fee), you pay a fee when you sell. This is known as a “back-end load” fee.
The fee is generally a percentage of your selling price. It is normally highest in the first year after purchase and gradually decreases for every year you hold the investment. If you hold the investment long enough (often for several years), the fund dealer might agree to waive the fee. Think carefully before agreeing to buy funds with back-end load fees because the fees come out of the selling price of the investment and can be as much as seven percent if you want to sell in the first year.
Investment funds, including mutual funds and segregated funds, charge a fee for managing the fund. The fees are called the Management Expense Ratio (MER) and may include an ongoing commission paid to advisors who sell the fund to their clients. The MER is paid regardless of whether the fund makes money. It is deducted before calculating the investor’s return.
Advisors are paid in different ways, depending on the type of service they provide. For example, an advisor helping you put together a financial plan might be paid an hourly fee, whereas an advisor making trades on your behalf might be paid per trade.
If you plan on using the services of an advisor, it’s important to know exactly what kind of services the advisor provides and the cost as well as how the advisor is paid.
While most advisors strive to give good advice, advisors who are paid by commission have an incentive to encourage you to invest where they will earn the highest commission. Those who are on salary, on the other hand, may have an incentive to promote what their employers offer. Ask for information on your investing options and fees before you purchase any investment product.
When a bank, brokerage firm or other financial institution sells a registered product such as a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA), the Income Tax Act requires the product to have a trustee.
Investors generally have to pay an administration fee (also known as a “trustee fee”) for the services the trustee provides—for example, filing the necessary documents with the Canada Revenue Agency. In certain cases, if the overall value of a portfolio is above a certain amount, the company that holds your plan may waive the fee.
ScotiaMcLeod®, a division of Scotia Capital Inc.
In recent years, a number of countries, including England, Australia and the United States, have changed the regulatory framework that governs their financial institutions. Included have been changes to formalize client communications and create greater transparency in fees. In part, these changes were the outcome of the global financial crisis of 2008-2009 – and while institutions in Canada faired relatively well, we will be implementing similar reforms here at home. Some changes have already been made with the remainder being phased in over a three year period.
Building upon existing requirements that help to ensure fair and honest dealing with clients, the Investment Industry Regulatory Organization of Canada (IIROC) has introduced the Client Relationship Model (CRM). At its core are three key principles designed to enhance investor protection and strengthen the client-advisor relationship:
Transparency regarding the relationship between the client, service provider and firm (e.g. information on account types, services provided, transaction and account fees);
Transparency surrounding performance of the account;
Disclosure of any conflicts of interest.
Additional information on CRM, including its history, can be found on the IIROC website (www.iiroc.ca), link on page bottom
Because the fundamental principles of CRM are a core part of the way we have always tried to serve our valued clients, many of the changes may not be perceived. While in other cases the changes may be apparent, but will not fundamentally change the advisor and client relationship at ScotiaMcLeod. How this affects you will depend upon your specific situation, include your account types and the securities that you hold.
Significant changes have already occurred in the areas of understanding your risk profile and investment suitability. In some cases, paper work and documentation requirements have increased, but in general the challenges in implementing the new regulations are operational in nature that are borne by the institution.
Your advisor is the best point of contact to explain how CRM relates to you and your specific portfolios and accounts. As the components of CRM are implemented over the next three years, additional information will be provided in person and in writing.
We are proud of the depth of expertise and wealth management service we provide. Furthermore, we expect the core principles of CRM will be a benefit to investors and will enhance the ongoing relationship between clients, advisors and ScotiaMcLeod.