Thursday 29 November 2012

Hooray! MER Cuts on US Powershares RAFI ETFs

IndexUniverse posted details today of US-based Invesco Powershares cuts on several RAFI fundamental index ETFs. The cuts in MERs are quite significant - almost half. The reductions in MER vary from 0.30% to 0.36% e.g. for PowerShares FTSE RAFI Emerging Markets Portfolio (NYSEArca: PXH), which goes from 0.85% MER to 0.49%. This is excellent news since the difference will go straight to the bottom line and boost investor returns, mine included, as these ETFs are a core part of my holdings.

Tuesday 27 November 2012

Good-ish News: TFSA Limit Rising to $5500 in 2013

Caught this item on Investment Executive saying the government has raised the TFSA annual contribution limit for 2013 to $5500, up from the $5000 it has been for each year since TFSAs started in 2009 (here's the official press announcement). It's only good-ish news since it isn't an increase in real terms, only compensation for past inflation. As the Department of Finance backgrounder shows, we've been behind inflation through 2012 and now the rounding method will push the limit slightly ahead of inflation for a year, perhaps two. Of course, if you didn't use the $5000 limit from any previous year it has carried over and accumulated but the new annual amount only applies going forward, not also backwards to previous years (see the CRA TFSA info page). Roll on January 1st when the 2013 contribution can be made, I'll be doing it.

Monday 26 November 2012

Whosh! It's a bird, it's a plane? No, it's Mark Carney coming to save the UK

Let's hope his short-lived Superman imitation as Governor of the Bank of Canada works in the UK, where this blogger happens to spend a lot of time. The commercial bank and Bank of England problems in the UK are far worse, still, than any he had to face in Canada. Certainly the Conservative governments in both countries seem to believe Carney is the greatest thing since sliced monetary stimulus - see the BBC clip of the minister announcing his appointment and the CBC article.

Let's also hope the Canadian government got a few first-round draft picks and other future considerations for the sports superstar of central banking who is, after all, the first ever Bank of Canada Governor not to have served out his term (see Wikipedia links to the others in Carney's Wikipedia profile which, amazingly, someone has already updated with today's news). Raiding requires compensation. They could send Prince William and Kate over perhaps?

One never knows what goes on in the back rooms and boardrooms of government so judging his effectiveness is difficult (his one tangible accomplishment as Governor that I could dig up seems to have been to inject liquidity into the banking system during the financial crisis by buying good short-term bank assets, instead of the less effective US method of buying the toxic assets; other stuff like keeping interest rates low everyone is doing and he was not in the least responsible for the solid position of Canada's banks or of the government's finances that enabled Canada to weather the storm much better than other countries) but for all our sakes, I wish him luck and that he really proves in practise at last that the high regard all seem to have of him is justified.

Shame on W.H. Stuart & Associates - Providing Painful Financial Education

It sure didn't take long for the inadequacies of the current investor protection system to be displayed in cruel fashion after our last post contrasting the arguments of the financial advisor group Advocis with investor gadfly (and I mean that admiringly) Ken Kivenko. Advocis thinks everything is just fine with the system today.

The impartial Ombudsman for Banking Services and Investments investigated the case of the Irons (who have allowed themselves to be identified on this CBC news video), an elderly couple whose financial "advisor" put their money into dubious high-risk investments when their true risk tolerance was clearly low. Inevitably the investments went bad and the couple lost a lot of money they could not afford to lose. The OBSI found the mutual fund company the "advisor" worked for to be negligent and ordered the company to pay compensation. The company W.H. Stuart and Associates has stepped forward, looked the regulator and the victims in the face, and told everyone to shove off, it's not paying.

Meanwhile, on its website it continues to spin its line "W. H. Stuart & Associates is a family owned independent Mutual Fund Dealer & Insurance Agency committed to providing you, the Canadian investor, regardless of your investment amount, with the knowledge to make the right financial investment and retirement decisions to achieve security and peace of mind". Of course, those nit pickers amongst us might note that the sentence does not actually specify whose security and peace of mind the decisions aim to achieve. It could be yours or theirs! 

Elsewhere the Stuart website says "We wanted to build a company where the education of clients about financial matters came first and foremost". In a cruelly ironic way, the Irons have received quite an education. In this month where financial literacy is being promoted as the solution for Canadians maybe there's a lesson from the Irons' experience. Should we be expecting people to acquire engineering literacy to know if the new car they are buying is safe to drive, or medical literacy to decide whether their doctor is giving good treatment advice? (Though it is a bit of a stretch to say that the Irons should not have had the common sense to question why their "guaranteed like a GIC" ill-fated investment would pay them 20% at a time when interest rates were only around 5%) Till fiduciary duty comes into play, the only financial literacy that matters is the ability to figure out who you can trust and who knows what they're doing.

I guess the industry knows that unfortunately, as watchdogs go, the OBSI can only bark and recommend compensation but not bite and order it.

Meanwhile, there is silence from the Mutual Fund Dealers Association of Canada, which Stuart identifies as its strategic partner and which bills itself as having "... a mandate to enhance investor protection and strengthen public confidence in the Canadian mutual fund industry".

In this case, there is also silence from Advocis but we cannot blame them since it seems none of the people nor the firm itself are members of Advocis.

Monday 12 November 2012

Debating Fiduciary Duty - Kivenko vs Pollock of Advocis

Ken Kivenko debates Greg Pollock (CEO of Advocis, an association representing financial advisors) in this BNN video.The intriguing verbal tussle follows on the consultation launched by the Canadian Securities Administrators on the possibility of imposing fiduciary duty as the standard of care for all financial advisors and dealers (see CSA paper here). The video is well worth watching as a gentle introduction to the subject. I think Ken comes off as an effective advocate i.e. wins this debate hands down not only because what he says is true but he expresses it well too. He has also just been named to the Ontario Securities Commission Investor Advisory Panel so maybe can help further such progressive ideas there.

The exacting and somewhat cynically inclined lot over on the Financial Webring are also debating the merits and possible practical consequences of fiduciary duty. One post by Dan Hallett, who runs what looks to me like a financial advisory firm that has already decided to operate with a fiduciary philosophy, posts a comment that includes this great line: "Either it's [i.e. the financial industry] got to give up the sorts of titles and marketing that imply fiduciary advice or embrace the standard with all of the benefits and obligations that involves."

That's the point. It's too complicated. People think they are getting unbiased advice but it rarely is. The financial consequences of biased advice - 20 or more years of a much poorer retirement - are too severe.

... oh, and another bit of info

The Chartered Financial Analyst Institute does an annual survey of its charterholders about ethics in various countries. People with the CFA designation almost all work in the business, so this is an insider's view. But look anyway below in the latest available 2010 Canadian survey report at where the relative and absolute opinion lies regarding the ethical behaviour rating of financial advisers to private individuals - barely above half way and lower than anyone than hedge fund managers and sell side analysts. There also some damning quotes e.g. "In my career the thing that stands out the most is that most advisers are not out for the client’s best interest; instead they are out for their own interests ahead of the client." a Portfolio Manager/Investment Consultant in Canada.

Sadly, little seems to have changed compared to the situation when I posted about the same survey in 2008.

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