Canadian investors have been following a variety of recent debates about the structure of the advisor/client relationship. I’m going to cut to the chase quickly.
If you seek core qualities and competencies from your investment professional, such as the following list, you need to conduct some research. Your mission is to find a way to hire a “discretionary” portfolio manager (DPM) for your ongoing wealth management needs.
By Jeff Weniger, CFA, WisdomTree Investments
Special to the Financial Independence Hub
“Judging by the oil market in the pre-OPEC era, a ‘normal’ market price might now be in the $5-10 range … Last week Algeria’s energy minister declared, with only slight exaggeration, that prices might conceivably tumble ‘to $2 or $3 a barrel.’”
—The Economist, March 4, 1999
That quote feels like it was from a million years ago. A decade later, straight-faced economists would be talking about US$200 or US$300 per barrel. Times change.
With oil two years along in a bull rally that has witnessed its price triple from lows in the first quarter of 2016, it may be just a matter of time before the purported list of stock market obstacles starts to include retail gasoline pain. With West Texas Intermediate (WTI) crude oil changing hands at US$67.44 and Brent crude at US$73.26, it’s hard not to be scared off by our collective ups and downs at the gas station.1
After regular unleaded challenged US$4 a gallon — $3.695, to be precise2 — in the summer of 2014, many strategists began to fear the worst. Gasoline would once again deal the death blow to the American middle and lower classes, as it had a half-decade prior.
But 2014 marked the worst of it, at least for now. WTI crude oil collapsed from triple digits to less than $30 in early 2016. Retail gas followed along, to levels south of $1.80.
But it has quietly chipped back, closing the first quarter at $2.57, and $3 looms in the American psyche. Unlike in Canada, where expensive fossil fuel prices tend to benefit the federal budget, Alberta employment and so forth, Americans historically have had no similar solace outside of petroleum-rich Texas and Alaska, perhaps. It’s just a different economy. People remember the first time they saw a gas station post a price of $1, then $2, then $3. And at $4, that memory strikes the gut: the insolvency years.
Regular Canadians feel pain from expensive gasoline, for sure, but not quite like the pain that hits Americans.
Tie the threat of a national average of $3 per gallon south of the border, maybe during the Labor Day road trip, with the possibility that U.S. Fed Chairman Jay Powell may bring two or three more rate hikes of 25 basis points by this year’s close, and it is not much of a leap to be sympathetic to a thesis of a gasoline-induced blow to American consumer confidence. But be careful, because that thesis is flawed.
Whispers
The “whisper number” on Saudi aspirations for Brent crude is $80 to $100 per barrel. But Donald Trump was already tweeting angrily at $70 per barrel, so it is reasonable to assume that another $20 to $30 would unwind much progress on recently fruitful U.S.-Saudi relations. But suppose ROPEC — Russia plus OPEC — marks oil up to $100 anyway. Gasoline could be closer to $4 than $3 in that circumstance. Does that break the American consumer? A half-generation or a generation ago, yes — certainly. But psychological anchoring on round numbers like $100 or $3.00 deceives. Consider our analysis below.
Our 2018 Reality
Figure 1 places unleaded gasoline costs in context. The U.S. population of some 322 million people consists of 126 million households driving more than 3 trillion miles per year. But because millennials do not drive as much as their predecessors, the number of auto miles driven per household has fallen to less than 25,000 from a peak of 26,413 in 2004.
Additionally, today’s cars are essentially computers on wheels, and fuel efficiency is notably higher than it was in prior years.
Twenty years ago, the American new car fleet got 23.4 miles to the gallon.3 By 2008, it was virtually unchanged, at 24.3. But the U.S. got burned on triple-digit oil, making it somewhat politically palpable when the Obama administration pushed forward with mandated 54.5 mpg fuel economy targets for model year 2025. In pursuit of such efficiency, the new car fleet’s efficiency rose to 30.0 mpg for the 2017 crop. Continue Reading…
On the heels of its three asset allocation ETFs that shook up Canada’s investment industry in February, Vanguard Investments Canada Inc. today announced it will be providing four new low-cost actively managed mutual funds to the Canadian market.
The four new mutual funds are its first actively managed products for the domestic market: until now, it has been providing 36 exchange-traded funds (ETFs), with more than C$16 billion in assets. Vanguard says Canadians hold more than C $28 billion in Vanguard investments if you include both its Canadian products and its funds trading on US stock exchanges.
All four of the new active mutual funds are globally diversified: Vanguard says its management fees are about half that of the mutual fund industry average in Canada. (According to the Investment Funds Institute of Canada here, the average total cost of ownership of mutual funds for clients using advice-based distribution channels in Canada at the end of 2016 was 1.96% when taxes are excluded.)
IFIC has said these costs continue to fall and there’s little doubt Vanguard’s entry will accelerate the trend, and not a moment too soon, given last Thursday’s disappointing proposals from the Canadian Securities Administrators. (See the Hub’s roundup here or my Motley Fool Canada blog here).
In a press release distributed at 8 am Monday, Vanguard said the four new funds “feature global investment strategies from some of Vanguard’s longest-tenured sub-advisors” and complement its broad-based lineup of ETFs.
Vanguard Canada managing director Atul Tiwari (pictured) said “Vanguard has a deep 40-year history of active management expertise and we are excited to extend that to mutual fund investors in Canada, at a low cost … These mutual funds reflect our philosophy as an organization with a disciplined long-term approach and world-class investment managers that have worked with Vanguard for decades.”
Despite the fact The Vanguard Group Inc. pioneered index funds and low-cost passively managed investing (with more than US$5 trillion under management), it is also one of the world’s largest active managers, with US$1.2 trillion in global actively managed assets. The key contributing factors to successful active management are low costs, talent and patience, said Tim Huver, Vanguard Canada’s head of product.
Pricing varies with investment performance
Vanguard says it will use a unique pricing structure in the Canadian marketplace that aligns the interests of the sub-advisors with the funds’ investors. The maximum management fee for each mutual fund will be 0.50% and the management fee will vary up or down, up to that maximum amount, based on the investment performance of each fund.
| Mutual Fund | Maximum Management Fee | First Year Management Fee |
| Vanguard Global Balanced Fund
|
0.50% | 0.38% |
| Vanguard Global Dividend Fund
|
0.50% | 0.34% |
| Vanguard Windsor U.S. Value Fund | 0.50% | 0.35% |
| Vanguard International Growth Fund | 0.50% | 0.40% |
The first year management fee shown above is effective from June 25, 2018 to June 30, 2019. The funds will be available to financial advisors through Series F units and institutional investors through Series I units.
Canadian investors currently hold $1.5 trillion in mutual funds, according to Tiwari. “Vanguard has a long track record of lowering investment costs in the areas in which we operate, so we see providing greater choice and lower costs to a broader group of investors as very positive.”
More on the four actively managed global mutual funds Continue Reading…
Deferred Sales Charges (DSC) on mutual funds are going to be eliminated in Canada but recommendations released today by securities regulators did not go so far as to implement an outright ban of trailer commissions (aka trailer fees, also referred to as embedded compensation.)
The Canadian Securities Administrators (CSA) also released proposals regarding rules about what advice or products are in the “best interest” of financial consumers.
You can find a full summary in this article that appeared today in the Globe & Mail. (The full link may only be available to G&M subscribers, depending on how many free views readers have previously accessed). Rob Carrick also has a column on the topic titled It just became clear we’ll never see an investment industry where clients must come first. Well, we’ll see. Over at the Financial Post, Barbara Schecter reports OSC drops push for adviser standard.
Big win for industry
For more of an industry perspective, there is a full report here at Advisor.ca. And the industry’s newspaper, Investment Executive, headlined its coverage as “a big win for the industry.”
One of the sources cited in both G&M articles is John De Goey, an investment adviser and author, who also sent this email to the Hub expressing his disappointment in the decisions:
“This is shameful on the part of the CSA. It has been almost 15 years since Julia Dublin’s Fair Dealing Model drew attention to the concern of bias caused by embedded commissions.” He also offered these four observations:
Vanguard says industry will organically evolve away from embedded compensation
However, Vanguard Investments Canada Inc. managing director Atul Tiwari said Vanguard is “encouraged by some of the proposals from the CSA. Although there will not be a ban on embedded commissions, we believe that the Canadian market, like other regions around the world, will organically evolve away from it. The CSA has made clear that suitability determinations will need to be in the best interests of clients. This will likely accelerate the move that we are already seeing in advisors going from commission-based to fee-based models. We support that trend as providing superior fee transparency and enhancing the use of low cost products to give clients better long term returns. Vanguard will continue to champion the interests of Canadian investors with more low-cost and high-quality product options.”
And finally, my take on this at the Motley Fool
(Added on Friday afternoon): You can find my own take on this development in my monthly blog at Motley Fool Canada. Click on the highlighted headline here: New mutual fund advice guidelines underwhelm advocates for Consumer-Investors.
By Savannah Wardle
Special to the Financial Independence Hub
Instead of getting a job, make a job. You can take a large vacant place where a business should have been and fill it with everything you’ve ever dreamed of. If you’re on the verge of a major career change, you have the unique ability to customize that change to your needs. It might be time for you to branch out on your own and do things for yourself: you can wind up better off for having done it.
It’s easier than it used to be
The internet revolutionized the way that people run businesses. It used to be that people were confined to working for someone else because they didn’t have the resources they needed to become fully independent. Now, almost everything you can’t do yourself can easily be outsourced to software, apps, or freelancers who know how to get things done the right way. It doesn’t matter if you need to hire a Twitter expert, have a catering website built, or find specialty garage door software. The internet has it, and you can use it to build your own empire.
You’re free to explore Innovation and Creativity
Think about all the aspects of your old job that were holding you back. Did you have bold new ideas that you were dissuaded from pursuing because they didn’t adhere to the company’s “play it safe” motto? You don’t have to worry about that anymore. You’re the one calling the shots, and if you know you have the potential to shake up your industry, no one is stopping you. You can try and try and try, even if you fail, and you don’t need to worry about the powers that be restricting you from exploration.
You can live the way you want
If you used to work long hours and weekends, you probably felt like you were missing out on life. If you run your own business, you can be open from 9 to 5 on weekdays. Close up shop for dinner and the weekends and live your life. A lot of people cite work/life balance as being one of the reasons they opt for a career change, and if you’re one of those people, you can easily find the exact balance you want by becoming an entrepreneur or an independent contractor.
You get to build your dream team Continue Reading…
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