Tag Archives: mutual funds

5 Tips for Surviving Economic Uncertainty

Karin M byline photo

By Karin Mizgala, co-founder and CEO Women’s Financial Learning Centre and Money Coaches Canada

It has been a tumultuous start to the year for the stock market and for the various governments trying to keep the world’s economies on the straight and narrow. For the ordinary person it’s confusing and worrying.

calculator-385506_1280 But what we have to remember is that markets always have their ups and downs. Easier said than done I know, but it’s best not to succumb to emotion or panic selling.

It’s now especially important to take a longer view of investments. If you weren’t planning to cash in all your stocks or mutual funds now, it’s no time to panic and change those plans. Markets move in cycles and this is unlikely to be any exception. There are even some investors, quick to see a silver lining, who are snapping up stocks at these lower prices.

There are things that you can do to cope and we’ve compiled our top five tips to reduce stress during economic uncertainty.

1. Focus on the things you can control — like living within your means and paying down debt

Take interest rates for example. There’s little you can do about them except make sure you’re prepared for whatever may come. If you’ve racked up credit card debt, make a workable plan to pay it off and cut up your credit cards or at least put them in deep freeze. Use cash for your discretionary expenses like eating out and entertainment. Figure out what you spend on those and other frills and take that cash out at the beginning of the week. Once it’s gone, it’s gone — no going back to the ATM before next week’s installment of ‘fun money.’ Continue reading →

Money Coaches in Conversation – What you should understand about fees and financial advice

Recently Women’s Financial Learning Centre and Money Coaches Canada co-founder Karin Mizgala sat down with Money Coach Noel D’Souza to discuss the changing landscape of financial advice in Canada.

MCC & WFLC co-founder Karin Mizgala

Karin: As someone in the financial industry, it’s very common to be asked by people outside the industry, to explain the different fee structures of financial advice. So, Noel, let’s start with an overview of the common compensation models available to Canadians today.

Noel: The most prevalent model we see in the industry is the commission-based advice model, where an advisor sells products, typically mutual funds or some other investment product, they may also sell insurance, and they receive a sales commission for making the sale and also quite likely receive a trailing commission which is supposed to cover on-going advice and services. Usually the client never sees the commission fees, and we’ll be discussing how that may change in the future, but usually those fees are hidden within the cost structure of the product they are buying.

The second type is fee-based. An advisor will charge the client fees based on the size of the assets under management, a percentage of the total portfolio.

The third model, which is up and coming, is the model we work under; fee-for-service. Clients pay a fee directly and explicitly to the advisor for services rendered and it’s not tied to product sales, or size of assets, in any way.

Karin: So that will sound pretty straight forward to most people, why does it become murky, what are the implications for someone seeking financial advice? What are the benefits and shortcomings of each model? Continue reading →

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Should mutual fund commissions be banned?

by Karin Mizgala MBA, CFP

There is a very interesting dialogue going on in the investment industry around the issue of mutual fund commissions and whether Canadian investors are getting the short end of the stick. The Canadian Securities Administrators (CSA) published a discussion paper that is the best summary I’ve ever seen about the mutual fund industry and advisor compensation. Continue reading →

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Should I Switch from Mutual Funds to ETFs?

A question we’re hearing from clients these days is whether to shift out of mutual funds into ETFs — Exchange Traded Funds. While mutual funds are often at the core of investment portfolios, their high fees combined with the fact that many don’t outperform the market are leaving some investors frustrated and ready to try something new.

Like mutual funds, ETFs are a bundle of investments, diversifying the risk of holding a single stock or bond and at the same time broadening the opportunity for returns. But unlike mutual funds, ETFs trade on the stock market and your ETF investment goes up and down with the market index it’s tied to.

So in effect you have a stock — your ETF — that represents a bundle of stocks, bonds or other assets. The ETF could be based on Canadian stock market index, the S&P/TSX index for example. This index includes about 250 Canadian stocks and the index goes up and down depending on how well the basket of stocks that it holds does. While the index is going up, so are your fortunes. But as it goes down, so does the value of your ETF investment.

While it may tempting to do a complete about turn on your investment strategy in the search for more lucrative returns it’s important to think it through. You could be jumping from the frying pan into the fire!

In making your decision, consider the following:

Fees:
ETFs have lower fees than mutual funds. Because they track a pre-determined basket of investments, they don’t demand the same research and attention by the companies that offer ETFs. Also, they’re sold primarily through discount brokerage firms so you aren’t paying an advisor for advice.

Homework:
You may be paying lower fees but you’ll have to do your own homework. You’ll have to research ETFs and make your own buying and selling decisions. There are now hundreds of different ETFs available. Are you ready to be a do-it-yourself investor?

Advice:
A mutual fund portfolio also delivers advice. If you have a good advisor — and you should talk to a few in various organizations before making a choice — your advisor will consider such factors as your risk tolerance, your retirement plans, the rest of your portfolio mix and other items that would weigh on investment decisions.

Ultimately there is no single solution. What’s most important is working through the process, doing the research, educating yourself and asking the questions that will help lead you to financial strategy that’s comfortable for you.

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Mutual Fund Lingo – A Primer on Fees

Chances are you own or have owned a mutual fund at some time. But do you know how much you are paying for your funds? Because you don’t usually see what fees you are paying on your statement, it’s easy to ignore the issue of fees. Turns out most other Canadians are doing the same thing.

According to Garth Rustand of Investor’s Aid Inc., Canadians are very passive when it comes to fees and we consistently pay the highest fees for mutual funds of any industrialized country – apparently we pay as much as 60% more than in the US and 200% more than in Europe – yikes! Are we getting our money’s worth? Pretty hard to tell unless you understand some of the industry lingo and what goes into the mutual fund fee calculation.

Take “management fees” and “management expense ratios”. It’s a common mistake for investors to use the terms interchangeably, but they are definitely not the same.

Simply put, management fees represent the payment to fund managers for selecting the investments to include in the fund and are only one component of the overall fees you are charged. The number that you should really be interested in is the management expense ratio or MER.

The MER includes the management fees plus other “indirect” costs such as: fund administration charges, legal, audit, custodian fees and transfer agent fees, advertising and marketing expenses and GST. It can also include sales commissions and ongoing trailer fees that are paid to your financial advisors for selling you the funds.

And just how much of a difference is there between the two charges? Let’s look at an example. Fidelity offers a Large Cap Canadian mutual fund with a management fee of 2.00%. After adding in all the other charges, the MER comes out at 2.47%.

So where does the MER show up in your fund? Because the MER is embedded in the published rate of return you don’t really see it, but it’s there if you look closer. If the above mentioned mutual fund had an annual rate of return of 5.3%, this means that the investments actually yielded a return of 8% but then expenses of 2.47% were subtracted.

If you are comparison shopping this is the main number that you will need to compare – the rate of return after all expenses are deducted. MER information is published in the prospectus that you are given when you buy a mutual fund and can also be found on mutual fund info websites like globefund.com and morningstar.ca or by asking your advisor.

When comparing MERs from one fund to another make sure that you are comparing apples to apples. Typically management expenses ratios are highest for the specialty stock mutual funds and lowest for money market funds. Bond and balanced fund fall somewhere in the middle. Don’t try to compare the MER from one fund to another if the underlying investments are from different asset classes.

Because the MER can include commissions and trailer fees paid to the advisor channel, “load” funds typically have higher MERs than bank funds or “factory direct” mutual funds. Some of the better know mutual funds companies like Mackenzie, Fidelity, CI and Templeton are load funds offered through financial planners and investment advisors

“Factory direct” funds like those offered by Phillips Hager and North, Leith Wheeler, Mawer, or Steadyhand to name a few, often have lower MERs because they sell their funds directly to the investor through their own advisors.

Should you always go for the lowest MER funds? Of course it’s better to keep more in your pocket, but you also have to weigh out the value of advice. If your advisor is giving you great service and top notch financial planning and investment advice, then as long as you know what you’re paying for and see value, don’t fix what ain’t broke. If not, it might be time to explore some of the lower expense investment options. – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

Mischievous Strangers & A Steadyhand

Economic depressions, recessions, downturns, slumps and hard times are nothing new. In his novel “Hard Times” written in 1854, Dickens comes down hard on the bankers and other financial experts of the day and rages against their dubious use of statistics to confound and befuddle the common man.

There is a rather poignant passage in Dickens’s rant against the economic power brokers of his day that bears some reflection during our own “hard times”:

“Now, you have always been a steady hand hitherto; but my opinion is, and so I tell you plainly, that you are turning into the wrong road. You have been listening to some mischievous stranger or other – they’re always about – and the best thing you can do is, to come out of that.”

Tom Bradley hardly claims to be a latter-day Charles Dickens. But as President of Steadyhand, a rather aptly named Canadian mutual fund company, he does write frequently on what he sees as the problem of relying on those “mischievous strangers” to do our financial thinking and investing for us. As Bradley puts it, “I am continually impressed by just how wrong economists and financial analysts can be.”

I personally like Bradley’s investment philosophy that relies on a straightforward lineup of no-load, low-fee mutual funds that Steadyhand offers directly to investors. He believes that most Canadians are over-diversified and overwhelmed with too many investment choices and too many flavors of the month. His firm offers 5 funds with concentrated portfolios largely unconstrained by geography and market cap size.

Steadyhand is also firmly committed to “transparency” when it comes to rates of return and fees. Their statements are simple, clear and easy to read – a rare and welcome occurrence in the industry.

Before launching Steadyhand, Bradley was President and CEO of the highly respected investment firm, Phillips, Hager & North. “I learned from the best, like Art Phillips and Bob Hager. They tried to keep it simple – and they were right!”

Despite his many years in the business, Bradley is still shocked by how few investors have an investment plan, even those with large portfolios. He insists that even a “back-of-the envelope” plan would provide a framework to help guide investors through a maze of often contradictory information, advice and, yes, statistics. “Even a simple spreadsheet can tell you a lot about a proper asset mix”, he insists. “Most people are way too diversified. Without a plan it is difficult to know what a good asset mix is.”

Bradley is committed to educating the public about the investment industry from an “insiders” perspective and isn’t afraid to express controversial views in his regular blog posts and Globe & Mail column. For an interesting read on how the company started out, check out The Steadyhand Diaries.

Steadyhand runs a series of info session across Canada where investors can “kick tires” and, as Bradley puts it, “learn how Steadyhand is changing investing in Canada.” Not sure that Canada needed yet another mutual fund company, but this one just might be on to something. – Karin Mizgala

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