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Your Money, Your Life – A Discussion with Steadyhand’s Tom Bradley

Tom Bradley, President and co-founder of Steadyhand Investment Management Ltd.

Tom Bradley, President and co-founder of Steadyhand Investment Management Ltd.

Money Coach Noel D’Souza, P.Eng.,CFP® recently sat down with Tom Bradley, President and co-founder of Steadyhand Investment Management Ltd. to talk about what Steadyhand offers Canadian investors how it serves its clients and his perspective on personal finance in Canada.

In addition to Tom Bradley’s leadership at Steadyhand, he selects and monitors Steadyhand fund managers and manages the firm’s Founders Fund. He has over 30 years of experience in the investment industry, including senior leadership roles at other well-known investment management firms. He currently serves as the Chairperson of the Investment Committee of the Vancouver Foundation.

Noel: Tom, who would you say is Steadyhand’s typical client and what services does Steadyhand offer?

Tom: We have a wide variety of clients, but I’d have to say that the bulk of our clients are what we call midlife professionals, in their forties and fifties, busy with kids and careers and the stuff of life. Very smart people who just don’t have the time, interest, or maybe knowledge, on the investment side of their finances, and so they look to us to do that for them.

2016-05-16_1212We also have an increasing number of young clients. Our low minimums, which are ten thousand per fund, have opened that door. But of course we also have many retired clients as well.

Our average client portfolio is around $275 000, but we have many clients under $100,000. We offer them investment management and we offer investment advice, not holistic financial planning.

Noel: I think that’s one of the reasons why Steadyhand’s work resonates with what we do at Money Coaches Canada, and why we work well together; we also typically serve busy mid-to-late career professionals, but we provide that holistic financial planning element.

What would you say is the single greatest benefit that a client will experience when working with Steadyhand?

Tom: I’d say that the single greatest thing we do for our clients is right in our name; we do a very good job of providing a steady hand. Dealing with the ups and downs of the market is crucial to long term returns. We keep people on track. We’ve looked at the data and our clients are letting the power of compounding, which Einstein calls the eighth wonder of the world, work for them in growing their assets over time.

We’re all living longer. We want people to think ahead to what I call the last third of their lives, which is going to start somewhere in their sixties and could very well go into their nineties. We need to get people to think ahead to that last third. Continue reading →

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Understanding investment fees

WebFee has become a four letter word.

There is a lot of talk in the financial media about investment fees; is there enough transparency, are people getting what they pay for? Many Canadians would probably say they aren’t really sure how much they are paying and many are disgruntled.

It’s not surprising then, that we frequently receive calls from people wondering if they should manage their own investing to avoid fees, and whether a fee-for-service money coach or financial planner can help them. Continue reading →

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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.

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Financial Advice – Are you Getting What you Pay For?

I was pretty surprised to read about a rather dramatic change to the financial planning profession in Australia.  Financial planners certified under the Financial Planning Association (FPA), will have to abandon the practice of receiving trailing commissions from investment products if they want to remain members. The organization has asked their members to go to a “fee-for-service” model which means that certified financial planners will only be able to receive payment directly from their clients instead of accepting commissions from product providers, such as mutual fund companies.

Will this happen in Canada? Probably not anytime soon. The Financial Planners Standards Council, the Canadian counterpart to Australia’s FPA, currently doesn’t take a position on how financial advisors are paid other than requiring that financial planners fully disclosure the way they are being compensated to their clients. Barring a major scandal such as the one that triggered these reforms in Australia, there is unlikely to be an immediate call for major changes here in Canada. But this doesn’t mean that investors shouldn’t be looking very carefully at the compensation issue here.

Under the current system in Canada, even if the compensation model is disclosed, it’s often only done so by way of a prospectus. Financial advisors selling funds are required by law to provide investors with a prospectus, but let’s be honest – they are notoriously hard to understand and seldom read. Often there is no open and meaningful discussion of fees between client and advisor and details are often glossed over.  The bottom line is that even if the industry is doing what it needs to do to fully comply with the law — most people really don’t understand what fees they are actually paying.

Having worked under the mutual fund commission model in the past, I’m not a fan of mutual fund companies paying planners to provide advice to clients.  It muddies the waters and it’s a complicated system that isn’t easy to explain to clients. Not to mention that the commission-based system can — overtly or subtly — affect a financial planner’s recommendations – even those who are scrupulously ethical and honest. I know, I was there.

So how do you know if you are getting value from your financial planner?  Start by finding out how your advisor is being paid and what fees you are actually being charged. This isn’t always as easy as it sounds, but you can either ask your planner directly or check your mutual fund prospectus.

To give you an idea of how mutual fund compensation works, here’s a typical scenario (actual fees will depend on the mix of funds you are invested in):

If you invest in mutual funds distributed through a financial advisor (usually referred to as “load” mutual funds), and you have a portfolio of $200,000 with a mix of stock and bond mutual funds, you’re probably paying an annual management fee of around 2%. This means that, every year, you are paying $4,000 to have your investments managed.  Roughly speaking, between 0.5%  and 1% of this fee (or $1,000-$2,000 per year) goes to compensate your planner for providing you with service and advice. The rest of the fee goes to the mutual fund company to pay for investment research and selection, administration, marketing, etc.

You then need to ask yourself – am I getting $1,000-$2,000 worth of financial planning and investment advice every year directly from my advisor? Using an hourly rate of $200 (a typical rate for an independent fee-only financial planner), this means you should be getting between 5 and 10 hours of your planner’s time and attention.  If you are, then you’re likely getting a good deal, if not, well, maybe it’s time for a serious heart to heart chat with your planner. – 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.

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