Month: June 2016

New pay-for-performance funds to offer investors something different

A new pay-for-performance structure has been introduced for pooled funds in Canada – and it’s putting a wealth management firm’s money where its mouth is. Provisus Wealth Management, which has been in business in Canada for over a decade, has launched a sister company named Transcend, which will offer a first-of-its kind performance structure.

“The operative word is new, because what we’ve done doesn’t currently exist in Canada,” says Chris Ambridge, CEO of Provisus and Transcend. “We decided that with the advent of the ETFs and the robo structure, people are looking for real value for the money they pay, so we decided to give them something entirely different.”

Transcend has driven down the costs of their pool funds to their operating costs, charging only 25 basis points to clients in order to cover the administration, trading and legal requirements of the funds.

“For us to earn money, what we have to do is drive value-adding performance, or beat the benchmark that we’ve assigned,” says Ambridge. “Every fund has a pre-set industry standard benchmark and what we will do is – clients get the performance they get up to the benchmark, so no fees will be charged. But once we outperform the benchmark, we will take a 20% performance fee on the value add that we deliver.”

He adds that with pending CM2 regulation in store for mutual fund fee structures clients will start looking to more transparent options as they realize just what they’re paying for.

“Bringing these funds to these fee levels has clearly been at the back of our minds with CRM2, because as clients for the first time in a lot of instances truly start to see what they’re paying, and see what they’re actually getting in terms of performance, we suspect there’s going to be a lot of people questioning what they’re in, and trying to determine if change is necessary,” he says.

He adds that Transcend’s service model will provide lower net worth clients with the same level of service as higher net worth investors – an important feature as robo advisor models become more prevalent among investors.”There’s always in every instance, a portfolio manager who will discuss over the telephone with the client their goals and aspirations, risk tolerance, profile, and produce for them a customized investment policy statement for that client and their money types,” he says.

“It’s exactly the same functionality, service and support that we give to our much wealthier clients so they’re taking that high-net worth solution and giving it to everybody.”


by Penelope Graham

16 Jun 2016



Your guide to retiring well

June is Seniors’ Month and we think there’s no better time to break down exactly what you need to plan for a financially secure retirement. After years of working hard, don’t leave your golden years to chance.

Here are some things to think about:

1.       Age doesn’t matter

With a topic like retirement, you’d think it would. But the harsh truth is, no matter how old you are now, one day you’ll likely want to retire. What’s the number one thing our clients mention? “I wish I started saving sooner”.

Think of it like this: you are gearing up for the marathon of your life. It requires a certain degree of physical ability, but also a dedicated fitness routine that takes practice, determination and will. Your financial fitness similarly needs a degree of dedication in order to achieve your goals and finish the race. Or, in this case, retire well.

Stretch yourself to meet your goals. Perhaps that means giving up one luxury each month. You’ll see the savings accumulate over the years. See how this family saved nearly $1,500 a year by practicing better grocery shopping habits. That adds up to over $45,000 in savings over 30 years.

2.       Embrace the acronyms

A RRSP and TFSA account, as well as a workplace pension savings plan (if applicable) are the three greatest ways for you to save, rather effortlessly, for your golden years.

RRSP contributions let you reduce your taxable income. Your savings grow tax-free as long as your money stays in the plan and you get to choose how to invest your savings. Learn morehere.

TFSAs are great for letting you save tax free for any goal. You can save up to $5,500 a year and withdraw whenever you want without paying any tax. Learn more here.

Pension plans, group RRSPs and other savings plans can be a convenient way to save because the savings come off your pay rather seamlessly. If your employer matches your contributions, your savings power is instantly doubled. Learn more here.

3.       Think outside the box

Saving for retirement is not as easy today as it once was. It’s not enough to just put aside a portion of your annual salary and expect it to stretch as far as it once did.

If you think your Starbucks latte is expensive today, what do you think it will cost 10, 20 or 30 years from now? The further away you are from your retirement, the more impact inflation will have.

Consult with an experienced advisor and they will help you consider the effect of inflation for your retirement savings.

4.       Consider other sources of income to bring in savings

We get it; it’s really difficult to find the extra money to put away after bills, payments, groceries…etc. Consider using your skills to make some extra money that you can allocate to either a savings account or for your leisure spending.

Think about what you’re good at and look for an avenue that lets you explore it. Working extra will let you augment your income. Broad-spectrum websites like Kijiji or Workopolis are always sharing job postings that serve as opportunities for you to make some extra money; many of them even let you make this extra money from home using professional skills. Even an extra $50 each week means an augmented income of $200 each month, which you can use to spend on leisure or to add to your TFSA for additional savings. The bottom line: if you find saving to be very challenging with your current income, it’s time to think about augmenting it. Get creative!

5.       Considerations for the future

What you should take away from this blog is not to listen to typical widespread notions that 75% of your annual salary is an appropriate retirement savings benchmark. It’s not. This retirement calculator will give you a general idea of just how much of today’s money you’ll need to save up until the year 2048.

The problem with general retirement formulas is that they do not consider societal inflations. They also fail to recognize that every person’s dream retirement is completely different. While your retirement might look like a trip around the world, your neighbour’s retirement may include downsizing and relaxing by the cottage with little spending.

Your best bet? Consult a trustworthy advisor with experience in retirement planning and take the guesswork out of planning for the rest of your life.

Take the first step to planning your golden years today.

The Real Cost of ETFs – Not just the MER

Most investors know that passive Exchange Traded Funds (ETFs) are low cost investment vehicles, correct? Well, almost right! Passive ETFs are designed to track a benchmark index or market at a low cost. ETFs may be relatively cheap from a Management Expense Ratio (MER) perspective but the costs don’t stop there. Putting aside the negative impact of brokerage costs to buy and sell and potential custodian or registration fees, ETFs in the majority of instances still underperform their underlying benchmark.

In a perfect world ETFs would precisely return the same performance of their benchmarks but this is not realistic. Therefore investors should determine if they are getting what they are paying for by tracking the difference between an ETF’s performance and the benchmark’s performance. The resulting Tracking Difference is seldom zero and usually trails its benchmark. It is easy to find as ETFs are required to file a Management Report of Fund Performance (MRFP) twice a year on the website.

Of course fees are almost always the cause of performance lags and are the single best indicator of future Tracking Difference. That is why ETF issuers keep trying to offer the lowest fees. However other factors could impair returns such as the trading and rebalancing costs which occur when ETFs realign themselves as indices adjust their holdings, sampling issues that occur when it is impractical to hold every security in the index and there is a cash drag between when the ETF receives dividend and interest payments and when it then distributes them to shareholders.

In Canada there are more than 425 ETFs but the largest 100 by assets represent over 83% of all the invested assets. These Top 100 ETFs as of May 31, 2016 provide an excellent sample of the extent of any lag in performance relative to the benchmark. By gathering both the MER and the Tracking Difference (based upon 3 years of information ending December 2015) we are able to see how much of the underperformance is attributed to these costs. The chart above and the table on the left show this analysis on a pro-rata weighting basis for the Top 100 ETFs and their major asset subcategories. Interestingly, the average MER across the entire 100 ETFs is 0.31% (individual MERs ranged from 0.03% to 0.91%) and this remains very consistent across all the asset classes despite the fact that the number of individual ETFs per category varies dramatically with 2 Money Market ETFs, 33 Bond ETFs and 65 Equity ETFs. The other surprising item about this data is that while Money Market and Bonds had very little additional underperformance that was not directly attributed to fees, this was not the case for Equities. Equities, on average, significantly underperformed their benchmark by 0.73% per year, which flowed through to the entire sample underperformance (0.61%) since equities are such a large part of the Top 100 ETF group. This cost/weakness is much more than most investors know about or expect.

The aim of a Passive ETF is to mirror its benchmark so they are not designed to outperform.  As such, Tracking Difference is one of the most important ETF statistics to consider. Without an understanding of Tracking Difference, investors could be virtually guaranteeing themselves underperformance.



This report may contain forward looking statements. Forward looking statements are not guarantees of future performance as actual events and results could differ materially from those expressed or implied. The information in this publication does not constitute investment advice by Provisus Wealth Management Limited and is provided for informational purposes only and therefore is not an offer to buy or sell securities. Past performance may not be indicative of future results.

While every effort has been made to ensure the correctness of the numbers and data presented, Provisus Wealth Management does not warrant the accuracy of the data in this publication. This publication is for informational purposes only.

Forget Robo-Advisors Think Bionic

Time waits for no one (or service). Change is inevitable for both people as well as business. The wealth management industry is striving for greater efficiency, while an explosion of regulatory adaptation is forcing change, and the wealth transfer from baby boomers to younger generations is about to become a tsunami across the land. The backbone for this transformation is technology, but digitalization will never entirely replace personal relationships.

While clients are evolving; migration to the extreme of complete communication through virtual channels is not really in the cards. A recent survey by Temenos (2016) of high net worth clients from around the world found that: 34% of clients want either digital only or a mix of digital and offline communication; 62% of clients say that the digitization of wealth management services is good overall, but they still want to meet often with an advisor; and 48% of client’s rate cyber risk and hacking as a top concern related to the use of technology, particularly for those older than fifty. Similarly, a new survey by a European firm, GfK (June 15, 2016) shows that just 10% of those surveyed said they would be willing to trust a computer algorithm more than a human to give them financial advice. So the central driver of recruiting or retaining clients will never completely revolve around technology.

At the same time the wealth management industry is starting to embrace technology with the goal of scaling up their own distinct offerings. While robo-advisors might be all the rage, their success is anything but assured. They have shone a light on current deficiencies and highlight the opportunities ahead. A recent report from Business Insider Intelligence (2016), illustrates that 49% of consumers are considering investing some of their assets using a robo-advisor, but less than 1% of the assets that could migrate to technology based platforms by 2020 are from people who currently don’t have any investments. So it is an advisor’s existing clients that are up for grabs, as they are just waiting for a clearly superior solution to motivate them to switch.

Robo-advisors burst onto the scene several years ago in the U.S., based on the premise that automated low fee investing would overtake and jettison traditional financial advisors. Canada joined the parade in 2014 with multiple emissaries joining the mix. After initial success, 2015 saw established financial service firms launch competing offering and more participants are on the way. As this technology arms race expanded, something not completely unexpected occurred, client recruiting has become more challenging, more expensive and slower. In the U.S. growth rates have fallen to just a third of their levels from a year ago. According to one U.K. study and Morningstar estimates, client acquisition costs range from $300 to $1,000 per person. Assuming an average account size of $40,000 with an average Canadian fee of 0.63%, robo-advisors produce revenue of just $252/year. This disconnect can only spell trouble.

So to grow and gain traction, robo-advisors are evolving: they jumped into traditional advertising channels (TV and bus stop signs); they sought out smaller accounts and younger investors; and now they are attempting to coax traditional investment advisors to offer the service to their clients. It is this last point that emphasises that the disruptors themselves are about to be assimilated. They may have just have been the catalyst for the financial advisor community to reinvest itself and infuse itself with new technology; ironically they could turn advisors into bionic men and women.

Established financial service firms are rapidly incorporating many of the enhancements launched by robo-advisors and using their existing brand power to leap frog their newer
competitors. While robo-advisors created a cost efficient solution, the potential cost of mass client acquisition is becoming a major challenge. And unfortunately for them, having too few clients to pay    the bills cannot be overcome by pretty graphics and gimmicks. If the cash is gone, the lights go out.

The long term winners will still be the ones with an innovative solution that attracts and keeps clients. Solving this challenge is more than just putting technology on a website and waiting for clients to roll in. Having an existing presence is vital. Many studies have shown that technology centric human advisors are outpacing their fellow advisors. While technology is never going to replace advisors it can benefit them or make them bionic, combining human advisors with technological enhancements (hopefully only figuratively). After all, the robo-advisors do have one thing right in that technology is the only way forward for wealth managers in a competitive financial landscape; it is just not the be-all and end-all.