Month: January 2017

Providing Clients with Peace of Mind

Transcend Private Client was created by Provisus Wealth Management to offer Canadians flexible Wealth Management services. They are a financial planning firm that caters to a diverse range of clients and specialises in creating customised solutions that provide their clients with financial peace of mind.

Transcend recently won the Most Outstanding Wealth Management Firm of the Year 2016 award, in part because they offer the revolutionary Pay-for-Performance™ platform which delivers sophisticated investment management for a low cost. Provisus the parent company manages $425 million in private client assets and has been offering investment management services since 2007.

Transcend has turned the standard industry model on its head by aligning its interests with clients on an unprecedented level with the Pay-for-Performance™ fee structure. Specifically, clients will pay a fee of 0.25% for the administration of the investment funds used in their portfolios. If the funds perform better than the benchmark, a performance fee equal to 20% of the fund’s performance over and above the benchmark will be charged. Until the client sees performance over and above the industry benchmark they have a fee of 25 basis points, which is lower than the fees charged by most equity Exchange Traded Funds (ETFs) in Canada.

 

Transcend’s achievements

Transcend has adopted an idea that has never really caught on in the world of retail investing. Most firms do not like it because variable revenues are not a good match for an industry where the cost of doing business is steady. Transcend’s novel spin on performance fees is to use them as way to present an attractively low base fee of 0.25% on equity funds to clients. The innovation it represents is significant because it shows that fee competition in the financial services industry is picking up steam.

 

Enhancing the quality of clients’ lives

Transcend believes that all investors are entitled to personalised, comprehensive services, not just high net worth individuals. Their professionals work to enhance the quality of their clients’ lives by helping them understand, organise and simplify their financial affairs.

Financial services should not be pulled from a shelf. Transcend’s vision is to build and nurture long term client relationships based on client-centric and highly customised services that focus on personal interaction, professionalism and integrity. Their team strives to be the leader in the design and delivery of high-value wealth management services and to be regarded as innovators in the financial industry.

 

Feedback from customers

Transcend shows that innovation does not stop in trying to deliver financial planning to clients at lower costs than the traditional financial services industry. Clients have provided extremely good feedback for the program as per the following examples:

“…tax efficiency and tax planning capability which have been lacking in other formats.”

”Account service has been excellent when I have made changes to my portfolios and I have found them great to deal with and they make things easy to understand. Their reports are particularly informative and fees charged are fair. I have been investing for 25 years I have found them to be the best I have ever dealt with.”

 

Opportunities and challenges ahead

The onset of this new model comes on the heels of a new Canadian legal framework, pushing for tighter regulations governing the financial services industry. Many are of the opinion that greater transparency about how fees are calculated is required. With the advent of online financial firms, often known as robo-advisors, it is clear that more Canadians are searching for alternate methods of investing.

2017 is going to be a very trying year for many firms as fees, service levels and performance are thrust into the spotlight. There are a lot of people who are very knowledgeable and skilled, but in order to stand out, you’ve got to either shout a little louder or shine a little brighter. And Transcend prefers to shine a little brighter.

Due to upcoming changes in the Canadian marketplace, clients for the first time in many instances will truly start to see what they are paying, and see what they are actually getting in terms of performance. Transcend suspects there’s going to be a lot of people questioning what they are in and trying to determine if change is necessary. As such, 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.

Transcend has something different to offer Canadian investors who are tired of paying high investment costs without high returns. Operating on the philosophy that fee’s will be earned when client portfolios outperform industry benchmarks, the firm plans to redefine the nature and delivery of financial services. Transcend believe that linking fees to the quality of performance achieved is a good way to align their clients’ interests with theirs.

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Snapping The Losing Streak

Many people say there are no certainties in life; except for death, taxes, and the Toronto Maple Leafs not winning the Stanley Cup. When it comes to portfolio management, investment decisions are not made based on certainties but rather probabilities. We cannot make decisions based on what will happen since it is impossible to know the future. We make decisions based on analyzing all known information, considering scenarios, and assigning the likelihood of events. While we cannot say for certain that the Canadian market will outperform the U.S. next year there are several indicators which suggest it may.

As illustrated by the graph below and data on the left, the relative outperformance history of Canadi- an vs U.S. stock markets is surprisingly close to even. Since 1970, the Canadian market has outper- formed the U.S. nearly 47% of the time; basically a coin flip. What’s interesting about the relative outperformance, much like when you repeatedly flip a coin, is that the pattern doesn’t go heads, tails, heads, tails…., but rather it tends to have streaks or clusters together.

When a market has relative outperformance it tends to form a trend lasting for more than one year. In 2016, after five years of underperformance, Canadian stocks broke their relative losing streak. Based on historical probabilities this could signal the beginning of a new winning streak, since single year outperformance is an anomaly – occurring only 13% of the time (6 years out of 47 years).

While the Canadian stock market is only 1.8% below its all time high and the U.S. equity markets have hit new highs on optimism for Donald Trump’s pro-growth policies investors shouldn’t ignore how Canada could also benefit. Over half of the S&P / TSX Composite index revenues are tied to activities outside of Canada and most of that is in the U.S. A stronger U.S. economy will also boost demand for resources whether that is in the Mining, Materials, or Energy sectors.

Also consider that the TSX is loaded with stocks that benefit from a rising interest rate environment, particularly the banks and insurance companies which make up about 30% of the index.

Lastly, the TSX has been a strong performer in years when oil prices rise. This appears to be happening based on the recent initiatives of the oil producing states. It is reasonable to expect oil prices to rise as a result of slowing global supply growth, as well as increasing demand getting a further boost from the growth of the U.S. economy.

While there is the possibility that Trump’s policies will fail or never get enacted, disappointments in the U.S. could drive more money into Canada, and the record levels for U.S. stock markets may make the move even more pronounced.

Given the current climate of recovering oil and commodity prices, and rising interest rates, earnings for the S&P / TSX have the potential to outperform in 2017. If only we could say the same about the Leafs…

MARKET DATA

 

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.

Are performance-based fees better for investors? New disclosure rules have firms experimenting

As new disclosure rules give Canadian investors a clearer picture of how much they pay in fees, some financial services firms have begun experimenting with alternative arrangements in which their paydays are more closely linked to how well —  or poorly — their clients’ investments have performed.

As opposed to the traditional percentage levied on the amount of assets being managed these new structures include only charging fees when a portfolio outdoes an industry benchmark or refunding some or all unless basic targets are met.

The firms are hoping these performance-based fee structures will entice Canadian investors, particularly those experiencing sticker shock in the coming months.

“Money managers have been making fees based on assets, not results,” said Chris Ambridge, president of Provisus Wealth Management Limited, which has recently created a subsidiary to manage a new series of funds with an alternative fee structure. “So, what we’re saying is, here is a money manager that is prepared to put its money where its mouth is … don’t pay us unless we deliver.”

Annual investing statements for 2016, which are due out in the coming weeks, will be among the first to reflect regulatory changes, called Client Relationship Model Phase 2 and dubbed CRM2.

CRM2 requires that investment firms provide two separate reports outlining specifically how their clients’ portfolios have performed over time as well as the total compensation that has been paid as an actual dollar amount.

Dealers have until July 14, 2017 to comply, but many investors will receive these in early 2017 because most firms are providing the information on a calendar-year basis.

The new scrutiny on fees, plus a growing appetite for cheaper, passive investment options such as exchange-traded funds and robo advisors, have spurred on the alternative structures.

In May, Ambridge’s firm Provisus created a new company, Transcend, which charges its clients who have a minimum $50,000 invested a 0.25 per cent fee to cover the base cost of administering a family of funds.

 “What we’re saying is, here is a money manager that is prepared to put its money where its mouth is … don’t pay us unless we deliver”

If the funds do not outperform a pre-set industry benchmark, the fees paid will be similar to traditional ETFs. But if the fund outperforms, then clients will pay a performance fee equal to 20 per cent of the performance of the fund above said benchmark.

And effective Jan. 1, Toronto-based TriDelta Financial wealth management firm is offering a “partnership fee” structure option for its clients with a minimum of $500,000 invested.

Under this plan, if clients see a return that is less than 3 per cent, traditional fees are refunded or partially refunded, says chief executive Ted Rechtshaffen, an occasional columnist for the Financial Post. If returns are between 3 per cent and 7 per cent, the traditional fee (generally between 1 and 1.5 per cent) applies. However, if returns are above 7 per cent, an additional partnership fee of between 1 and 3 per cent would apply, depending on how well the portfolio has done.

The partnership fee puts the advisor’s “skin in the game” and puts them on the “same side of the table” as the client, said Rechtshaffen.

“They go, ‘If I make 13 per cent, I don’t mind paying higher fees. I’ve been looked after. I don’t mind you being looked after. But what really pisses me off, is when I lose money and you’re still making money’,” he said.

Ken Kivenko, an investor advocate who is also a member of the Ontario Securities Commission Investor Advisory Panel, is skeptical of performance-based fees, which can incentivize portfolio managers to take on more risk.

“It’s worth a crack,” says Kivenko. “I wouldn’t buy it myself because I don’t believe any of these guys can beat the market any more. And if they do, it’s only because — with your money — they took high risk. Or they were lucky.”

Capping performance fees is one way to minimize risk taking, says Matthew Manara, director of the private client division at Avenue Investment Management Inc.

Since its inception in 2003, Avenue Investment has been offering its clients a discount on its fees for the following 12 months if even one penny is lost, he says. If returns are better than 10 per cent, the firm gets a performance fee of 10 per cent of the excess performance — but it is capped at 1 per cent, he says.

Kivenko recommends that investors that do take this route take a close look at the fee, the formula used, and scrutinize which benchmark is used to measure performance.

“Sometimes they use a benchmark, and you can’t find it and you don’t know what it is,” says Kivenko. “Or it’s so low it’s not an appropriate benchmark so they beat it.”

“What we’re saying is let’s give you (small) fees, we’ll try to add value, and if we do add value, then pay us”

 Meanwhile, the costs of mutual funds and even ETF fees are coming down, Kivenko says.

“They have to compete with products that at one time were expensive but are getting less and less expensive by the month…. If the fee is very high, and they cut it in half, you still may be worse off than in an actively managed mutual fund.”

Ambridge argues that while ETF fees do tend to be lower, clients are getting less bang for their buck.

“For a client, it’s passive investment, low fees, but they aren’t going to add any value,” says Ambridge. “What we’re saying is let’s give you (small) fees, we’ll try to add value, and if we do add value, then pay us.”

Time will tell whether these performance-based fees are actually better for investors, says Rechtshaffen. If we are heading into a historically lower return environment, then opting for a partnership fee will be better for investors’ wallets. But if returns are robust, partnership fees will be the more expensive option, he says.

“We have confidence in our investment approach that it’s going to do well for clients,” he says. “We are basically putting our money where our mouth is. If we don’t think going to deliver performance for the average client of over 7 per cent, then why would we do this?”

 

Armina Ligaya | January 3, 2017

National Post

http://business.financialpost.com/investing/are-performance-based-fees-better-for-investors-new-disclosure-rules-have-firms-experimenting

How to actually keep your New Years financial goals

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How many of us start the New Year off by setting goals? Odds are, that number is much larger than those who actually keep them. Why do we lose our determination? Sometimes a goal is so monumental, it requires smaller goals within the broader ideal to make it achievable. We are hoping – if you are reading this – that better control of your finances made it to the top of your to do list for 2017. Here is for some advice on how to make sure this goal sticks:

 

1. Understand your long-term goals

Have you ever noticed the majority of sayings we use on a regular basis are based on recognizing the long-term? There’s a light at the end of the tunnel. Short-term pain for long-term gain.

Understanding that what you’re doing is for a greater good in your long-term future makes the everyday tediousness of it much easier to grasp. Here’s your first piece of homework: sit down and write out what are your long-term financial goals. Tip: Create various financial goals for five-10-15 and even 20 years down the road.

 

2. Plan your short-term goals

This is where the hard work comes in. Start with your closest long-term goal and ask yourself “What are the consistent tasks I have to do if I’m really going to make this happen?” For example, if you want to buy a new car in a few years, a short-term goals might be putting 15% of your paycheque into a TFSA every month. Think of your long-term goals as the final product, and short-term goals as the steps to create that product. Not sure what your everyday steps need to be? Visit #4.

 

3. You’re original, make sure your goals are too

All you have to do is Google “financial goals” to be bombarded with articles trying to tell you what your goals should be. How can an article be entitled ‘The top goals everyone should have in 2017” when every person has a different career path, lifestyle, personal life, health issues, desires, passions, etc. Do not copy popular goals- create your own. Before you put in the hard work, make sure you are supporting what YOU really want.  

 

4. Seek help- it’s worth it

Even if you specialize in the financial industry, you shouldn’t have to figure this out on your own. Have a professional or friend help you take that step back. It takes hours of time doing research – and digging through the bad advice out there. Seek out one of our financial experts who can provide all the information you need to build your short and long-term goals this year.

 

5. Create a timeline (and don’t give up!)

Like many things in life, goals have to have an expiry date. The goals identified now won’t all be the same ones you’re working towards in five, 10, 15 plus years. After you’ve carved out long-term goals, give them each a shelf-life and check-in points. For each short term goal, add a due date. By that point if you haven’t reached what you originally set out, it’s time to re-assess or step it up Most of all, don’t set and forget. Reaching goals is an ongoing process so set reminders and check in every few months.
Good luck!  We know you can do this!