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Monday, December 31, 2007

George Bailey, I presume?

Every year I savour the build-up to Christmas, which culminates in CBC's playing of "It's a Wonderful Life" on Christmas Eve. With mass consumption and the feeling of everybody thriving, the story of an idealist, who sacrifices his own personal happiness for the sake of the contentment of others, rouses a feeling that gives hope to humanity. Year after year, with all the family festivities going round, I sit across from the television and watch George Bailey's life unfold. Would such a man exist today?

In the world of capitalism, where success becomes determined by an ability to preserve self-interest, such a scenario could easily be thought of as increasingly unlikely. In fact, I have been told as much. This past year at Onus Consulting Group has me believing that such a man as George Bailey, not only does exist, but his compassion exists to an extent in everyone. As Canadians, we come from different backgrounds and roots...different environments...different stories that have molded us into who we are today. I genuinely believe that all of us acknowledge and pay homage to the trials and tribulations that our forefathers from whatever generation have experienced in getting us to this point. Our support for issues like global warming or peace in the Middle East exemplifies our desire to keep future generations equally as grateful.

In the end of It's A Wonderful Life, it was Bailey's sentiment that he couldn't give his family the best that lead to his contemplation of suicide. That innate desire to give our children, our parents, our loved ones the best exist in all of us. For the more guarded that may be where that compassion ends, but it may be for a lack of opportunity in this 'dog-eat-dog' world than anything else.

With the year ending, I'd like to thank everybody who has helped shape the Onus Consulting Group. Your insight and unwavering support has been a source of great inspiration. It will always be remembered. You know who you are. To help, if you're wondering as you read this, "Could he be talking about me?"...indeed, I am. Your faces flash across my mind, as I bid you, as well as every other Canadian a Merry Christmas and a Happy New Year.

'Z'

Tuesday, December 11, 2007

"I sleep well at night."

So answers OSC chairman, David Wilson, in response to the question, "What keeps you awake at night?" Asked in the December 3, 2007 interview in the Toronto Star, the question, seemingly intended to draw the Ontario securities regulator's thoughts regarding the problems of securities regulation in Canada, is met with the same "who me?" innocence that currently braces those responsible for investor protection in Canada.

Last week, the Toronto Star published a series of articles on market regulation. The diagnostic wasn't exactly flattering, to say the least. These series of articles made several observations, none the more compelling than a fact, well-known in the financial services community (not so much to the general public), that 30 separate organizations are involved in Canada's securities regulation. At a recent gathering in Toronto, David Wilson conceded, "In Canada securities fraud is especially challenging. There are more than 30 separate agencies involved. This could charitably be called the Canadian enforcement mosaic."

With more than 30 agencies balancing responsibility, it is easier for those involved to "pass the buck," making Wilson's answer all the more appropriate. Are regulatory failings the responsibility of the OSC [Yes!]? While the answer might seem obvious, with so many groups, it could easily be justified otherwise. Did an investment advisor churn your portfolio into oblivion? Yes, the OSC feels terrible, but please file your complaint with the IDA (Investment Dealers Association)? The IDA will feel terrible, but, for restitution, please log your complaint with the Ombudsman for Banking Services and Investment.

What keeps you awake at night? Perhaps the question would be best posed to the retail investor, who is more likely to be kept awake at night.

To read the articles that inspired this blog, click on the following links:
http://www.thestar.com/article/281879 -- OSC chief takes it all in stride
http://www.thestar.com/article/281645 -- Why the OSC so rarely gets its man

Tuesday, December 4, 2007

A home run for the do-it-yourself investors of mutual funds! Well, actually, more like a base hit.

Well, I'll start with the good news. Since July 3, 2007, RBC Direct Investing has been offering D-Series funds to its clients. Hmmmm...What does this mean exactly?

Investing in a mutual fund includes a trailer fee (ranging from 0.5% to 1.0%) paid to the brokerage, which is charged annually out of the fund's MER. As the fee is embedded, the client doesn't actually see it being charged (it comes out of the returns which are posted after these fees are deducted). The rationale behind this trailer fee is to pay the advisor for ongoing services rendered to the client. In the case of the client of a discount brokerage (a do-it-yourself investor), this fee has always applied regardless of the fact they don't use a financial advisor to pick their fund or, for that matter, an advisor to provide ongoing support and feedback.

These new D-series funds take into account the injustice of a do-it-yourselfer having to pay the same fees as somebody using a full-service advisor. With the condition of you being able to invest a minimum of $10,000 in the fund, these funds come with significantly lower MERs enabling these funds to outperform the other series of funds with the same money managers and portfolios. The concept of RBC D-Series funds is similar to the arrangement already in place by TD Asset Management, who offer a comparable arrangement to their do-it-yourselfers. Their Investor Series brings a larger selection of mutual funds to choose from with a significantly lower minimum investment requirement than RBC Direct Investing. However, their MERs are only slightly lower, if not the same, than their Advisor Series Funds.

These moves correct an anomaly that has existed in the industry for years. These changes have been slow for many reasons. Namely, the incredibly high profits this brings in for the discount firm coupled with the public's overall lack of knowledge of how fees work. To illustrate, with the D-Series funds available almost 5 months now, there hasn't exactly been an overwhelming stampede to what is clearly the more cost-effective option. There could be all sorts of suggestions put forward on how RBC Direct Investing could better do this, which has no doubt occurred to them. But, for now, as CIBC Investors Edge, BMO InvestorLine and Scotia McLeod Direct Investing are yet to follow, perhaps we should be grateful with the baby steps.

Point: If you are a do-it-yourself investor who invests $10,000 or more in a single fund, moving to RBC Discount is a credible option. Depending on the funds invested in (RBC currently has 45 D-Series funds), you could have dramatically lower fees without affecting the quality of your portfolio. A severe exodus of this sort to RBC Discount on these grounds will prove more than enough incentive for other discount brokerage firms to follow suit.

 

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