Portfolio Manager’s Commentary

Daryl Cooper

February 17, 2017

Performance and fee reporting is on

By now, you would have received your first Client Performance and Fee Statements. This is a new industry requirement as a result of the on-going evolution of transparency in the investment industry. You as clients will receive this report annually each January. We have eagerly anticipated the arrival of these initiatives as disclosure has been a part of our practice for many years.

We are of the belief that the regulators could go much further and we look forward to further enhancements to client disclosure, such as:

  • Full disclosure on the total management expense ratio (MER) of mutual funds, ETFs, and Principal Protected Notes as opposed to the current practice of simply disclosing the amount the bank, credit union or advisor is paid, which is the only current requirement
  • Fees paid to the advisor in the form of deferred sales charge fees
  • Disclosure of MER and advisor compensation on segregated funds, which are sold through insurance companies
  • Disclosure by credit unions and banks as to the profit spread on GICs sold at the time of sale

We feel these are a few improvements that would level the playing field to make investors fully aware of every transaction they are making.

Another point is the methodology being prescribed by the regulators to report performance. The process mandated is called Money Weighted, an arithmetic calculation that most investors will likely have never been exposed to. The attached article from the Globe and Mail describes the Money Weighted calculation versus what the mutual fund industry, pension funds and all institutions use called Time Weighted. The Client Performance and Fee Statements only show Money Weighted and we have always reported to you in the more normal method called Time Weighted. The last two paragraphs of the attached article indicate that while both are acceptable, Time Weighted is a better reflection of portfolio manager performance than Money Weighted.

“Brokerage statement brain bender” – Peter Guidote, Richardson GMP
“Why it’s not time to celebrate the new investment-fee disclosure rules just yet” – Ted Rechtshaffen, National Post. October 24, 2016

Enjoy your long weekend.

Daryl Cooper
Portfolio Manager
Director, Wealth Management