The use of professionals?
- scomac
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Re: The use of professionals?
I suspect it will be all about perceived safety and reaching for yield that has a measure of perceived protection against rising interest rates. The advisor wouldn't have factored taxation in at all. I suspect it all came down to the fact that your friends are risk averse and don't like the idea of volatile equity investments.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
Thomas Babington Macaulay in 1830
Re: The use of professionals?
Thx for giving this some thought. Is there any reason to put a "laddered pref" ETF in a non-taxable account, as opposed to a "laddered corporate" ETF??scomac wrote:I suspect it will be all about perceived safety and reaching for yield that has a measure of perceived protection against rising interest rates. The advisor wouldn't have factored taxation in at all. I suspect it all came down to the fact that your friends are risk averse and don't like the idea of volatile equity investments.
Bond ETFs always include as part of the fund's basic information not only the "trailing yield" (marginally important) but also the "yield to maturity" (critically important). Pref ETFs (ZPR and CPD) include only the former (in ZPR's case, something like 4.7%) but not the pref equivalent of the latter. This is a trap for the unwary. I suspect my friends are getting a lot less true yield than what they (or their advisor) are reaching for. Either that, or I'm seriously missing something (which I do not rule out).
- westinvest
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Re: The use of professionals?
Your friends should also be aware of the credit quality of the ZPR holdings. James Hymas, our resident preferred guru, has noted in the past that ZPR holds a higher proportion of P3 rated securities, which may nor be consistent with their risk tolerance.
Re: The use of professionals?
The BMO ZPR chart says 35.3% P3 as of Apr 29th.
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Re: The use of professionals?
http://www.prefblog.com/?p=20325
I myself don't do prefs and so don't follow them or pref discussions. Too complicated. What I think I get is that (i) in taxable accounts, income oriented investors need to give prefs a serious look as an alternative to corporates, because of the DTC, and (ii) if you don't understand the YTW concept, you can get seriously burned with prefs.
The above link (hope it works) has James Hymas estimating the YTW for ZPR in Nov 2012 as around 2.5%. The "trailing yield" of ZPR is today around 4.7%. If today's YTW is let's say even 3.0%, then I conclude that my friends' true return is in the order of about 1.5% (3% less the advisor's wrap fee of 1.5%), not the 4.7% that their advisor (I'm assuming) is representing to them as their return.
I'm apprehensive my friends are getting some seriously misleading professional advice. But nothing would please me more than being wrong and having my apprehensions put to rest. What am I missing??
Thank you for pointing out the credit quality of ZPR's holdings (thus adding to my apprehensions, not diminishing them).
I myself don't do prefs and so don't follow them or pref discussions. Too complicated. What I think I get is that (i) in taxable accounts, income oriented investors need to give prefs a serious look as an alternative to corporates, because of the DTC, and (ii) if you don't understand the YTW concept, you can get seriously burned with prefs.
The above link (hope it works) has James Hymas estimating the YTW for ZPR in Nov 2012 as around 2.5%. The "trailing yield" of ZPR is today around 4.7%. If today's YTW is let's say even 3.0%, then I conclude that my friends' true return is in the order of about 1.5% (3% less the advisor's wrap fee of 1.5%), not the 4.7% that their advisor (I'm assuming) is representing to them as their return.
I'm apprehensive my friends are getting some seriously misleading professional advice. But nothing would please me more than being wrong and having my apprehensions put to rest. What am I missing??
Thank you for pointing out the credit quality of ZPR's holdings (thus adding to my apprehensions, not diminishing them).
Re: The use of professionals?
Directionally, I don't think you are missing much. YTW is a critical factor but I would not to so far as to suggest the lack of that knowledge results in someone getting seriously burned. Returns just likely are not as good as presented... but that likely also depends somewhat how long one is into the fund.
The only quibble I would have with your comments is that IF the advisor's fee is taken off from the investment account as a whole, the fee is treated differently (as a full deduction tax wise - like interest expense) than the income (treated as eligible dividend income with a DTC). The net after tax effect won't be quite as significant as you suggest.
That said, I would suggest you advise your friends accordingly and suggest they ask their advisor to clarify what it means to them, bottom line on an in-the-pocket after tax basis. Might disclose just how good (or not) that advisor is.
The only quibble I would have with your comments is that IF the advisor's fee is taken off from the investment account as a whole, the fee is treated differently (as a full deduction tax wise - like interest expense) than the income (treated as eligible dividend income with a DTC). The net after tax effect won't be quite as significant as you suggest.
That said, I would suggest you advise your friends accordingly and suggest they ask their advisor to clarify what it means to them, bottom line on an in-the-pocket after tax basis. Might disclose just how good (or not) that advisor is.
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- Norbert Schlenker
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Re: The use of professionals?
It's on the "approved list".ockham wrote:other possible/plausible explanations?
You've forgotten the 0.45% MER.If today's YTW is let's say even 3.0%, then I conclude that my friends' true return is in the order of about 1.5% (3% less the advisor's wrap fee of 1.5%), not the 4.7% that their advisor (I'm assuming) is representing to them as their return.
These are non-taxable accounts so the fee won't be deductible (except in the sense that there won't be as much tax to pay when withdrawals are made from the RRSP).AltaRed wrote:IF the advisor's fee is taken off from the investment account as a whole, the fee is treated differently (as a full deduction tax wise - like interest expense)
Nothing can protect people who want to buy the Brooklyn Bridge.
Re: The use of professionals?
Thx, AR. The accounts we're talking about are non-taxable, i.e., RRSPs and TFSAs. I understand that in a taxable account the wrap fee and dividend income receive differential treatment because of DTC. So that was the first thing that had me scratching my head, why are they loading up on prefs in a non-taxable account. The next thing was to try to get a handle on ZPR's YTW (this being, to my understanding, a rough equivalent of a bond fund's YTM). And thirdly, you and others are pointing to the credit quality of the prefs inside ZPR.AltaRed wrote:Directionally, I don't think you are missing much. YTW is a critical factor but I would not to so far as to suggest the lack of that knowledge results in someone getting seriously burned. Returns just likely are not as good as presented... but that likely also depends somewhat how long one is into the fund.
The only quibble I would have with your comments is that IF the advisor's fee is taken off from the investment account as a whole, the fee is treated differently (as a full deduction tax wise - like interest expense) than the income (treated as eligible dividend income with a DTC). The net after tax effect won't be quite as significant as you suggest.
That said, I would suggest you advise your friends accordingly and suggest they ask their advisor to clarify what it means to them, bottom line on an in-the-pocket after tax basis. Might disclose just how good (or not) that advisor is.
What I'm concluding, as a rough and ready first approximation, is that they've got a high yld bond ETF with YTM of 2.5% to 3% (before fees). Is this about right?? If so it's not a disaster, or anything like that, just a lot of trouble to go to to try and beat the plain vanilla GICs that my friends are comfortable with.
The most basic take-away for me is that it is impossible, in the current rate environment, for an income oriented investor to get return and at the same time pay for an advisor. You absolutely have to be willing to DIY.
Re: The use of professionals?
My apologies... it escaped me completely that this was in a registered account. Makes the choice of a pref ETF even less sensible (depending on the allocation of their other assets).
As you had previously mentioned... some investment grade corporate bonds instead. I'd pick something like ZCM instead for a registered account (and I do have some ZCM in my TFSA). Decent YTM for the current environment, not too long a duration, and all investment grade (albeit a lot of BBB).
As you had previously mentioned... some investment grade corporate bonds instead. I'd pick something like ZCM instead for a registered account (and I do have some ZCM in my TFSA). Decent YTM for the current environment, not too long a duration, and all investment grade (albeit a lot of BBB).
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Re: The use of professionals?
I asked my friends this, whether the MER is added to or included in the wrap fee. They didn't know (because they don't know about MERs) but responded by saying the advisor had told them there would be no fees or charges above the 1.5%. FWTW.Norbert Schlenker wrote:You've forgotten the 0.45% MER.If today's YTW is let's say even 3.0%, then I conclude that my friends' true return is in the order of about 1.5% (3% less the advisor's wrap fee of 1.5%), not the 4.7% that their advisor (I'm assuming) is representing to them as their return.
(OT: It drives me f$$$$$g crazy watching good decent intelligent people be so completely innumerate with respect to investing. And then f%%%%%%g tell me about what they've done afterwards).
Re: The use of professionals?
A Hunt to Find the Next Generation of Financial Advisers:
George
So, would it be good advice to a young person to become a financial adviser?The average financial adviser in the United States is older than 50, a number that shows no sign of getting lower because relatively few young people are interested in the work. That is creating a problem for Wall Street, which after the financial crisis likes the idea of managing other people’s money more than it did before. As both independent firms and large broker-dealers attached to investment banks try to expand their asset management businesses, they must figure out how to attract and retain a fresh pool of talent that is increasingly looking to find its riches elsewhere.
<snip>
As a whole, Wall Street is a less attractive place to work than it used to be for new graduates. Many Americans distrust the banking industry more now than they did before the financial crisis, and the paychecks aren’t as large. Fewer college students want to go into the financial services sector at all, Mr. Stein said. Instead, they are drawn to budding social media and technology start-ups, hedge funds and other fields beyond the financial services sector.
George
The juice is worth the squeeze
Re: The use of professionals?
Only if they're too ugly for prostitution.ghariton wrote:So, would it be good advice to a young person to become a financial adviser?
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Re: The use of professionals?
I personally think so!ghariton wrote:So, would it be good advice to a young person to become a financial adviser?
Re: The use of professionals?
Given the long training cycle and the low esteem in which they are held, I would say no. Would you recommend that people going into travel agency?Flaccidsteele wrote:I personally think so!ghariton wrote:So, would it be good advice to a young person to become a financial adviser?
For the fun of it...Keith
Re: The use of professionals?
Is the training cycle long? I always thought it was akin to real estate agent where the barriers to entry were low, probability of success quite low but some good ones do very well? At the upper end (eg institutional level, CFA,etc) they are very well compensated but at the retail level a different story I suspect.kcowan wrote:Given the long training cycle and the low esteem in which they are held, I would say no. Would you recommend that people going into travel agency?Flaccidsteele wrote:I personally think so!ghariton wrote:So, would it be good advice to a young person to become a financial adviser?
Re: The use of professionals?
The training cycle for retail Fin Planners is getting longer.
To sell mutual funds, about a 3 month self study course and exam(investment funds in Canada). No further training required but to call yourself a planner, must complete the Certified Financial Planner curriculum which takes about 2- 3 years. There is then ongoing continuing education
To sell stocks and other securities, about 6 months self study, exam (Cdn Securities course) then a 1 month self study/exam to get licensed(conduct and practices). Then there is a fairly strenuous ongoing program of study that has to be followed. The CFP, various investment courses, incurance training and licensing.
The courses are not that strenuous but when you are working f/t trying to build a book, they can be tough.
On the retail side 7 out of 10 hires are gone in the first 3 years and after 5 years only 1 or 2 remain.
The money can be excellent if you are good and can develop a good book of business. I mean good as in high 6 figure to low 7 figures if you at the top of the game. A lot will make low to mid 6 figures.
Even bank branch financial planners who sell only mutual funds are low 6 figure with some experience.
The saying in the stock brokerage industry is:
You work the first 5 years like no one else will, so you can live the rest of your life like no one else can.
To sell mutual funds, about a 3 month self study course and exam(investment funds in Canada). No further training required but to call yourself a planner, must complete the Certified Financial Planner curriculum which takes about 2- 3 years. There is then ongoing continuing education
To sell stocks and other securities, about 6 months self study, exam (Cdn Securities course) then a 1 month self study/exam to get licensed(conduct and practices). Then there is a fairly strenuous ongoing program of study that has to be followed. The CFP, various investment courses, incurance training and licensing.
The courses are not that strenuous but when you are working f/t trying to build a book, they can be tough.
On the retail side 7 out of 10 hires are gone in the first 3 years and after 5 years only 1 or 2 remain.
The money can be excellent if you are good and can develop a good book of business. I mean good as in high 6 figure to low 7 figures if you at the top of the game. A lot will make low to mid 6 figures.
Even bank branch financial planners who sell only mutual funds are low 6 figure with some experience.
The saying in the stock brokerage industry is:
You work the first 5 years like no one else will, so you can live the rest of your life like no one else can.
Re: The use of professionals?
Getting in the Business suggests a lot of folk still want to get into the business and it ain't easy to make a living at it.
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- Shakespeare
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Re: The use of professionals?
One of the most telling moments in The Wolf of Wall Street was the scene after the publication of the expose claiming the brokerage made the brokers rich by ripping off clients. Next day they had hundreds of applicants for broker....
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
- scomac
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Re: The use of professionals?
10 years ago I undertook the training courses with the objective of becoming a CFP and working as an advisor. The mutual fund sales licence was very easy. If you had even a bit of a clue about investing, you could pass the test without even taking the course. The CSC and Financial Planning courses were another matter. They took two years to complete. I found case studies in particular, very difficult. With so many shades of grey and the correct answer deemed to be the opinion of the test setter, I found it very difficult to gain any wisdom out of those exercises. 60% was a pretty darned good mark which coincidentally is the same passing grade for your CFP registration exams IIRC. Other than myself and one other fellow, everyone else in my class was on the company's dime so-to-speak. Their employer was covering the tuition costs and registration sitting fees. I haven't checked into the costs lately, but I believe that the costs have trebled since I was enrolled in the program. I'm not surprised considering the number of folks who take these accreditation courses as part of professional development for their jobs, typically in the bank or insurance channels.
I was lucky enough to complete my course work Christmas 2007. When the credit crisis struck a few months later, the financial services industry was cutting jobs rather than adding help. The last person they wanted to see in an interview was a 50 something male with no previous experience in the industry and no marketable specialty such as second language fluency. My goose was cooked before I started.
It didn't exactly help being a member here or knowing a few university classmates that were well up the corporate ladder with a couple of different full service providers. Make no mistake, you will have to pimp out your friends and relatives if you want any hope of success. I'm not sure what's worse; selling something you don't believe in or eventually coming to believe the company line from reciting it so often. it was pretty clear to me where the industry was headed and it wasn't exactly the ideals that had motivated me to get involved in the first place.
That said, I don't regret taking the formal training. I was fortunate that it wasn't overly expensive when I took the courses and I'm quite confident that I've earned back the investment and then some just from our own personal use.
I was lucky enough to complete my course work Christmas 2007. When the credit crisis struck a few months later, the financial services industry was cutting jobs rather than adding help. The last person they wanted to see in an interview was a 50 something male with no previous experience in the industry and no marketable specialty such as second language fluency. My goose was cooked before I started.
It didn't exactly help being a member here or knowing a few university classmates that were well up the corporate ladder with a couple of different full service providers. Make no mistake, you will have to pimp out your friends and relatives if you want any hope of success. I'm not sure what's worse; selling something you don't believe in or eventually coming to believe the company line from reciting it so often. it was pretty clear to me where the industry was headed and it wasn't exactly the ideals that had motivated me to get involved in the first place.
That said, I don't regret taking the formal training. I was fortunate that it wasn't overly expensive when I took the courses and I'm quite confident that I've earned back the investment and then some just from our own personal use.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830
Thomas Babington Macaulay in 1830
Re: The use of professionals?
Thank you for that, scomac. Food for thought.
George
George
The juice is worth the squeeze
Re: The use of professionals?
Way to go Scott. I had no idea that you were officially so competent!
(Corrected for AR!)
(Corrected for AR!)
Last edited by kcowan on 28 Jun 2014 09:29, edited 1 time in total.
For the fun of it...Keith
Re: The use of professionals?
You never caught on? Scott's posts often give away his depth of expertise.kcowan wrote:Way to go Scott. I had no idea that you were so competent!
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- parvus
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Re: The use of professionals?
Bucket shops are not the same as financial planning.Shakespeare wrote:One of the most telling moments in The Wolf of Wall Street was the scene after the publication of the expose claiming the brokerage made the brokers rich by ripping off clients. Next day they had hundreds of applicants for broker....
Wovon man nicht sprechen kann, darüber muß man schweigen — a wit
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- parvus
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Re: The use of professionals?
What used to be the Canadian Securities Institute is now, I believe, a subsidiary of Thomson Reuters.scomac wrote: I was fortunate that it wasn't overly expensive when I took the courses and I'm quite confident that I've earned back the investment and then some just from our own personal use.
Wovon man nicht sprechen kann, darüber muß man schweigen — a wit
finiki, the Canadian financial wiki Your go-to guide for financial basics
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Re: The use of professionals?
Actually Moody's.parvus wrote:What used to be the Canadian Securities Institute is now, I believe, a subsidiary of Thomson Reuters.
I did a two year contract stint for them recently.
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“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]