Trustworthiness of select bank investment data sheets (no Morningstar)

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Trustworthiness of select bank investment data sheets (no Morningstar)

Post by ringyFinance »

I posted previously about a CIBC family of managed funds, Personal Portfolio Service (PPS). Understandably, there was skepticism about them, compared to index funds and ETFs. However, I did not want to presume that all advisors were as described (negatively) by the the thread participants. Ultimately, the data would speak. I described several challenges with this.

* I only have selected data pages from some quarterly snapshot document, no corroboration from Morningstar pages

* This also means no endnotes, provisos/caveats, or similar fine print that may reside nearby in the document, e.g., regarding what fees may or may not be excised from the returns data

* No statement of investment goal, such as whether it tracks any indices

My confidence in data is strongly affected by this, and I am at an impasse about how to assess it. It would be helpful to know how normal it is for investment products to get no external corroboration from Morningstar. Thanks if anyone can provide an idea about this.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by AltaRed »

Why not continue to post in your previous thread?
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by ringyFinance »

That conversation had meandered quite a bit, touching on all sorts of topics. I spent a lot of bandwidth trying to respond to each one, and I think it has become a franken-thread. I reviewed the discussion over the space of two days to boil it down to only the facts I need to move ahead. The resulting issue is no longer reflected by the title of the older discussion. I hope that my reasons for starting afresh is reasonable. For reference, the link to the older discussion is http://www.financialwisdomforum.org/for ... 9&t=119687
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by AltaRed »

ringyFinance wrote:My confidence in data is strongly affected by this, and I am at an impasse about how to assess it. It would be helpful to know how normal it is for investment products to get no external corroboration from Morningstar. Thanks if anyone can provide an idea about this.
I am not sure why someone like Morningstar would want to try and peel back the layers on in-house proprietary products. Those managed portfolio products are invented by financial engineers to sell a product at the retail branch level. There is no mandate for Morningstar to cover all investment products anyway. FWIW, I am leery of anything that is wrapped in such a way as to extract profit to the middleman.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by ringyFinance »

I'm missing something here, but aren't all bank offered funds invented by financial engineers for selling at the retail branch level? For example, many of the CIBC funds are reported by Morningstar, as are the TD e-Series funds. What makes PPS funds so different from any other mutual fund -- so different that it is unreported?

This is not a rhetorical question. I've pondered it. One possible explanations that I came up with is that perhaps I'm not the only one that can't find online returns data for PPS products. Maybe Morningstar only reports on what it can find data for, either publically or through agreements with vendors.

Another possible explanation is related to how PPS charges its management fees as a separate service fee, so that the customer can claim it on the tax return. Perhaps the only reason why they can do this (mutual funds normally don't) is if they customize the portfolio somehow. This would certainly be in line with the name of the service. So even though the proportions of cash, fixed income, equities (Cdn, US, international) come in pre-established packages (e.g., going by names like "Monthly Income Balanced, much like mutual funds), perhaps some other parameters of the portfolio is customized.

The two possible explanations above seem to be consistent with each other. If each client's portfolio truly is customized in some way, then it wouldn't make sense to publish standard data. There wouldn't be any standard data if portfolios are refined on an individual level.

With regard to the explanation about charging separate fees so that clients can claim them in tax returns, I *hope* that the charged fees aren't in addition to the MER on the data sheets. That's one reason why external corroboration of the data would be very reassuring. I've gotten reassurances verbally that this isn't the case, but nothing is as reassuring as something written, especially if no red flags are raised by 3rd party analysis.

Anyway, I've mentioned in the past that I'm looking for all the facts that I can verify before deciding whether the option sits well with me. There are definitely challenges. I was wondering how common this particular challenge is (bank investments with little external corroboration of vendor data).
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by Spudd »

You can calculate your returns yourself if you're skeptical by looking at your account balances/contributions/withdrawals and doing the calculations.

https://www.bogleheads.org/wiki/Calcula ... al_returns

The returns you are quoted by the bank will almost certainly include the effect of the MER. I have never invested in anything where there's an additional fee besides the MER, so I can't tell you if the returns would include that fee or not.

Finally, there is a new law in place now where all investment companies need to provide a standard statement of return to their customers, so unless CIBC is flouting the law (doubtful) I feel pretty sure you're being given the correct returns. I can't remember the name of the law to provide you a link to it, but hopefully someone else will happen along who does remember.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by AltaRed »

It is the final phase of CRM2 that takes effect as of January 1 this year. I've started a thread of its own that members can post their observations too... once they receive their December 2016 statements. It's a requirement of all IIROC regulated entities BUT I hear it does not apply to Segregated funds and many money management firms are moving to these products to escape scrutiny. I don't even know if it applies to ETF products. Hence the 'waiting' to see just what is reported.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by DanH »

You can find the information. You just need to know where to look. A long-time friend took me to lunch last year asking for my thoughts on his portfolio. He is in CIBC's Personal Portfolio Services program and his statements were helpful in understanding the structure.

PPS is just one of CIBC's many service offerings depending on how much money you have and the extent of products/services you may need. In my friend's case, the products in which he's invested is no different than any other retail product. For example CIBC Managed Monthly Income Balanced Portfolio - Class A is one of a handful of funds that my friend holds in his account.

The Fund Facts document linked above has some performance. But it also lists the fund code at the top allowing you to look it up on Morningstar - which would land you here for example.

Too often financial services offerings are more complicated than they need to be. Some of this is due to the way a business evolves and the size it attains. I think that's more often the culprit rather than a deliberate effort to make it look fancy/confusing...but there is often some of that at play. And CIBC's PPS info on its website downplays the product and emphasizes the "service" for those with $100k and more.

In my friend's case, the weighted average fee rate was about 2.2% per year for a pretty standard balanced portfolio - or in this case a bunch of fund of fund products. He can do better and I've given him a couple of suggestions based on his circumstances (including staying with the bank and exploring using premium series index funds). But if the OP's issue is simply cross referencing fund data with a third party provider, that should not be an issue based on my experience with this and my above example.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by pmj »

And by good chance, CIB842 is available at Google Finance: https://www.google.ca/finance?q=MUTF_CA%3ACIB842
... where its performance can be compared against an enormous range of indexes, funds and stocks.
A quick comparison with MAW104 is enlightening ...
Standard disclaimer - "performances" from GF graphs do not include dividends.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by ringyFinance »

*Spudd* provided a link to a return spreadsheet and expressed the opinion that the returns almost certainly include the effect of the MER.

Thanks, Spudd. I'm in the process of making sense of the spreadsheet calculations, especially the difference between investor & portfolio returns. Not quite there yet. It seems that the two should be the same. Then again, my experience of discounting cash flows forward & backward according to a time varying index (e.g., inflation index) is limited. I will have to parse the wiki explanation more carefully.

Realistically, though, I don't think I will ever have the time to go through my hard copy statements through the many years to extract the cash flows (which have varied through the years). However, I will keep this option in my back pocket. It's something that I thought of doing years ago, but just haven't. So I think I need to plan to make a decision assuming that I will not being taking this verification step.

*Spudd* & *AltaRed* described a new law requiring investment companies to provide a standard statement of returns.

I hope it applies to this PPS thing. I'm not even sure it can be called a "mutual fund". The monthly statements are rather vague on this.

*DanH* provided assurances that the data can be found.

Dan, I've spent countless hours in multiple attempts over years trying to find online PPS portfolio details. I haven't been successful. Hence my concern about 3rd party corroboration. You linked to a "Managed Monthly Income Balance Portfolio - Class A", but I am not convinced that the data will be the same as a similarly named package in the PPS, just based on the returns data on my monthly statements. This "entropy" in information is supremely frustrating. I can't tell whether it is due to my own inexperience in finding the right info or interpreting the right data, but my 6th sense tells me that the numbers have to back up whatever explanation is on table. If they don't, the answer isn't to ignore the data, but to find out where the problem lies. The easy thing to do is to assume data from similarly name products are applicable, but attempts at verification have proved disappointing thus far. So the only option is to accept that the situation is opaque, and my assessment of my comfort level of such an investment may have to be based on that. Unless I am able to penetrate the opaqueness imminently (otherwise, I will be in limbo indefinitely).

You mentioned that one can do better than 2.2% MER, and I agree. I just don't think the MER is very meaningful, however, unless one is talking about an index fund. Apart from that situation, neither the MER nor the gross annual returns seem to be meaningful in themselves. It seems that the only metric of significance is net returns (gross returns minus MER). For an index fund, one can compare that to the index to get a sense of whether the alternative to an index fund or ETF is OK (if one looks back far enough, and keeping in mind that past performance doesn't guarantee future performance). For a fund that doesn't specify whether it follows an index, trailing annualized returns can be compared to an index or an index fund. For this purpose, I'm really trying to get a bead on how trustworthy the PPS data sheets are. If I can't get that, I will proceed by treating the investment as having a degree of opaqueness, and let subjective judgement of that situation take its course (yuck). I figure that knowing how typical it is for investment data to have no 3rd party corroboration would help me make that subjective judgement, somehow.

*pmj* provided a link to "CIBC Managed Monthly Income Balanced Pt".

Thanks, pmj. As I said above, part of the issue is that CIBC provides similarly named things under different services, but past attempts at verifying the similarity of their returns data have been disappointing. I think I will have to pose the question pointedly to the advisor of how applicable the data (publically available for the non-PPS investments) applies to the PPS investments. I'll have to dig out the discrepancies that I found in the past for his explanation.

There is another complicating factor, too. The MER for the PPS investments are, in effect, over-stated because one can claim them on tax returns, which is not possible for a normal mutual fund. So the actual MER is about 60% of the listed MER. The trailing rates of return for different durations will not reflect this. One cannot just multiply the MER by 0.6 because that would not reflect that compounding effect of the lesser MER.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by twa2w »

The CIBC PPS are not mutual funds. They cannot be sold by the in branch mutual fund sales people AFAIK. However if you are dealing with one of their finacial planners in the branch who are licensed differently, you may be offered them.
The PPS portfolios use pooled funds which are similiar to but different than mutual funds. Mutual funds have the MER built in and returns are always net of expenses. Pooled funds only charge very basic expenses like trading costs but no management expense.
You will be charged a fee for having the service and the fee is on a sliding scale depending on the outstanding balance you hold. Therefore everyones PPS will have a different return depending on their personal mix of pools and total dollar value of the plan which may change over the year. The PPS or equivelant at other banks, often provide other services such as tax packages etc that make comparisons hard. Most banks will either provide you with a personal return for your portfolio net of fees or have availability to the returns of the individual pools which would not account for your fees.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by AltaRed »

RBC has a similar package (my bro is in it) as described by Twa2w, called Managed Portfolios. Example here http://funds.rbcgam.com/pdf/mp/rbcmp_pr ... nced_e.pdf
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by ringyFinance »

*twa2w* provided background info on PPS accounts, including sliding scale MER and pools.

*AltaRed* provided an RBC counterpart product.

Thanks, twa2a & AltaRed. The RBC product does look similar in that the MER is tiered, i.e. the first portion is charged a high MER, the next portion beyond a certain threshold is charged a smaller amount, and any portion beyond a 2nd threshold is charged even a smaller amount. I wish I could find a soft document like that for PPS accounts. I will have to ask for this. twa2a, I see the pools itemized in the monthly statement, and I simply interpretted the pools as an intermediate layer of aggregation. I didn't pay too much attention to them because, ultimately, I am interested in how the entire package performs.

*twa2w* distinguished between trading fees and management fees. Based on the wording of the caption on the monthly statements, I believe that the returns already account for (i.e., exclude) the management fees: Image

According to http://www.investopedia.com/articles/in ... vs-mer.asp, however, MER includes more than just management fees. Therefore, the returns in the above graphs may not be net returns per se. As per the caption for the graphs, I can request the formula for the net returns, but it seems to be a red herring. I really need the returns net of all fees associated with the MER, including the so-called operating fees.

Taking stock, my sources of discomfort with PPS accounts consist of the complexity of the nonlinear, tiered MER, making it hard to assess; the fact that the returns data is not absolute net returns per se, the lack of documentation on the PPS; and the lack of external corroboration of the data. I see the MER tiering on the selected hard copy data sheets now, and I am sobered by the fact that I'm either mostly or entirely on the bottom tier (2nd tier starts at 350K, and there is no 3rd tier). So MER is in line with typical mutual funds, for the most part.

On the plus side, and the management fees can be claimed against income for tax purposes. Mitigates the damage from the cons.

Have to admit, I'm not all that comfortable with those pros and cons. I guess I shouldn't be too shocked. Never had the fortitude to follow through with pursuing the key factors above until now. Before deciding on my next step, I will need to confirm that the net returns above still include operating fees.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by Spudd »

I just want to add that the tax benefits of the separate MER are only valid for the non-registered account. I don't believe there are any benefits for a TFSA or RRSP. Yet you're paying the extra for all your accounts, not just the non-reg.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by AltaRed »

Spudd wrote:I just want to add that the tax benefits of the separate MER are only valid for the non-registered account. I don't believe there are any benefits for a TFSA or RRSP. Yet you're paying the extra for all your accounts, not just the non-reg.
The net result may not be any different in taxable accounts. In cases where the MER is deducted before distributions are made (as in a conventional mutual fund), the distributions will be less than in the case where the distributions are made before fees (as in these Portfolio Solutions, and then the taxpayer deducts the fees as an investment expense. I'd suggest it is a wash all around. An MER is still a cost that is deducted in one way or another.

I still think the OP is making an issue out of 'nothing'. The graphs indicate the returns are 'net of fees'. There is no reason to believe therea are any shenanigans by reputable organizations like RBC and CIBC. They'd be offside with IIROC (I think) and the reputational damage could be enoromous.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by DanH »

ringyFinance wrote:Dan, I've spent countless hours in multiple attempts over years trying to find online PPS portfolio details. I haven't been successful. Hence my concern about 3rd party corroboration. You linked to a "Managed Monthly Income Balance Portfolio - Class A", but I am not convinced that the data will be the same as a similarly named package in the PPS, just based on the returns data on my monthly statements. This "entropy" in information is supremely frustrating.
This is telling I'd say. You're seeking information from your full service advisors that, by your recollection, you've been unable to find after countless hours of searching. Have you asked your advisor to provide more information? What was the response?

The example I gave was just that - one example based on what I saw in one individual's CIBC PPS portfolio. It may not reflect what you have but perhaps the same process can be followed. At least ask for Fund Facts documents from your advisor for the exact funds you hold and see what you get. They will contain FundServ codes that you can look up on Morningstar, Globeinvestor or Fundata.com.
ringyFinance wrote:the only option is to accept that the situation is opaque, and my assessment of my comfort level of such an investment may have to be based on that. Unless I am able to penetrate the opaqueness imminently (otherwise, I will be in limbo indefinitely).
Given the importance I will reiterate the importance of asking the simple questions of your CIBC PPS advisor. Ask for the information you're after - or at least ask for Fund Facts documents for each fund in which you're invested.
ringyFinance wrote:There is another complicating factor, too. The MER for the PPS investments are, in effect, over-stated because one can claim them on tax returns, which is not possible for a normal mutual fund. So the actual MER is about 60% of the listed MER. The trailing rates of return for different durations will not reflect this. One cannot just multiply the MER by 0.6 because that would not reflect that compounding effect of the lesser MER.
As has already been mentioned, the significance of the tax deduction may be overstated. The fact that you pay fees separately supports twa2w's comment. For equity-heavy portfolios that don't generate a lot of taxable income there is a big difference. The more balanced and bond-heavy the portfolio becomes, the less significant a direct-charge fee will be after taxes. You deduct the fees - which I be feels really good - but you have larger T3 slips compared to standard retail (A-series) mutual funds.
twa2w wrote:The CIBC PPS are not mutual funds. They cannot be sold by the in branch mutual fund sales people AFAIK. However if you are dealing with one of their financial planners in the branch who are licensed differently, you may be offered them.

The PPS portfolios use pooled funds which are similar to but different than mutual funds. Mutual funds have the MER built in and returns are always net of expenses. Pooled funds only charge very basic expenses like trading costs but no management expense.

You will be charged a fee for having the service and the fee is on a sliding scale depending on the outstanding balance you hold. Therefore everyone's PPS will have a different return depending on their personal mix of pools and total dollar value of the plan which may change over the year. The PPS or equivalent at other banks, often provide other services such as tax packages etc that make comparisons hard. Most banks will either provide you with a personal return for your portfolio net of fees or have availability to the returns of the individual pools which would not account for your fees.
I agree with everything except your first sentence. As far as I know all of the pools and funds are prospectus-sold funds. Take CIBC's Imperial Pools for example. Many wrap programs played this branding game. They put pool in the name - e.g., CIBC Frontiers, Russell's Sovereign, etc. - and they market is like something special and different and better than "regular mutual funds". But the truth is that they ARE regular mutual funds - just with a different fee structure. And that's what clients should care about.

If you get exposure to, for instance, Canadian stocks do you really care if it's in an ETF, mutual fund, pooled fund or direct securities if the total cost is the same? I say it doesn't matter. Sure there are some tax differences from year to year but over time the tax impact of the identical portfolio will be nearly identical if held in any of these forms. (The notable exception is 'corporate class'.) The bigger difference will tend to be cost structure not tax differences.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by AltaRed »

DanH wrote:As has already been mentioned, the significance of the tax deduction may be overstated. The fact that you pay fees separately supports twa2w's comment. For equity-heavy portfolios that don't generate a lot of taxable income there is a big difference. The more balanced and bond-heavy the portfolio becomes, the less significant a direct-charge fee will be after taxes. You deduct the fees - which I be feels really good - but you have larger T3 slips compared to standard retail (A-series) mutual funds.
Could you expand on the underlined part? My analogy would be XIC or XIU or VUN/VUS where there is still is a pretty healthy yield that pays all/most of the MER, and anyone in less than an Aggressive Growth version of PPS should be indifferent as to whether one has a standard mutual fund T3, or a larger T3 offset by a tax deductible investment expense.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by ringyFinance »

*Spudd* said: "the tax benefits of the separate MER are only valid for the non-registered account. I don't believe there are any benefits for a TFSA or RRSP. Yet you're paying the extra for all your accounts, not just the non-reg"

Understood. My TFSA & non-registered uses that tiered "fund". However, all I get is a footnote on a T slip saying that "IMA" fees are some thousands of dollars. I enter the entire amount into my tax form. There is no breakdown and no visibility as to what accounts that amount is for.

*AltaRed* further commented "The net result may not be any different in taxable accounts. In cases where the MER is deducted before distributions are made (as in a conventional mutual fund), the distributions will be less than in the case where the distributions are made before fees (as in these Portfolio Solutions, and then the taxpayer deducts the fees as an investment expense. I'd suggest it is a wash all around. An MER is still a cost that is deducted in one way or another."

I can't say that I follow the logic. My thought experiment is simple. I imagine two identical funds with the exception that one allows you to claim the management fees against your income. It seems like it should make a difference. Hmmm, I'm wondering if it clarifies the situation for me to say that I never actually see an explicit bill for the management fees. So I assume that the fees *do* reduce the amount available to reinvest, exactly as they would if you can't claim the fees from you income.

*AltaRed* said "I still think the OP is making an issue out of 'nothing'. The graphs indicate the returns are 'net of fees'. There is no reason to believe therea are any shenanigans by reputable organizations like RBC and CIBC. They'd be offside with IIROC (I think) and the reputational damage could be enoromous."

I hope that I didn't convey that there were shenanigans. I am trying to get a sense of the trustworthiness of the solitary data sheets. Perhaps I should have been clear that I meant the trustworthiness of what I can infer from the limited info. The bar charts come from the monthly statements, not the data sheets. The data sheets contain Morningstar-like info, though it's different.

I don't agree with your characterization of "the OP" as making an issue out of nothing. Remember, in another thread saying, I wanted *not* to presume ill will, despite all the negativity about the industry. In fact, I'm detecting quite the lack of trust of the industry in your description of money management firms moving to segregated funds to avoid CRM2. I still believe that the data should speak for itself. However, this requires proper interpretation, which in turn requires complete information. If there was a 3rd part corroboration, then I think one can be less careful because there is a commonly understood interpretation of the (say) Morningstar data sheets.

As for the graphs indicating "net of fees", I pointed out the caption, which specifically refers to management fees. I also pointed out the definition of MER, which includes more than just management fees. (I didn't say that the data sheets also have a MER that is greater than the management fees -- in this crowd, I assumed that I was the only one for whom that distinction was new info.) Based on that alone, the graphs seem to have not excised the operating fees from the returns. I could be wrong, but I can only leverage the info available to me to attempt such an interpretation.

*DanH* asked what is the outcome of asking the advisor for such info.

In the past, I got selected pages showing tables of percentages. I wasn't easy to guestimate exactly what they referred to. I made hurried notes during my meetings, but trying to reconstruct the what seemed clear (at the time) afterward was, in my opinion, not reliable. My advisor has changed, and this time, I got selected data sheets from a quarterly snapshot. It's much better, but I'm frustrated by the fact that the whole package is not made available by default. All the fine print, including how to interpret the returns net of fees, all the end-notes and footnotes beside the different fields on the data sheet. And, of course, made ingestible by normal people, not just experienced analysts. Hand notes are one thing, but they are no substitute for a formal document describing the investment.

To be fair, I may not have been asking properly. I only started making sense of Morningstar pages in earnest last fall, and only today found out about the difference between operating and management fees. Without being an expert in the area, it's hard to know even what to ask for, and what conditions to be on the lookout for. I will ask again, using the words that you used. But I am wondering if it's even possible to have a Morningstar-like page for a fund with a tiered cost structure. The net returns can't be represented as a single set of bars, as the MER varies by individual.

*DanH* questioned the significance of being able to deduct management fees, indicating that it is more beneficial for portfolios that don't generate a lot of taxable income, e.g., equity-heavy.

Maybe you're right. I just assumed that it reduced one's taxable income. I have to check where it is entered into the tax form, and it's in the middle of the night right now.

Thank you all for your input.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by DanH »

AltaRed wrote:Could you expand on the underlined part? My analogy would be XIC or XIU or VUN/VUS where there is still is a pretty healthy yield that pays all/most of the MER, and anyone in less than an Aggressive Growth version of PPS should be indifferent as to whether one has a standard mutual fund T3, or a larger T3 offset by a tax deductible investment expense.
It depends on your assumptions but basically you are right. It's not a big difference but it can be significant and very material. For example a 100% stock portfolio - a mix of Canadian & non-Canadian - might have a 30 basis point per year advantage to having all fees billed directly. That said, the lower the fee level the smaller the difference. A heavier the foreign allocation likely also narrows any difference.

And it depends on your tax situation. If you happen to enjoy a very low tax rate on eligible dividends then unbundling the fees can result in a bigger gap. But 0.3 to 0.4 percentage points per year is probably the high end difference for most situations.
ringyFinance wrote:Hand notes are one thing, but they are no substitute for a formal document describing the investment.
Very true and a problem in the industry that will slowly get fixed. As standards are raised - and they are on the rise - properly documented advice will become the norm; not the exception that is it today.
ringyFinance wrote:To be fair, I may not have been asking properly.
I have always made it a priority to make sure that my advice and any information I provide is as clear as possible. So when I'm answering a question I then ask if this answers the question and if the information is clear. If it's not I make sure that we have clear communication. This has never been a problem. But if your advisor isn't making clear communication and transparency a priority then the onus falls back on you to ask precisely the right questions. And that shouldn't be the case.
ringyFinance wrote:But I am wondering if it's even possible to have a Morningstar-like page for a fund with a tiered cost structure. The net returns can't be represented as a single set of bars, as the MER varies by individual.
The good news is that all firms now must sent performance reports that show your personalized performance net of all costs. Check out this article for a bit on the new performance reports.
ringyFinance wrote:*DanH* questioned the significance of being able to deduct management fees, indicating that it is more beneficial for portfolios that don't generate a lot of taxable income, e.g., equity-heavy.

Maybe you're right. I just assumed that it reduced one's taxable income. I have to check where it is entered into the tax form, and it's in the middle of the night right now.
It does reduce taxable income. But let's use a simple example. You have $100k invested in a fund that generated $3k of income. You can invest in a traditional fund that charges 2% per year (embedded...ie, you don't see it but it's charged at the fund level). Or you can use a PPS type service where you invest in the fund and pay fees separately from your account (ie, where the fee is separated from the product).

In the first instance - the traditional fund with 2% embedded fee - the fund generates about $3k of dividends but the fund charges $2k (ie, 2% of $100k) so you get a T3 for $1,000 of income ($3,000 minus fees of $2,000). In other words, the deduction of fees happens at the fund level before you see any income. You then report $1,000 on your return as taxable income.

In the second instance (like PPS) you get a T3 for the full $3,000 of income because the funds don't charge fees directly. So you report $3,000 on your tax return. Separately you have paid - and can claim as a deduction - investment management fees of $2,000 for the year. The net result is the same - net taxable income of $1,000.

But even if you are fully invested in stocks where fully taxable income is minimized the difference is very material (see example further above in this post) but it's not nearly as large as it is often made out to be.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

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ringyFinance wrote:I can't say that I follow the logic. My thought experiment is simple. I imagine two identical funds with the exception that one allows you to claim the management fees against your income. It seems like it should make a difference. Hmmm, I'm wondering if it clarifies the situation for me to say that I never actually see an explicit bill for the management fees. So I assume that the fees *do* reduce the amount available to reinvest, exactly as they would if you can't claim the fees from you income.
I assume you now understand it....based on my query of DanH and his response? It's mostly a question of when and how the fees are taken. In most cases, there will zero to negligible difference. DanH did point out a few situations where it would be better to have fees separated out but as he suggested, the PPS type of advisor will likely make a bigger deal out of this than it is really worth. My bro got sold the same "emphasis" with the RBC package.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

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twa2w wrote:The CIBC PPS are not mutual funds. They cannot be sold by the in branch mutual fund sales people AFAIK. However if you are dealing with one of their financial planners in the branch who are licensed differently, you may be offered them.

The PPS portfolios use pooled funds which are similar to but different than mutual funds. Mutual funds have the MER built in and returns are always net of expenses. Pooled funds only charge very basic expenses like trading costs but no management expense.

You will be charged a fee for having the service and the fee is on a sliding scale depending on the outstanding balance you hold. Therefore everyone's PPS will have a different return depending on their personal mix of pools and total dollar value of the plan which may change over the year. The PPS or equivalent at other banks, often provide other services such as tax packages etc that make comparisons hard. Most banks will either provide you with a personal return for your portfolio net of fees or have availability to the returns of the individual pools which would not account for your fees.
Dan wrote
I agree with everything except your first sentence. As far as I know all of the pools and funds are prospectus-sold funds. Take CIBC's Imperial Pools for example. Many wrap programs played this branding game. They put pool in the name - e.g., CIBC Frontiers, Russell's Sovereign, etc. - and they market is like something special and different and better than "regular mutual funds". But the truth is that they ARE regular mutual funds - just with a different fee structure. And that's what clients should care about.

[/quote]
Thanks Dan, I was thinking more from a client point of view than a registration or compliance point of view. I know there is no official difference from a regulatory point, other than some pools are set up for accredited investors. But I think there is In terms of the clients perspective as far as the general industry usage of the terms. Correct me if I am wrong.( or maybe this is the marketing/ sales perspective)
In my mind, what is referred to as a mutual fund is sold directly to the client. The sale may be assisted by a financial planner or salesperson but ultimately the client buys the fund and determines how much is bought or sold.
What is generally referred to as a pooled fund, is not sold directly to a client. The client signs up for a portfolio manager/ service to manage his money like PPS or Sovereign. The portfolio manager then uses pooled funds to meet the policy statement of the investor. Individual pooled fund results may or may not be reported to the investor but overall portfolio return is. I know in many cases these services like PPS are little more than a fund of funds and you get one of 5 or 6 portfolios.
The portfolio manager can also change what pools are used without the client consent, but within the parameters of the IPS.
In theory the advantage to the client is that pooled funds don't have to hold much cash to handle redemptions/ purchases so lower cash drag on performance. ( some pools only redeem/ accept cash once a week or once a month). So perhaps also truer to clients asset allocation.
A pooled manager may not be as influenced by short term perf numbers so can concentrate on longer term. And perhaps this also means less style drift. Costs to investor may be lower with a larger portfolio.
In theory at least :D , in practice I have never found much if any advantage to the client for the lower scale products like CIBC PPS or RBC PS, , although for a number of years the Sovereign portfolios through RBCDS were pretty strong performance wise but they were a little more customizable.

Sorry for the thread drift.

As other posters have noted to the OP, the reported returns on the PPS should be accurate and would be net Returns.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

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FWIW, the CIBC PPS or the RBC PS is likely a reasonable* product alternative to the standard line of mutual funds IF one has enough invested to be in the lower cost MER tiers. One would have to compare returns obviously, but better performance returns might be obtained with the in-house index funds adjusted for the same 'asset allocation' profile as the PPS/PS solutions.

* for the investor that wants a one step/stop solution...and there are certainly those who just want to see results and not get worked up over visible signs of re-allocation.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

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Ugh. Now that vacation is over, I barely enough time to address this issue that I've only talked about for a long time. I have yet to pose the question of complete Fund Fact-like documentation to my advisor, and drill down into the tax return to see where the management fees are entered.
DanH wrote:when I'm answering a question I then ask if this answers the question and if the information is clear. If it's not I make sure that we have clear communication. This has never been a problem. But if your advisor isn't making clear communication and transparency a priority then the onus falls back on you to ask precisely the right questions. And that shouldn't be the case.
I can't fault my advisor. It's because of him that I even bothered to spend the time making sense out of Morningstar pages. It's not until I do that that I begin to realize what kind of information can be had about an investment. The communication can be clear, and my questions can be answered (and taken down in rough notes), but only now am I developing a sense of entitlement to the complete Morningstar-like info. The selected hard copy data sheets contain similar information (not the same, nor is the layout the same), but missing the endnotes/footnotes that I presume would clarify the exact meaning of the fields.

Thanks for the link to the CRM2 report. I need to spend more time appreciating the distinction between the different return rates. Since I have somewhat of a engineering analysis background, I'm confident that time is all that is needed.

Thanks also for the example distinguishing between fee deductions before pay out and after pay out. Since all profits get re-invested, the whole idea of pay outs have been a complete blind spot to me. It's probably happening all the time. This example assumes that the fees are in fact charged separately. I *was* assuming that the fee was *not* charged differently, and that the only difference was that I could claim the fee against income. I suppose that would never be the case due to some rule? Probably something to clarify with the advisor.
AltaRed wrote:I assume that you now understand it
I think I do. It's sobering. It didn't work like I was assuming. Thanks.

*twa2w* explained how portfolios can consist of a set of pools.

Yup, I can even see the breakdown of pools for each account.
twa2w wrote:the reported returns on the PPS should be accurate and would be net Returns
That's my beef. The caption said that the bar chart of net returns already excises management fees. But the MER consists of operating fees too. So I need to clarify this with the advisor.

*AltaRed* confirmed that such products are reasonable alternatives to standard mutual funds if one invests largely so as to benefit from the lower cost tiers.

Unfortunately, that's not my case, and the PPS threshold to move beyond the bottom tier is quite high. Even if I broach it significantly, a substantial portion will be incurring the lowest-tier fee.

Thank you all again. I need to carve out some time to act on this information, i.e., to get documentation & clarity from the advisor.
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by DanH »

twa2w wrote:What is generally referred to as a pooled fund, is not sold directly to a client. The client signs up for a portfolio manager/ service to manage his money like PPS or Sovereign. The portfolio manager then uses pooled funds to meet the policy statement of the investor. Individual pooled fund results may or may not be reported to the investor but overall portfolio return is. I know in many cases these services like PPS are little more than a fund of funds and you get one of 5 or 6 portfolios.
Sounds like you know more than I do about PPS in general. If there is a registered Portfolio Manager (PM) involved then that's a significant difference - regulatory and client wise.
twa2w wrote:The portfolio manager can also change what pools are used without the client consent, but within the parameters of the IPS.
In theory the advantage to the client is that pooled funds don't have to hold much cash to handle redemptions/ purchases so lower cash drag on performance. ( some pools only redeem/ accept cash once a week or once a month). So perhaps also truer to clients asset allocation.
That certainly sounds like a PM with discretionary over client assets. I don't doubt your information but this adds to my confusion. The report I have lists only CIBC Securities Inc. (no other legal entity) and that is CIBC's mutual fund dealer subsidiary. CIBC World Markets (i.e. Wood Gundy) is the only CIBC subsidiary (other than CIBC Asset Management) with PM-registered people as far as I'm aware.
twa2w wrote:A pooled manager may not be as influenced by short term perf numbers so can concentrate on longer term. And perhaps this also means less style drift.
I wouldn't expect this dynamic to be any different. It exists to an extent in the retail fund industry segment and institutional. I once had a big bank fund manager admit to me that he's under pressure to crank out good (relative) performance every quarter. He's now retired.
twa2w wrote:...in practice I have never found much if any advantage to the client for the lower scale products like CIBC PPS or RBC PS, , although for a number of years the Sovereign portfolios through RBCDS were pretty strong performance wise but they were a little more customizable.
I agree. And that's certainly the case with the PPS portfolio I reviewed last fall (i.e. approx $400k attracting a fee of 2.2% per year and no real customization given the exclusive use of fund of funds).
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Re: Trustworthiness of select bank investment data sheets (no Morningstar)

Post by twa2w »

ringyFinance wrote:Ugh.
twa2w wrote:the reported returns on the PPS should be accurate and would be net Returns
That's my beef. The caption said that the bar chart of net returns already excises management fees. But the MER consists of operating fees too. So I need to clarify this with the advisor.

.
I think your returns are accurate but your overall costs may be higher than the the management fee indicates.
The returns quoted would be based on difference between starting and ending balances ( after fees) and adjusting for any contributions or withdrawals. Simple and accurate enough.
As for expenses, even with straightforward retail mutual funds there are some costs/expenses which are not fiully reflected in the quoted MER ( or at least that used to be the case) but the quoted returns to the investor were accurate.
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