CI to Overhaul Fee Structure

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Beta Squared
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Post by Beta Squared »

Bylo....since when has educational acheivements had anything to do with compensation? maybe they should in a perfect world, however rarely is there a correlation between education and income.

My point was that it costs a great deal to run a financial practice, and an advisor does not start in the business and magically $50 million appears, it may take years to build a practice that large.

Yes there are advisors who make $150k, and many who make more there are also a majority who make much less, I can't remember where I saw it but the average advisor make less than $60k per year (don't quote me on this.....but I'm sure someone will correct me anyways).

Yes I agree that both sides could cut costs, however my point was there is much higher fat on the asset management side than the advisory side, especially when the premium that active management provides is market less fees.

There are alternatives for advisors and for the investment public, and cutting operating fees on a $3 billion fund is hardly ground breaking, but it does show there is a realization that fees are beginning to matter. I would have liked them to also reduce, the management fees by 20 basis points as well, it certainly could not cost $30 mill per year to manage a mutual fund.....however CI has about 500+ funds, so I guess someone has to pay for all the funds that don't produce any fees.
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Bylo Selhi
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Post by Bylo Selhi »

Beta Squared wrote:Bylo....since when has educational acheivements had anything to do with compensation? maybe they should in a perfect world, however rarely is there a correlation between education and income.
ß² (can I call you that? ;)), there is some correlation between the two, however, it's not an absolute, of course. But in general, the more education one has, the higher one's income. There will always be exceptions, e.g. Frank Stronach (who as I understand it, didn't finish high school.)
My point was that it costs a great deal to run a financial practice, and an advisor does not start in the business and magically $50 million appears, it may take years to build a practice that large.
Sure. The same applies to many others who hang a shingle. Moreover some have large student loans to repay (e.g. doctors) or have to make large capital investments (e.g. dentists) that advisors generally do not.
Yes I agree that both sides could cut costs, however my point was there is much higher fat on the asset management side than the advisory side, especially when the premium that active management provides is market less fees.
I agree with you. Moreover, since it costs essentially the same to manage a $100M fund as it does a $1B or even $10B fund, there are potentially large economies of scale that the industry could pass back to investors. By contrast provision of advice, where it's actually done, doesn't have the same characteristic because the more clients one has the more time one needs to spend in total providing that advice.
There are alternatives for advisors and for the investment public, and cutting operating fees on a $3 billion fund is hardly ground breaking, but it does show there is a realization that fees are beginning to matter.
Here's an even more radical idea. While a strong argument can be made that advisors provide value when they create financial plans, IPSs, etc. and then work with their clients to implement them and to stay on course, the argument that active management is superior to indexing or other forms of passive investing is weak, at best. So it seems to me that an advisor who wants to cut what his clients pay in half could transition to a model that uses passive investments and a reasonable fee for AUM. That alone (and I believe there are even better models, e.g. fee for service) would eliminate most of those management fees altogether. What's more, with a well diversified passive portfolio they'd be able to improve their clients' returns by an even larger margin than just the savings in management fees. But you can't tell that to the fund management industry because if they accepted the premise they'd drive themselves out of business.
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martingale
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Post by martingale »

Education certainly does matter to income levels:
The census clearly showed that higher education is a gateway to higher earnings. More than 60% of people in the lowest earnings category did not have more than a high school education in 2000, while more than 60% of those in the top category had a university degree.
statscan: Making a living in the new economy.

Other recent surveys, though, confirm that a $150k income puts you in the top 2-3% of incomes, so it is quite a high income. Five times higher than the median income in fact (from the 2001 data in the above link.)
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Post by Friendly Dragon »

my point was there is much higher fat on the asset management side than the advisory side
You may believe this to be true, but I don't see anything in your posts to support this argument. The expenses of your hypothetical advisor grossing $150K would be "fat" if they provide little value to the client.

This in fact is the crux of the issue; how much value does the asset manager add, and how much does the advisor add to the client? How much worse off would the client be without their services? The rational individual investor must know what fees he is being charged for each service (sometimes the financial industry makes this difficult), and he must judge if the value added by the service are worth these fees - this is the really difficult part, very hard to quantify.
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Post by Bylo Selhi »

Don't hold breath for MER changes [Toronto Star, 14May05]
As long as the biggest slice of the MER pie goes to the fund managers and advisers, don't hold your breath for major change among the big players. 'Really big reductions would have to involve cuts on management fees and what's paid to advisers,' Hallett said. 'That kind of stuff takes a long time. I just don't see that in the cards at this point.'
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Post by scomac »

More details in CI's proposed new fee structure.

Scott
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Norbert Schlenker
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Post by Norbert Schlenker »

Oh, you have to love this logic.
Mr. Holland said CI's pricing will also highlight the major effect that GST has on fund MERs. CI says the tax costs its clients about $70-million, which is equal to about 80 per cent of the total operating cost of CI funds. "Honestly, this should incite riots," Mr. Holland said.
GST is 7% of the total fee. The only reason that the GST is ~80% of the operating costs is that the management fee is so high. For example, if Mr. Holland cut the management fee to 50bp, then GST would only be ~25% of the operating costs (and still 7% of the total).

From an industry prone to misusing numbers to obfuscate the facts, this is just another wretched example. Too bad Carrick didn't catch him outright.
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Post by DanH »

Norbert Schlenker wrote:From an industry prone to misusing numbers to obfuscate the facts, this is just another wretched example. Too bad Carrick didn't catch him outright.
I chuckled at that number twisting too when I read that.
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Bylo Selhi
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Post by Bylo Selhi »

Carrick wrote:Mr. Holland said CI's pricing will also highlight the major effect that GST has on fund MERs. CI says the tax costs its clients about $70-million, which is equal to about 80 per cent of the total operating cost of CI funds. "Honestly, this should incite riots," Mr. Holland said.
DanH wrote:
Norbert Schlenker wrote:From an industry prone to misusing numbers to obfuscate the facts, this is just another wretched example. Too bad Carrick didn't catch him outright.
I chuckled at that number twisting too when I read that.
What I'd like to know is if Mr Holland chuckled when he made that obfuscatory comment to Carrick.
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Norbert Schlenker
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Post by Norbert Schlenker »

A puff piece from Carrick today.
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