Garth hates GIC's | Page 2 | General financial discussion | Discussion forum

Norman1 said
If one had invested in no-load Investor Series units (TDB970) of the TD Balanced Growth Fund, through a TD Investment Services mutual fund representative at a local TD Canada Trust branch, one would have returns like these:

TD Balanced Growth Fund Investor Series units Periods ending June 30, 2019
YTD	1 year	3 years	5 years	10 years
+13.51%	+5.46%	+7.30% per annum	+5.49% per annum	+6.30% per annum

  

The MER or amount you pay on this mutual fund for fund management is quite high- 2.22% vs 0.91% for MAW104 . The 15 yr return on this fund ( so it includes 2008 ) is only 5.14% vs 8.02% for MAW 104

Interesting, @Briguy. I wasn't aware of the Mawer Balanced Fund (I'd heard of Steadyhand, but not Mawer) - wish I knew of it as a replacement for Standard Life pooled funds from a former employer DC pension plan and group RRSP. I see there's not even a trailer fee and the only minimum is $5,000 initially, $100 subsequent or pre-authorized purchases, and it can be bought fee-free through most discount brokerages except RBC Direct Investing. Performance wise, it even outperforms the Saskatchewan Pension Plan on a 20+ year annualized basis, net of fees. Fee wise, it's comparable to SPP.

Both are actively managed, which is important to point out cannot be guaranteed and 80% of active fund managers meet or underperform their benchmark indices. Still, for a single fund solution, and you're fine with active management, this is a top quality fund.

Interesting, the oft lauded Tangerine index funds and their 1.07% MER seem relatively now when you compare to 0.70-0.80% for Scotia or RBC index mutual funds or TD's e-Series funds at 0.40-0.50%.

Decisions, decisions...do I go with a couch potato ETF portfolio of passive index funds, XGRO or ZGRO from BlackRock and BMO, respectively, with all the academic evidence that supports it, or do I go with the SPP, or the Mawer Balanced Fund.

Speaking of which, SPP should at least switch from the higher cost and arguably inferior Greystone and Leith Wheeler funds and use a mix of institutional class Mawer mutual funds...someone should suggest that to them!

I wonder what @Peter does for he and his spouse's investments. @Peter, passive or active, and who do you use (if you don't mind sharing)?

Cheers,
Doug

True, @Briguy, although have you been following Saskatchewan Pension Plan's operational updates? It looks like they're finally going to launch their Variable Retirement Benefit, which sounds like it would serve the same purpose as a defined contribution pension plan/capital accumulation plan in that you can also later transfer it into something called a Prescribed RRIF or, of course, a Locked In Retirement Account. That way, when you pass away, your spouse, beneficiary, or estate can realize whatever unspent contributions and capital growth you'd accumulated. So really, the biggest downside to SPP is the funds they use. They'd be wise to use the Mawer fund.

Nice thing with XGRO, with Scotia iTRADE, as you told me previously via PM, since it's a former Claymore product that was on their commission-free list, you can dollar cost average into it fee free (it's also on the commission-free list at Qtrade and any ETF is commission-free to buy at either of Virtual Brokers or Questrade). Seeing how the single ticket Mawer Balanced Fund works, I'm more confident that XGRO's automatic rebalancing should work the same way as if I'd bought ZAG, VCN, and XAW separately; however, Mawer does have a long track record (as long as SPP, if not longer) of beating by 2% on an average annualized return basis the benchmark bases. Nevertheless, I think one would do well with either XGRO and we can dollar cost average in.

Are you with Scotia iTRADE? I wonder if we can set up a pre-authorized, systematic purchase plan for either XGRO (or ZGRO, with nominal commission) or MAW?

Cheers,
Doug

Briguy said

The MER or amount you pay on this mutual fund for fund management is quite high- 2.22% vs 0.91% for MAW104 . The 15 yr return on this fund ( so it includes 2008 ) is only 5.14% vs 8.02% for MAW 104

The difference in MER between MAW104 and TDB970 reflects the differences in how the two funds are made available.

TDB970 pays a ¾% annual trailer to fund the guidance from and transactions through in-branch TD mutual fund representatives. MAW104 is a do-it-yourself fund that pays no trailer and is not available at big bank branches that davidgeorge asked about.

It cost more to run funds like TDB970 that have a minimum investment of $100. In contrast, MAW104 requires a minimum $5,000 investment.

One will also need to find a mutual fund dealer to invest the minimum $5,000. Mawer themselves used to require $50,000 minimum account size to purchase their funds directly from them. That minimum $50,000 option has since been discontinued. Going forward, new direct investors will need to become one of their Investment Counselling clients with a $1 million minimum investment.

MAW104 is also available through discount broker BMO InvestorLine.

Since the Mawer funds are no-load and don't pay any trailer, it is likely that RBC Direct Investing and Mawer have still not come to an agreement on how RBC would otherwise be compensated for accepting orders for the funds.

Actually discount brokerages get 25bp for GIC face value as their commission, and is a reason why published rates to retail investors are lower than in the equivalent retail channel (e.g. Home Trust vs Oaken Financial). They are not doing this gratis.

My view is RBC DI won't sell Mawer funds due to competition with their own PH&N offerings. Some brokerages won't sell PSA ETF either which should be offensive to investors (should have access to any stock/ETF traded on stock exchanges).

It is going to take some time (perhaps forever?) for discount brokerages to offer F series mutual funds due to objections from the full service dealer channels. The early discount brokers such as E*Trade Canada (predecessor to Scotia iTrade) were selling F series when they first came to Canada (I bought some F series back in 1998 or so) until they were frozen out by the industry. Until the regulator has the balls to force a change, the retail investor is stuck with the industry's current "answer" to the issue, D series. The issue around F series hasbeen floated for several years now and a number of us have responded in detailed submissions to the likes of OSC, CSC et al when they have solicited public comment from time to time. Even some independent financial advisors have made the case for DIY investor access to F series, e.g. Dan Hallett, John De Goey, etc.

Added: Dan Hallett posts on Financial Wisdom Forum as DanH and writes articles for various publications.

Doug said

… There's a few things where the discount brokerages make no money (GICs being one, since the rates they offer are the gross deposit broker rates that financial institutions offer to deposit brokers, who normally subtract a nominal commission). The discount brokerages, however, don't take the commission.
…

The discount brokers are not that generous! They do take the GIC brokerage commission.

Those deposit broker GIC rates on the issuer's site are not gross rates. They are the actual rates the GIC buyer will receive and include the cost of the customary ¼%-per-GIC-year brokerage commission.

On Scotia iTRADE, these are the rates offered for Home Trust GIC's right now:

Those match the deposit broker GIC rates on Home Trust's web site:

Norman1 said

Doug said

… There's a few things where the discount brokerages make no money (GICs being one, since the rates they offer are the gross deposit broker rates that financial institutions offer to deposit brokers, who normally subtract a nominal commission). The discount brokerages, however, don't take the commission.
…

The discount brokers are not that generous! They do take the GIC brokerage commission.

Those deposit broker GIC rates on the issuer's site are not gross rates. They are the actual rates the GIC buyer will receive and include the cost of the customary ¼%-per-GIC-year brokerage commission.

On Scotia iTRADE, these are the rates offered for Home Trust GIC's right now:

Those match the deposit broker GIC rates on Home Trust's web site:
  

Yeah, that's what I'm saying, the Scotia iTRADE GIC rates match the published Home Trust/Home Bank HISA and GIC rates offer to deposit brokers that aren't discount/full service investment brokerages. My understanding was that the commission is not necessarily 0.25% - I've heard it's as little as 0.05-0.10%, though presumably some issuers offer premium commissions, which would be why some deposit brokers may push/promote one issuer over another.

My understanding is that the brokers have to disclose any commissions, upfront or ongoing, that they're being paid, so if we're getting the same rate that Home Trust/Home Bank publishes on their website in terms of brokerage deposit rates, then seemingly no commission is being paid. (Maybe I should join the RDBA and become a home-based deposit broker as a side business to my future library job! It's easy peasy work!)

That said, I guess the only way to know for sure is to look at the annual fee statement that brokers are required to provide under the so-called CRM2 regulations and see whether there was a commission paid to the discount broker for holding a GIC.

There are many products that discount brokers do offer and make them no money, but they like the prestige of growing their Assets Under Administration ("AUA") that they can advertise in marketing materials and in their parent company's annual report.

Cheers,
Doug

Doug said

Yeah, that's what I'm saying, the Scotia iTRADE GIC rates match the published Home Trust/Home Bank HISA and GIC rates offer to deposit brokers that aren't discount/full service investment brokerages. My understanding was that the commission is not necessarily 0.25% - I've heard it's as little as 0.05-0.10%, though presumably some issuers offer premium commissions, which would be why some deposit brokers may push/promote one issuer over another.
…

Those published deposit-broker-only HISA and GIC rates, on Home Trust's web site and CANNEX, are the rates to us, through one of their deposit brokers. Those are not wholesale GIC yields that a deposit broker obtains the GIC at and then transfers to a buyer at a lower yield, like a bank branch does.

0.25% per GIC year is the customary commission. The deposit broker is allowed waive part of it on a transaction. The financial institution will increase the rate on GIC to the buyer as a result.

So, if the five-year GIC is 2.33% and the broker waives 0.10% of the 0.25% commission, the GIC issuer will issue the GIC with a rate of 2.33% + 0.10% = 2.43%.

The Dealer Compensation section on page 13 of the Mawer Mutual Funds Simplified Prospectus (May 17, 2019) sheds some light on distribution payments:

DEALER COMPENSATION

No trailing commissions are paid in respect of Series A Units, Series O Units or Series S Units, and there are no sales charges or other commissions associated with the purchase of Series O Units or Series S Units.

If you purchase Series A Units though an authorized dealer, you may have to pay a sales charge to your dealer and the amount of that sales charge is a matter to be determined between you and your dealer. However, in certain circumstances we may, in our discretion, pay the sales charge on your behalf out of the management fees received by us in respect of the Fund being purchased by you.

We may, from time to time, make arrangements with authorized dealers to provide distribution services in respect of units of the Funds in consideration for a fee. Any such fees will be paid by us and not by you or the Funds.

Neither we nor any of our affiliates hold any equity interest in any dealer, other than Mawer Direct Investing Ltd., which is our wholly-owned subsidiary, and no dealer holds any equity interest in us.