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Why Canadians are still struggling to understand investment fees – The Globe and Mail

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Advisors can ensure investors understand as much as possible by avoiding ‘using all kinds of fancy terms for all the different types of fees,’ one expert says.

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Financial advisory fees remain a confusing subject to the vast majority of Canadian investors despite a decades-long effort by the investment industry and its regulators to provide greater clarity and transparency. That means financial advisors remain in the ideal position to help close that comprehension gap.

According to the results of a survey the Mutual Fund Dealers Association of Canada (MFDA) released in June as part of a more expansive research report, fewer than one in five Canadian investors could identify correctly what types of costs are included in current fee summaries.

“The challenge we have today is that most investors don’t get a full picture of all the fees,” says Jean-Paul Bureaud, executive director of the Canadian Foundation for the Advancement of Investor Rights (FAIR Canada), “they only get a partial picture and they might not appreciate that it’s a partial picture.”

Advisors can clarify that to clients relatively easily by making clear that current fee summaries only include the fees for advice and trailing commissions on mutual funds, he says, and that other costs – such as fund management fees and operational costs – also apply.

Advisors can also ensure investors understand as much as possible by avoiding “using all kinds of fancy terms for all the different types of fees,” Mr. Bureaud says.

In fact, the MFDA’s report states, “Even experienced investors struggle to understand key terms and how their choices influence the type and amount of fees they pay.”

That means even when dealing with sophisticated clients, advisors should not assume “MER” is universally understood to stand for management expense ratio, or what it means. Breaking down jargon such as “trailing commissions” in simple terms – perhaps as an annual fee the advisor receives each year a client holds a particular investment – will also help avoid misunderstandings.

Instead of simply noting what fees are or are not included in existing disclosures, the MFDA report urges advisors to get as close to total cost reporting as possible.

London-based global firm The Behavioural Insights Team ran an experiment on behalf of the MFDA testing four formats of expanded cost reporting. Three of them specified investment fund charges while the fourth, known as the “control” option, included only a disclosure that other charges, such as fund management and operation costs, applied.

Only 23 per cent of investors exposed to the control option were able to identify their total cost of investing correctly, while between 54 per cent and 70 per cent of investors exposed to the other three options were able to do so.

Karen McGuinness, the MFDA’s senior vice president of member regulation and compliance, says part of the reason the experiment succeeded was a focus on using plain language.

“When we did the format, initially, we were using industry terminology because it was just second nature to us, but we brought in the behavioural research firm and they were the ones who said we need to set up this information in a way that’s more easily digestible for the average retail investor,” Ms. McGuinness says.

Nevertheless, the MFDA report warns that dealers and advisors shouldn’t assume sharing more cost information will always lead to better comprehension among clients as they will eventually hit a point of diminishing returns.

Rather, the report recommends they should “eliminate any information presented in the fee summary that is unlikely to be useful to investors. People have limited attention [and] this is especially significant when information is complex.”

To establish a baseline for how much any given client already understands – and therefore how much education advisors should attempt to provide – regulators have developed a number of quick and straightforward tools for that purpose.

For example, the B.C. Securities Commission runs the InvestRight website that includes fee calculators and a short quiz designed to gauge investors’ overall comprehension of investment fees.

“It only takes about five minutes to answer the questions, and a lot of people would be surprised at what they learn,” says FAIR Canada’s Mr. Bureaud.

The Ontario Securities Commission (OSC) operates a similar website – GetSmarterAboutMoney – that offers even more comprehensive tools and resources.

Meanwhile, regulators are working on a new set of disclosure rules to replace the second phase of the customer relationship model (CRM2) that has been in place since 2016. The goal of what’s being called CRM3 is to provide what the MFDA’s Ms. McGuinness calls “total cost reporting,” as it should get disclosures as close as possible to breaking down all the fees investors pay and not just those their advisor receives.

Although there’s no timeline for when CRM3 will be complete, Greg Pollock, president and chief executive of Advocis, says advisors will need to be more transparent with their clients on fees before the current bull market goes bust.

“Investors tend to look at the bottom line, and if they see that year-over-year returns are looking pretty good, they don’t get too focused on the fees simply because they’re satisfied with the overall performance,” he says. “But it does raise the question of what happens in a bear market when performance suffers. That really gets people’s attention.”

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Alibaba Nearing Investment in Singapore Unicorn Ninja Van – BNN

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(Bloomberg) — Ninja Van, a Singaporean logistics startup, is set to raise about $580 million from investors including Chinese e-commerce giant Alibaba Group Holding Ltd., according to people familiar with the matter.

Some of Ninja Van’s existing investors will also participate in the series E round, the people said, asking not to be identified because the matter is private. Those include B Capital Group, the venture capital firm set up by Facebook Inc. co-founder Eduardo Saverin and Raj Ganguly, a former executive at Bain Capital, and European parcel delivery company Geopost/DPDgroup, the people said.

The new funding round will help lift the company’s valuation to well beyond $1 billion ahead of a potential initial public offering as early as next year, the people said. 

Venture capital firm Monk’s Hill Ventures and Zamrud, an existing investor linked to a Southeast Asian sovereign wealth fund, are also participating in the round, the people said. Ninja Van plans to use the funds to better its infrastructure and technology, as it seeks to be cost efficient while improving the quality of its operations.

Representatives for Alibaba, B Capital, Geopost, Monk’s Hill Ventures couldn’t immediately be reached for comment by phone or email outside of normal business hours. A Ninja Van representative couldn’t immediately comment. 

Investors are betting on transportation, logistics and warehouse companies amid a boom in e-commerce, one of the beneficiaries of the coronavirus pandemic.

Founded in 2014, Ninja Van operates in six markets in Southeast Asia and delivers close to 2 million parcels a day in the region, according to its website. It raised $279 million in a series D round last year where participants included ride-hailing firm Grab Holdings Inc.

Ninja Van’s clients include PT Tokopedia, which has merged with ride-hailing giant Gojek to create GoTo, Indonesia’s most valuable startup, Alibaba’s Lazada Group and Shopee, a unit of Singapore-based Sea Ltd. The logistics startup also works with global consumer groups such as Unilever Plc and with smaller shops.

©2021 Bloomberg L.P.

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How can you best protect your investments if inflation continues to rise? – The Arizona Republic

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The accelerating pace of inflation is one of the main economic trends of 2021.

The Consumer Price Index or CPI, the government’s main inflation gauge, has ran around a 5% annual pace for the past several months, well above last year’s 1.4% rate and the 50-year average of about 3.9%.

Higher rates of inflation have the potential to erode the value of investment portfolios, reviving memories of the 1970s, when large U.S. stocks took it on the chin.

Various investment hedges can help blunt the damage, but the current inflationary trend might not last all that long — and you might already have sufficient protection. Before making any drastic moves into inflationary hedges, consider these issues:

Which assets hedge against inflation?

Various assets can help protect against inflationary spikes. TIPS, or Treasury Inflation Protected Securities, are one obvious example on the bond side. Gold and other tangible assets including real estate also have reputations as inflation hedges. Cryptocurrencies, too, might fit that role.

But during a Sept. 23 webinar on inflation protection hosted by investment researcher Morningstar, the panelists found common ground in a less-obvious area: The stock market.

“You’re buying shares in real companies that make real goods and services,” the prices of which tend to go up over time in an inflationary environment, said Catherine LeGraw, an asset-allocation specialist at investment firm GMO

Specifically, the shares of natural resource, commodity and real estate companies can fare well during inflationary periods. But other corporations can too, assuming they can pass along price increases to consumers.

In the Morningstar discussion, gold received relatively little attention, though Nic Johnson, a commodities portfolio manager at PIMCO, described the metal as an asset that you can expect to “keep pace with inflation over very long periods.”

The panelists spent little time on bitcoin and other cryptocurrencies, noting that they lack any fundamental value. If you invest in cryptocurrencies, LeGraw said, you had better hope that “the next guy will like them better than you do.” 

Do you need more protection?

Before making any adjustments, it’s worthwhile to take inventory of what you own in your investment portfolio. Oil and other energy stocks, mining enterprises, real estate companies and other traditional inflation stalwarts already are included in most broadly diversified mutual funds and exchange traded funds, though perhaps not in the weightings that you would like.

Energy stocks, for example, make up less than 3% of the broad Standard & Poor’s 500 index. So too for materials companies and those engaged in real estate. Contrast that with, say, nearly 28% of the index’s assets held in information technology stocks, 13% in health care and nearly 12% in consumer-discretionary companies.

For more punch, you might consider adding a bit more to inflation-protected assets such as natural resources or commodity companies, but be wary of overdoing it. As a general rule, allocating 10% or 20% specifically in these areas to an already broadly diversified portfolio likely would suffice, Johnson said.

Also consider the inflation protection offered by other assets you might have, such as a house or rental properties. And if you’re collecting Social Security retirement benefits, keep in mind that you can look forward to cost of living adjustments, making Social Security a decent inflation hedge. The Social Security Administration next month will announce the COLA for 2022.

Where is inflation heading?

Predicting the future direction of inflation isn’t easy. Despite occasionally alarming headlines, It’s possible that we have seen some of the highest numbers in this cycle already. Several long-term deflationary forces remain in place, from global trade and relatively inexpensive imports to the technological revolution, which continues to moderate costs for computing hardware and other goods and services.

America’s aging population also could contribute to disinflation, as older people tend not to spend as much on new homes, furnishings, vehicles, entertainment and so on (though more in other areas, especially health care).

The three Morningstar panelists were asked when we are likely to see CPI numbers drop and stay below 4% on an annual basis. Evan Rudy, a portfolio manager at investment firm DWS, said he expects that will occur in the second half of 2022, while Johnson and LeGraw anticipate it happening earlier.

The reopening of the economy from the COVID-19 pandemic has boosted inflation as consumers started buying things they had put off, from vehicles to air travel, and as more people re-entered the work force and were hired.

Supply chains continue to be stretched and that could continue well into next year. Prices for some items already are rising at double-digit rates, and retailers and others are warning of shortages for the holiday-shopping season.

Still, many of these pressures aren’t likely to be permanent. Johnson drew a parallel between recent inflationary increases and the start of a marathon. All the runners initially congregate in a small pen behind the starting line, he noted, but as the race unfolds, that congestion eases as runners spread out and find their own paces.

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Clues from the past and future

Past periods of high inflation weren’t all that common, and unique catalysts tended to spark each such incidence. Back in the 1970s, for example, the OPEC oil embargo pushed up energy and transportation costs, and wages were escalating at a brisk pace. There’s no such oil embargo currently, and a relative lack of collective bargaining and union strikes these days suggest that wage inflation isn’t likely to become rampant, LeGraw said.

“Do workers collectively have enough power to cause broad wage increases?” she asked. “Right now, workers lack that power.”

Bond investors could get hammered if inflation and inflationary expectations continue to rise and if interest rates creep higher, as seems plausible. Bond prices fall and yields tend to rise under such conditions. Yet prices are still high and yields remain near decades-low levels on Treasury securities and many other bonds, LeGraw noted, suggesting that investors don’t see these as long-term threats.

Federal policies also play a role. As an example, the push toward green energy and more electric-vehicle charging stations, as proposed under President Biden’s Build Back Better plan, could spark more inflation initially if those initiatives are enacted and construction projects get carried out, Johnson said. But the push to renewable energy could be disinflationary in the long run, he added, if it means cheaper energy eventually.

Reach the reporter at russ.wiles@arizonarepublic.com.

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Money Matters: Don't politicize your portfolio and other investment advice for Utahns – Daily Herald

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Sixty-five, a birthday many of us look forward to, became the full retirement age all the way back in the 1930s. By 1940, those who turned 65 could expect to live another 12.7 or 14.7 years (males and females, respectively). By the 90s, those averages had increased to 15.3 to 19.6, but the retirement age hadn’t changed. Since many of us today can expect to live 30 or even 40 years after retirement, we need quite a nest egg!

If you are approaching retirement age and are less prepared than you would like to be, you may need to delay retirement. But no matter your age, there are things you can do now to make sure you can retire comfortably. Here are four tips I’ve found that can help anyone make better investment decisions for a better retirement:

Don’t politicize your portfolio

When we’re afraid, we tend to do the wrong thing, and that’s especially true of money matters. In my 50 years in finance, I’ve seen this over and over again through the political cycle. People are afraid the stock market will crash if a certain candidate is elected, so they make rash financial decisions that end up hurting them.

My advice: Do not politicize your portfolio. Whether a Republican or Democrat is in office, it doesn’t make as much of a difference to your investment portfolio as you think. In fact, when you look at the S&P 500 over the past 100 years, the sitting president has not made that much of a difference in how the stock market performed during his term.

No matter what is happening in politics, you should choose an investment strategy and consider sticking to it through all political changes. While the stock market does ebb and flow, things are rarely as bad as people think they will be.

Start in your 20s

When you’re in your 20s, retirement seems a whole world away. But the reality is that the quality of your retirement can be determined in your 20s. And if you’re not putting enough away and investing for growth, you probably won’t have enough money by the time you are ready to retire.

Let’s say you’re 25 and you want to be a millionaire 40 years from now. If you invest $5,000 a year and earn a reasonable amount of interest – we’ll say 7% – you will reach your goal with approximately $1,000,000 in your account. (This is a hypothetical example for illustrative purposes only. Actual results will vary. No specific investments were used in this example, and it does not take into account deduction of fees or taxes.)

But if you wait until you’re 35, you will have to invest $10,000 a year to get the same results. And if you wait until you’re 45, you’ll have to invest $20,000 each year. But if you don’t invest anything until 55, it becomes impossible to earn enough interest by the time you’re 65. If you invested $40,000 each year, you would have to earn in excess of 12 percent interest, which just won’t happen.

Try out Nerd Wallet’s Compound Interest Calculator to run other scenarios and see how much you’ll need to put away each year to be ready for retirement.

Invest, don’t speculate

It’s important to find the balance between investing too aggressively and not aggressively enough. If you’re too aggressive, that can turn into speculating rather than investing. Speculating is akin to gambling, and I’ve seen many well-meaning young Utahns fall into this trap.

On the other hand, if you’re not investing aggressively enough or not investing at all, you could outlive your money. Refraining from investing feels like you’re avoiding risk, but taking the chance that you could outlive your money is also risky!

Wise investing is based on weighing risk and return. There are lots of tools to invest for both growth and safety, such as simple diversification, which is designed to protect you with sheer numbers. When your investment portfolio is managed properly, there is less risk of losing your money.

Don’t overwatch your portfolio

When people first start investing, there’s a tendency to watch their portfolio closely, checking in daily to see how it’s doing. They a-re then tempted to sell as soon as they see a peak in price, which often ends up being a mistake.

As the saying goes, time in the markets is better than timing the markets, and research backs this up. A study by Charles Schwab Company found that “between 1926 and 2011, a 20-year holding period never produced a negative result.”

In another study, Charles Schwab Company found that “The best action that a long-term investor can take … is to determine how much exposure to the stock market is appropriate for your goals and risk tolerance and then consider investing as soon as possible, regardless of the current level of the stock market.”

People that participate in 401(k) plans are typically successful if they pick investments that fit their needs and goals and then leave them alone. They often end up with a better income after they retire than before!

In summary, don’t politicize your portfolio, start investing young, don’t speculate and avoid constantly looking at your portfolio. No matter how long you have until retirement, you can make changes today that will help get you in a better financial position. If you would like personalized advice, reach out to Merrill Financial Associates to get started creating a strategy that fits your needs and goals.

This article is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or recommendation to buy or sell any investment product. Merrill Financial Associates is located at 3549 North University Avenue, Suite 175, Provo, UT 84604 and can be reached at 801.356.7100. Advisory services offered through Commonwealth Financial Network®, a Registered Investment Adviser.

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