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Excel Funds Management Inc.

Excel Funds Management Inc.

CRM2: What You Need to Know

Tuesday, 08 November 2016 09:23 Published in Investment Basics

As of July 15, 2016, the final implementation stages of Client Relationship Model – Phase II (or CRM2) are now in place. CRM2 is a collection of rules introduced by the Canadian Securities Administrators (CSA), requiring enhanced fee and annual performance disclosure to clients.

Specifically, registered firms will now need to¹:

  • Provide an annual report on charges and other compensation that shows, in dollars, what the dealer or advisor was paid for the products and services it provided; and
  • Provide an annual investment performance report that discloses:
    • Deposits into, and withdrawals from, the client’s account
    • The change in value of the account; and
    • The percentage returns for the previous year, as well as the previous 3, 5, and 10 years.

Why is CRM2 happening?
Following the global financial crisis in of 2008-2009 there have been sweeping regulatory changes that call for greater fee-transparency. The CSA has implemented CRM2 to regain and strengthen investor confidence in the market, similar rules have been implemented in the UK, and Australia and are underway in other developed markets such as Germany.

CRM2: An Opportunity to Demonstrate the Value of Financial Advice
Financial advisors have the challenge of catering to a broad range of client goals, needs, investment horizons and risk tolerance. Additionally, they are expected to be well versed on different capital markets, asset classes and investment vehicles. Their services include financial planning, portfolio composition, asset allocation, retirement planning, trust and estate planning, referrals to accountants as well as legal and tax specialists -- the list goes on. Surely, all this worth something to investors? While CRM2 calls for greater transparency in the advisor-client relationship, it also presents an opportunity for advisors to justify expertise and demonstrate their value add.

Mutual Funds: Where Do the Fees Go? A Quick Breakdown

Client fees pay for services provided by:

  1. The fund manager;
  2. Dealer or firm where an advisor is registered; and
  3. Taxes.

Fund manager services include the buying and selling of securities inline with an investment mandate, to meet an investment goal. Fund managers also keep records of the funds they run as well as arrange for accounting, audit legal and custodial services.
Dealers or financial advisors specialize in developing investment profiles for clients, that is, understanding their financial needs and risk tolerance and guiding them down a path that is conducive to financial success. Advisors buy and sell units of funds on behalf of their clients and also maintain detailed records of their accounts, routinely providing accounting statements.
Lastly, taxes include GST and HST, which are charged on fees and services rendered.

A Few Gray Areas
Under CRM2 there is no deadline as to when trailers will stop. Regulators are reportedly gathering ideas from other major financial markets as well as consulting members of the investment community to decide if they will put an end to embedded compensation or trailers. Trailing commissions are a portion of a fund’s management expense ratio (MER) and are paid out to the advisor for the length of time an investor holds a fund.

To learn more, contact your financial advisor today.


¹ Ontario Securities Commission, Cost disclosure, performance reporting and client statements.



Will My Investment Returns Be Taxed?

Monday, 17 October 2016 15:54 Published in Investment Basics

Taxes are a certainty. However, depending on the way in which investors structure their portfolio, they can either defer or minimize their taxes altogether. Typically, investors do not pay taxes on returns in a registered account, but must pay taxes on income and gains made in a non-registered account.

Registered Accounts

When investing in a Registered Retirement Savings Plan (RRSP), the returns accumulate tax-free until the investor makes withdrawals from the plan at retirement. The amount of tax an investor pays will depend on their total income in the year withdrawals are made.

When investing in a Tax Free Savings Account (TFSA), investors do not pay taxes on the returns that their investments generate. Unlike with an RRSP, investors do not get a tax receipt when they make a contribution to their TFSA.

Non-Registered Accounts

All returns made in non-registered accounts are subject to tax. However, the amount of tax an investor pays will depend on the composition of the returns, that is, whether it is interest income, dividend income or capital gains – which are each subject to different tax rates.

An investor that holds a mutual fund in a non-registered account, for instance, will receive a tax slip which provides a breakdown of the components of their return for tax reporting purposes.

Interest Income

Any interest income earned on an investment is taxed at the marginal tax rate.

Dividend Income

Dividend income is taxed more favorably than interest income. Investors get a federal and provincial tax credit on eligible dividend income, resulting in lower taxes.

Capital Gains

Capital gains are taxed more favorably than both interest and dividend income. An investor will pay taxes on 50% of the capital gains that they generate in their portfolios.


To learn more, contact your financial advisor today.

What Goes into Creating a Financial Plan

Monday, 17 October 2016 15:45 Published in Investment Basics

A financial plan is essentially a roadmap that helps chart a course to a destination. This destination could be a singular objective or a series of goals that you want to achieve over your lifetime.

These goals may include: saving to buy a home, getting married, having children, accumulating wealth for a comfortable retirement, saving for a child’s education, paying down debts, enjoying a specific type of lifestyle, ensuring your family is secure if you become disabled or need long-term care, having a will or estate planning.

In developing a financial plan, your financial advisor or planner would explore these various goals through a discovery process that aims to grasp a deep understanding of your expectations, risk tolerance and time horizon to fulfill your goals. With your profile in mind, the advisor will help you to formulate a plan, tailored to your needs.

Investing is often a key feature of a financial plan which your financial advisor or planner can help you implement. This entails selecting appropriate investments which can include stocks and bonds as well as mutual funds.

To learn more about building a financial plan, contact a financial advisor today.

The Benefits of Active On-The-Ground Management

Monday, 17 October 2016 14:43 Published in Investment Basics

As investors seek opportunities outside traditional markets such as the U.S. and Canada, an active management style can prove to be more beneficial. When investing in emerging markets, managers who are on-the-ground typically have greater insight and knowledge of the local investment landscape, especially when compared to managers who operate from a Canadian base.

There are several reasons why on-the-ground managers have a competitive advantage over Canadian asset managers who offer emerging market funds:

  • on-the-ground managers live and breathe the local conditions in their respective countries, providing them with a better perspective of the economic and political conditions that are unique to their own country or region;
  • They also have firsthand knowledge of emerging market companies and sectors, and can perform onsite visits as well as meet with management teams several times, prior to making investment decisions, whereas a Canadian-based emerging market fund manager might not have this luxury; and
  • on-the-ground managers often have access to companies that are only listed locally and may not be widely followed by North American fund managers. This is especially true for smaller, up-and-coming companies whose growth is driven by local trends.

Generating stronger risk-adjusted returns by investing in the emerging markets ultimately comes down to picking the right stocks, in the right sectors. When compared to the developed world, emerging markets offer greater growth potential.


To learn more about investing in actively managed mutual funds, contact your financial advisor today.

Mutual Fund MERs Explained

Monday, 17 October 2016 14:21 Published in Investment Basics

All mutual funds charge fees, but the fees for some funds are higher than others largely due to the investment strategy of the fund.

The fees an investor pays are referred to as the management expense ratio (MER) of the fund. A fund’s MER is comprised of two parts:

  • the management fee; and
  • the operating expenses of the fund.

Management Fee

The management fee includes the cost of hiring a portfolio manager to oversee the fund and make investment decisions. This fee is disclosed in the fund’s prospectus. If applicable, trailing commissions to advisors are also paid out of the management fee.

Operating Expenses

Operating expenses include costs such as fund administration, accounting, audit, legal, custody, regulatory fees, client reporting and harmonized sales tax (HST).

Why Mutual Fund Fees Differ

Mutual fund fees vary depending on the type of securities that the fund invests in.

For example, the cost of running a money market fund that invests in Treasury bills and corporate paper is low because the fund manager does not have to conduct extensive research before making investment decisions. Furthermore, money market instruments are typically investment-grade quality and have a low level of risk, and as a result, the portfolio manager does not have to devote a significant amount of time to managing risk.

In the case of fixed-income funds, which invest in government and/or corporate bonds, the portfolio manager has to devote a greater amount of time and resources to analyzing these securities, prior to investing. Therefore, the MERs for fixed-income funds, which have more expenses than money market funds, are typically higher.

The MERs of equity funds depend on whether the fund invests in a single category of equities such as Canadian equities or in global, international or emerging market securities.

In addition to the cost of the portfolio manager, equity funds may also employ research analysts and risk management professionals to assist in stock selection. The portfolio manager may also incur expenses to conduct onsite company visits and meet with management teams prior to making a decision to invest.

Of note, an equity fund that invests in the equities of a single market, for example, Canada, will have lower expenses compared to an emerging market fund which invests in many different markets, and trades on several exchanges.

Emerging market funds may also use currency hedging strategies to minimize currency risk when investing in different markets, thereby incurring additional expenses.

These unique costs associated with investing in non-traditional markets, result in global and emerging market mutual funds having higher expenses than their domestic, or North American, counterparts.

To learn more about investing in mutual funds, contact your financial advisor today.


Are My Investments in Mutual Funds Safe?

Friday, 14 October 2016 16:21 Published in Investment Basics

Whether mutual fund investments are safe depends on the underlying securities a specific fund invests in.

For instance, a fund that invests in risk-free Treasury bills such as those issued by the U.S. or Canadian government, is considered to be safe because both these governments guarantee such investments, and it is unlikely that either would default on their debt obligations.

On the other hand, a fund that invests in government bonds does not guarantee that you won’t lose a portion of your initial investment. That is because there is an inverse relationship between bond prices and interest rates. In a rising interest rate environment, bond prices fall and vice versa, when interest rates fall, bond prices rise.

A mutual fund that invests in stocks has a greater risk profile compared to a bond fund; that is because stock prices fluctuate more depending on market forces. Therefore, you can lose a portion of your capital when the overall market, or a specific segment of the market declines.

What is important to note, is that fund managers take great care in selecting securities and try to build diversified portfolios, often as a measure to minimize the risk to investors. Typically, the various securities in a portfolio move in different directions, with some going up in value and some falling in value, and this reduces the chances of the fund losing money.

To learn more about investing in mutual funds contact your financial advisor today.


Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.