January 10, 2017

The Canadian Securities Administrators have released their latest plan to increase banks’ hegemony over the financial system, titled CSA CONSULTATION PAPER 81-408 – CONSULTATION ON THE OPTION OF DISCONTINUING EMBEDDED COMMISSIONS.

It is filled with hilarious assertions and disingenuous speculation, such as:

Based on a review of current actively managed fee-based (series F) fund offerings and their five year alphas, the data suggests that:
  • 87% of investment fund managers offering actively managed funds today have some funds with negative alphas which could be at risk of redemption if embedded commissions were discontinued and these managers were not able to adjust their fees or improve performance;
  • For active investment fund managers that manage funds with negative alphas, the proportion of assets at risk or redemption could be on average 53% of firm assets;
  • In aggregate, an estimated 44% of actively managed fund assets may experience redemption and reallocation pressure to competitor investment fund managers over time if embedded commissions were discontinued and these managers were not able to adjust their fees or improve performance; and
  • For active investment fund managers with little or no access to related party distribution97, on average 59% of assets at these firms may experience redemption pressure over time assuming once again these managers were not able to adjust their fees or improve performance.

As we have emphasized throughout this section, much depends on how investment fund managers react to the discontinuation of embedded commissions. And as noted earlier, we expect investment fund managers to alter the way that they compete over time by reducing prices and refocusing their distribution efforts toward improvements in risk adjusted performance to retain market share.

“Refocusing their distribution efforts towards improvements in risk adjusted performance to retain market share” … ha! The banks will refocus their distribution efforts towards in-branch sales. Fees will continue to be absurdly high – they might even get higher – and Granny’s going to put her nest-egg into GICs and house funds, just like the nice man at the bank tells her to do.

And we know the nice man at the bank is not just an expert on investments but is also recommending only those vehicles that he, personally, feels will deliver the best returns as part of the best asset mix for the all-important investor, right? We know this, because he’s on salary and doesn’t have to soil his hands with that evil embedded commission “work for a living” crap. PLUS, he works for a bank, so all of Granny’s worries are over.

Another good laugh was afforded by the paragraph:

As for the issue of low financial literacy potentially hindering investors’ ability to assess the value of advisory services or to negotiate fair fees for such services, the CSA anticipate continuing to work on investor literacy initiatives to increase investors’ awareness of investing costs and empower them to confidently engage in the negotiation of fees with their representative. We also expect that our recent POS and CRM2 reforms (further discussed in Part 6) will improve investors’ awareness and understanding of fund and dealer compensation costs in the lead up to any potential rule proposal discontinuing embedded commissions. This improved awareness and understanding in turn should give investors an initial point of reference from which to gauge the appropriateness of advisory fees under direct pay arrangements.

“CSA anticipate continuing to work on investor literacy initiatives to increase investors’ awareness of investing costs and empower them to confidently engage in the negotiation of fees with their representative” … what, you mean both people who searched for and found and read and understood the official financial literacy educational pages put out and paid for by our Wise Masters? You mean, not just the self-proclaimed investor advocates who feverishly looked to see if their particular hobby-horse was addressed, but both of the people who actually read that earnestly presented gobbledy-gook in order to educate themselves? Wow. Quite the accomplishment!

But, really, you want to understand the point of all this verbiage? It’s well illustrated by this chart:

marketsharefunddistribution
Click for Big

Bank branch distribution has made huge gains over the past ten years and has now pulled equal with the independents. The point of eliminating trailer fees to eliminate the independent channel and move all the business to the banks … nice big banks with enormous compliance departments with lots of jobs for otherwise unemployable ex-regulators. Very expensive plain vanilla funds for everybody and lots of well paying compliance jobs … it’s the regulatory nirvana and it comes closer every day.

Speaking of government idiocy, this is just in from BC:

British Columbia raised the threshold on property tax grants to homes worth as much as C$1.6 million ($1.2 million) to help offset the cost of property taxes in Canada’s most expensive real estate market.

The move, which boosts the threshold from C$1.2 million, is the latest by the provincial government to address public anger over housing affordability ahead of a general election on May 9. On Jan. 16, it also will begin offering loans to plump the down payments of first-time home buyers.

The grant will reduce the annual property tax on a principal residence by up to C$570 a year in urban areas, according to the B.C. Ministry of Finance, which calculates that 83 percent of homes in the Metro Vancouver region will fall below the new threshold. The province expects to spend C$821 million on homeowner grants in 2017-2018, up from C$809 million in the previous year.

[BC Finance Minister Michael] De Jong said the grants were intended to help homeowners who, for example, had bought a property for C$50,000 decades ago but were now living on a fixed income and finding it difficult to pay the tax due on a house worth more than C$1 million.

“The loss of that grant which offsets their taxes would be very problematic,” he said. “That’s the target. Those are the circumstances we’re trying to address.”

It’s just craziness … increasing the complexity of the tax system and further eroding the separation of taxation powers between different levels of government.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 4.19 % 5.04 % 26,320 17.83 1 0.0000 % 1,853.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.6380 % 3,459.5
Floater 3.99 % 4.10 % 52,443 17.23 4 0.6380 % 1,993.7
OpRet 0.00 % 0.00 % 0 0.00 0 0.0923 % 2,947.2
SplitShare 4.81 % 4.49 % 79,804 4.23 6 0.0923 % 3,519.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0923 % 2,746.1
Perpetual-Premium 5.60 % -3.84 % 73,898 0.09 12 0.2536 % 2,695.8
Perpetual-Discount 5.30 % 5.37 % 94,261 14.88 26 0.1728 % 2,812.5
FixedReset 4.64 % 4.41 % 234,199 6.77 96 0.0024 % 2,208.6
Deemed-Retractible 5.12 % 4.50 % 131,649 4.48 32 0.1248 % 2,781.5
FloatingReset 2.46 % 3.52 % 40,443 4.76 11 0.1242 % 2,395.7
Performance Highlights
Issue Index Change Notes
CU.PR.I FixedReset -2.48 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-01
Maturity Price : 25.00
Evaluated at bid price : 26.33
Bid-YTW : 3.19 %
TRP.PR.B FixedReset -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-01-10
Maturity Price : 13.47
Evaluated at bid price : 13.47
Bid-YTW : 4.37 %
BNS.PR.Y FixedReset -1.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.40
Bid-YTW : 5.17 %
TD.PF.A FixedReset 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-01-10
Maturity Price : 19.98
Evaluated at bid price : 19.98
Bid-YTW : 4.29 %
BAM.PR.Z FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-01-10
Maturity Price : 20.90
Evaluated at bid price : 20.90
Bid-YTW : 4.94 %
TRP.PR.H FloatingReset 4.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-01-10
Maturity Price : 12.85
Evaluated at bid price : 12.85
Bid-YTW : 3.34 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.K FixedReset 965,730 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-31
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : 4.56 %
BAM.PF.I FixedReset 201,110 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 4.41 %
BAM.PR.Z FixedReset 156,923 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-01-10
Maturity Price : 20.90
Evaluated at bid price : 20.90
Bid-YTW : 4.94 %
MFC.PR.R FixedReset 149,348 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 4.66 %
TRP.PR.E FixedReset 121,030 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-01-10
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.47 %
SLF.PR.I FixedReset 88,699 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.02
Bid-YTW : 5.73 %
There were 40 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PVS.PR.E SplitShare Quote: 26.00 – 26.24
Spot Rate : 0.2400
Average : 0.1559

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 4.84 %

PWF.PR.L Perpetual-Discount Quote: 23.40 – 23.65
Spot Rate : 0.2500
Average : 0.1711

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-01-10
Maturity Price : 23.14
Evaluated at bid price : 23.40
Bid-YTW : 5.45 %

TRP.PR.B FixedReset Quote: 13.47 – 13.75
Spot Rate : 0.2800
Average : 0.2078

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-01-10
Maturity Price : 13.47
Evaluated at bid price : 13.47
Bid-YTW : 4.37 %

BIP.PR.A FixedReset Quote: 21.66 – 21.90
Spot Rate : 0.2400
Average : 0.1686

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-01-10
Maturity Price : 21.35
Evaluated at bid price : 21.66
Bid-YTW : 5.37 %

CCS.PR.C Deemed-Retractible Quote: 23.30 – 23.59
Spot Rate : 0.2900
Average : 0.2251

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.30
Bid-YTW : 6.14 %

CU.PR.F Perpetual-Discount Quote: 21.38 – 21.60
Spot Rate : 0.2200
Average : 0.1621

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-01-10
Maturity Price : 21.38
Evaluated at bid price : 21.38
Bid-YTW : 5.34 %

4 Responses to “January 10, 2017”

  1. AltaRed says:

    James, it is an election year in BC! Right about the time property tax notices will be mailed. Can’t have the socialists… err…NDP potentially ride into town due to homeowner discontent.

  2. stusclues says:

    “the grants were intended to help homeowners who, for example, had bought a property for C$50,000 decades ago but were now living on a fixed income and finding it difficult to pay the tax due on a house worth more than C$1 million”

    The subsidization of fixed income grey hairs to stay in their expensive homes is ridiculous. People ought not be defined by their property. Sell the place and rent something very nice!

  3. malcolmm says:

    As an almost senior I agree that the amount of subsidization of seniors is ridiculous. We tell the younger generations to move if they can’t afford to live in a big city like Vancouver. But for a senior, they need to be able to live in the neighbourhood they grew up in.

    Seniors in BC already have an extremely generous system in place that allows them to defer their property taxes until they sell their home. They pay almost no interest (one or two percent I think) on the deferred taxes. So you have the crazy situation where a hard working couple struggling to cover their rent and pay their taxes is subsidizing wealthy seniors. Some very wealthy older working people are known to be using this system, why not, almost free money.

    I’m looking to move to a cheaper city such as Nanaimo on Vancouver Island in order to be able to afford something bigger than my current tiny apartment in a 70 year old building. I would prefer to live in the city and area that I’ve always lived in, but I don’t expect any government subsidy in order to do so.

    So many special interest groups.

  4. jiHymas says:

    James, it is an election year in BC!

    Yes, and it’s a year in which the populists have the bit between their teeth! *sigh*

    People ought not be defined by their property. Sell the place and rent something very nice!

    I think that’s a little harsh; I can appreciate that older people want to stay in their familiar neighborhood – where they may have lived for 50+ years! – and that there might not be suitable rental accommodation even if they try to find it.

    I was about to suggest that a programme like the Property Tax Increase Deferral Program, albeit with an interest charge, when I learnt from malcolmm, below, that there already is one.

    So the BC property tax grant programme is therefore doubly pointless, according to me.

    They pay almost no interest (one or two percent I think) on the deferred taxes.

    It would be preferable to have the interest rate based on the city’s medium-term borrowing cost.

    So many special interest groups.

    The perennial problem of a democracy! The politicians need to have special carve-outs from general laws in order to convince their constituents that their day-to-day problems are noticed and important; but the more carve-out there are, the less effective and more complex the system becomes!

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