Hot Off the Web- May 18, 2008
In Financial Times’ “A global rebalancing act” Jerome Booth discusses coming changes in flow of savings in the world. Earlier flows from emerging markets into “safe” U.S. Treasuries are set to reverse as a result of realization of the currency risk of Treasuries. Coupled with rising inflation in emerging countries, which when actioned by their central banks, result in rising emerging market currencies.
Jon Chevreau’s “Fee-only then, fee-only now” in the Financial Post reports on Macdonald, Shymko & CO. Ltd Canada’s oldest fee-only and only member of National Association of Personal Financial Advisors (NAFPA). Over 80% of their clients pay an hourly rate, though the remaining are in a Strategic Asset Allocation (SAM) program (with ETF based implementation) where fees for a $500,000 account are 1%/year. That fee excludes tax returns and financial plans, which are billed hourly. There is also a $400 annual retainer. It may seem confusing, that for the SAM model the fee is asset (rather than hourly) based, yet it is argued that what’s important is who pays the fee, and here the investor is the one.
Globe and Mail’s Shirley Won in “ETF bandwagon is picking up speed” reports on the arrival of first Canadian mutual fund investing in only North American ETF’s. The fund is aimed at “mutual fund dealers who can’t buy ETFs because they are not licensed to buy securities (This is another regulatory obstacle in the way of the Canadian investor to get a fair shake in the marketplace. What regulation should provide instead are enablers to allow the Canadian investor access to low cost investment vehicles.) The MERs associated with the fund “should not be higher than 2.25%”; the advisors’ trailer is 1%, fund management fee is 0.7% and the rest of the expenses are associated with the underlying ETFs. (What can I say? It doesn’t feel like a solution to low cost investing.)
Jon Chevreau reports in “Ill-prepared spendthrifts” on a 21 country HSBC poll on retirement, that those polled expressed strong preference for compulsory employer pension plans. (Hopefully employment based, but not employer sponsored plans. Given the recent history of employer sponsored DB plans and the increasing mobility of today’s employees, what is needed is that the employer contributes but the plan has an independent sponsor. You can read my proposed model for a future Canadian pension plan in my submission to the Ontario Expert Commission on Pensions).
The Financial Times John Authers in “Black swan” questions whether the recent subprime crisis (still unfolding) is really a black swan. ( Black Swans are very low probability events which have “truly catastrophic and unpredictable effects when they do happen and so risk managers should concentrate on guarding against them.”) He suggests that to call this a black swan is nothing but a “convenient excuse”. The signposts were all there as long as two years ago.
In “How to ride escalating interest rates” Globe and Mail’s Rob Carrick suggests money market funds may be a good way of “riding an interest rate escalator” with the coming rise of interest rates. When five year GICs hit 5%, he suggests that you lock in.
WSJ’s Reshma Kapadia in “Five ways to protect your portfolio” suggests five ways to protect your portfolio: (1) an asset allocation you can sleep with, but also include 20% international exposure, (2) watch the fees (cannot be said often enough), (3) protect your credit rating, (4) if you are in the market for a first home, it may be good time to start looking with low mortgage rates and softening house prices and (5) don’t panic into selling at a loss.
Jon Chevreau suggests that “online banking and online investing can be a boon to busy people” in the Financial Post’s “Online investing puts you in control” . He suggests using a single supplier (bank) for many reasons that he lists. An additional one is that it eliminates stranded (cash) assets which are very common when you operate your investments spread across many institutions. He even suggests using you savings from low online brokerage fees to get a one-time financial plan and investment strategy (also a good idea).
In “Collateral foreclosure damage for condo owners” NYT’s Christine Haughney reports that the impact of having a significant portion of units in a condo/development in foreclosure without association fees and assessments being paid result uncut lawns, unmaintained pools, unclean hallways, broken A/Cs and additional assessments (to pay the portion of those who didn’t/couldn’t pay).
And finally, my article in the latest (spring 2008) issue of the CSA News (not yet posted online at CSA, but showed up in the printed copy I received this week) entitled “An update to snowbirds’ Florida tax crisis” .
Unfortunately two key paragraphs calling for action by the readers were omitted. I include them here for completeness:
“-Also on the legal front are the efforts to get sponsors for Amicus Briefs in support of the Constitutional challenges. Ottawa area Dory Kilburn who winters in Boynton Beach collected signatures from over 300 Canadians to petition Minister of Foreign Affairs Maxime Bernier to initiate an Amicus Brief supporting the challenge. Similarly hundreds of other signatures were collected and are being sent to Attorneys General of key U.S. states with large number of citizens also suffering from discriminatory treatment in Florida. You can sign the petition by going to browact.org . The Tax Foundation, a “nonpartisan tax research group based in Washington, D.C with a mission to educate taxpayers about sound tax policy and the size of the tax burden”, will probably initiate an Amicus Brief in support of the Constitutional challenge.
-Still on the legal front, a leading expert on NAFTA-claims believes that Canadian owners of Florida property would be well advised to have counsel investigate and consider initiating a damages claim against the U.S. Government under NAFTA Chapter Eleven. The basis for the claim would be that by treating Canadian owners of Florida property less favourably than Floridian property owners respecting property taxes, Florida law breaches a Chapter Eleven non-discrimination provision. A successful NAFTA challenge would permit claimants to at least partially recoup excess taxes that they have been paying because of the discrimination. A large number of claimants would enhance the economics of the claim and increase the pressure applied by the claim. If you would like to pursue this possibility, go to www.RetirementAction.com to send me an email expressing your interest. Current information of the Florida property tax crisis is also available at the website.”