Investment Counsel

· Account Administration
· Understanding Your Annual Report
· Understanding Your Monthly Statements
· Internet Technology
· Fees

Investment specialists: Gary George, Don Nilson

Account Administration

Client portfolios are maintained at National Bank Correspondent Network. The country’s largest discount brokerage offers low transaction costs for buying and selling securities. Its investor services are on the leading edge in the financial community.

We have access to your account information at all times via a secure website at National Bank Correspondent Network. We receive the month-end statements for all accounts on, approximately, the tenth of the following month. Over the ensuing days, we go through every statement for an in-depth review of the portfolios’ positions and activities.

We look for:

  • Excess cash and Money Market holdings
  • Foreign content status for RRSPs
  • Maturing investments in the upcoming month
  • Adherence of the portfolio to the allocation plan
  • Completion of buy or sell orders initiated during the previous month
  • Status of execution of “proposed changes” agreed upon in the last Annual Report
  • Status of execution of “approved buy list”
  • Successful processing of any deposits, withdrawals or transfers during the previous month
  • Other activity in the month
  • Movement in market value of direct equity holdings

The TRIVEST Status Report keeps track of the status of every account. It is updated periodically during the month as events unfold; however, the major updating results from the Month-End review above. This report thus directs the account management and administration for the next four weeks, when the process begins anew.


Understanding Your Annual Report

The “A” in “AFT Trivest” stands for Accountability.

You receive a comprehensive report once a year, based upon the fiscal period when you first joined us. It is complex with many parts, as detailed below.

Strategy review
In this section, we report what your asset allocation Plan is and compare it to the actual results at your report date. We also describe your portfolio strategy in words.

Summary observations
We report the total dollar value and annual total investment income of your accounts in aggregate. We calculate your current year return based upon the monthly weighted average of your invested capital. We also report your running compound returns for 3, 5 and 10 years and since inception with us – the longer your history with us, the more relevant that statistic is as a measure of your in-vesting success. If you have undertaken a Personal Financial Plan with us, we report what bench-mark return is inherent in this Plan in order for you to achieve your long term goals.

If you are not interested in the details of your investment world, you can stop right here and take observation, and hopefully comfort, from this information alone.

Detail observations
We now drill down and analyze each aspect of your portfolio, starting with your safe, fixed-income holdings, where we report what the average yield–to-maturity and current, one-year yield have been for the bond portfolio in aggregate. Next, we report on your equity portfolio by indicating overall how it performed during the year. Where relevant, we report on the significant winners and losers in the year. Most importantly, we report the distribution of your equity holdings across the industrial sectors. Then we address your international investing and report how your equities are distributed across the regions of the globe. We ascribe some holdings to “global” rather than regional status where the underlying activities transcend the planet.

We include appendices of the detailed activity in every account you hold with us. This includes all of the transactions by individual security. Internally, we track the annual return across the years of every holding, and are happy to share this voluminous data with you.

We provide a Historical Growth graph which depicts the growth of your portfolio over time, resulting from the accumulation over the years of:

  • Your own capital contributions
  • Cash income from dividends and interest
  • Realized and unrealized gains from the appreciation of the investments you own

For instance, the graph below reflects this information for a real client who has had his account with us since 1995. You will note how the three components have progressed over that time span. (click the graph to enlarge)

historicalGrowth

The Historical Returns graph tracks each year’s simple return across time. The compound return calculates the average annual return as the years progress. You will note the significant volatility in the simple returns over time, and also how the accumulating compound return smooths out, with decreasing volatility. (click the graph to enlarge)

historicalReturns

Contributions/withdrawals
Here we report on, and manage, your cash contributions (eg for TFSAs and RRSPs) or withdrawals (eg RRIFs).

Subsequent events
Occasionally, significant things have happened from your fiscal year-end to when we submit our report, and these are identified herein.

Proposed changes
We review your account regularly throughout the year: the Annual Report is one such review mo-ment. Here, we indicate the changes that we feel are necessary to align your portfolio with your strategy and with current market conditions. If we have your discretionary authority, we execute these portfolio changes directly. If we have non-discretionary authority, we await your approval to execute any changes.

We are always happy to review your Annual Report with you in person or on the phone.

Frequently Asked QuestionsPicture1

Q: What is the purpose of an Asset Allocation Plan, and where does it come from?

A: We think asset allocation is the most important thing. It quantitatively speaks to your risk profile. In the longer term, the returns you earn should correlate with the risk profile you choose to take. You may choose to change this Plan over time in consultation with us. The Plan is documented and signed off by you in our client agreement forms. For many people, the Plan comes from a detailed long term Financial Plan, which they may have done with us or elsewhere. Otherwise, it is derived from conversation with you and from soul searching your own attitudes towards money and considering what the money is for.

Q: What is a good compound return?Picture2

A: We report to you the compound return since you started with us. If you have had a long term Financial Plan prepared, then there is a long term rate-of-return implicit in that Plan that helps you live out your life to a desired standard. We believe that a good compound return is one that approximates, or exceeds, the return implicit in your Plan. If your spending habits also approximate your Plan, then life should play out nicely. Ideally, such returns could also be benchmarked against some external index. Practically though, it is difficult to construct a benchmark which fairly stacks up against one’s own portfolio.

Q: How do you calculate my rate of return? And what does it include?Picture4

A: Your return is calculated by the fraction of the income earned in the portfolio divided by your “invested capital”. The income includes dividends and interest. Some of the interest is received in cash and some is “accrued” into the growing value of a strip bond. The income also includes appreciation or depreciation in the value of your holdings, whether those were realized through a sale or remain “unrealized” on paper. Your invested capital starts with the opening invested amount and time-adjusts through the year for any contributions or withdrawals of funds.

Q: What does “compound return” mean?

A: This is the average return PER YEAR that you have made for some period of time, eg 3 years, 5 years, etc. It is algebraically derived from the collection of past “simple” returns.
Your compound return is a function of your Asset Allocation Plan, the vagaries of the market, the period measured in the compound calculations and the specific holdings and stewardship of your portfolio. The longer the compounding period, the more relevant it is to your investing success. The Historical Returns graph in your report tracks your simple and compound returns across the years.

Q: So…what’s important for me to know?

A: That’s up to you and your individual choice. At minimum, we want you to know how your money is doing—and that is told by the rate-of-return information we give, including, most importantly, your long term compound return.
If you are interested further, you can drill down to every level in your report that we drill down to in managing your money…right down to the annual and compound returns of every equity you own.

Q: What are all of those return rates on my fixed income portfolio?Picture5

A: When you first buy a bond, you have locked in a guaranteed return rate for the life of the bond. This is the “yield-to-maturity”. We perform calculations that determine what your average yield-to-maturity is across your entire bond portfolio. This is useful in assessing what the “safe” part of your portfolio is giving you.
In the marketplace, the value of your bonds are constantly changing in response to present-day interest rates. Thus, the return for a single year (which we call your “current” yield) likely will be different than the yield-to-maturity. Again, we perform calculations that determine what your average current yield is across your entire bond portfolio. In some years, this return can be much higher than your yield-to-maturity, and this may be the backbone in your portfolio in a year when the equity markets are suffering.

Q: What are “funds”?

A: Funds are baskets of investments which allow an investor to get large degrees of diversification, even with small sums of money invested. Pretty much anything that can be bought one-off can be bought as part of a larger basket. These baskets can fulfill a multitude of investment objectives, including both “safe” investing (typically “bond funds”) and equity investing , either in a broad index (the 500 biggest companies in America) or specific niches, both sectorally (like the agricultural sector, gold, real estate) and regionally (Europe, Asia, Switzerland). Funds either come with active management (mutual funds) or passive management (exchange-traded funds).

Q: What are the two lines on the Historical Returns graph?Picture6

A: One tracks your annual portfolio returns across the years, which we call “simple” returns. This number likely will bounce around a lot, reflecting the ups and downs of the markets. The other is a smoothing device which tracks the running compound return (see above) over your investing years with Trivest. This number will fluctuate much less and is a better indicator of how you are doing.

Q: What is the point of the information related to “sector” and “international allocation” percentages?Picture7

A: It’s that D-word-diversification. We have monitoring systems that track how your equity investments are distributed, and this system tabulates a summary which we include in your Annual Report. The sector analysis tells us how you are exposed to the different industry categories that make up the business world. Different sectors shine at different times, and so we want to be sure you are minimized when bad times hit and will also be there to enjoy good times. The international allocation attempts, albeit a bit crudely, to track how your money is participating in the different world economies. As companies become more-and-more global in scope, then pigeon-holing them based upon their head office or stock exchange listing locations becomes a bit arbitrary. That is why we reference “globally-distributed” in your report.

Q: What does it mean at the bottom of the Annual Report “Planning-based investment counsel”?Picture8

A: Many of our staff are educated and certified as financial planners (“CFP”). Don has served on two National Boards in this field and is a national Fellow. He is also a registered Trust & Estate Practitioner. We believe (and according to our recent survey, so do you) that all of these fields of knowledge are necessary and important to manage money well. So, day-to-day, as we oversee your accounts, we are bringing these bodies of knowledge to bear, when and where relevant. Most of this happens invisibly and seamlessly to you.

 


Understanding your National Bank statements

Account numbering
NBCN uses a mixed alphanumeric system. The first four digits 6C57 have been assigned to Trivest, and thus all of our accounts start with those four. The next two digits are unique to you. The last alpha digit indicates the type of account:

A-Trading Canadian    P-Life Income Fund    S-RRSP    T-RRIF
B-Trading US$    R-Spousal RRSP    W-TFSA    Y-Spousal RRIF

Account presentation
NBCN gives one consolidated statement per “account name“. This may mean you still receive multiple statements per month, because, for instance, your Trading account is in joint names with someone else (normally, your spouse). The two joint names are different from just your own name; ergo the separate statement.

The first page of your monthly statement summarizes and aggregates all accounts under one “account name”, including start-of-month and end-of-month values. Below that, it aggregates across all of your accounts by investment type and calculates percentages for each. These categories suffer from both aggregation and dis-aggregation. For instance, different kinds of fixed income are tracked: strip bonds, government bonds, etc. and European and small cap equities are tracked. We do not find these aggregations useful for our management processes. “Common stock” includes in-vestments that are not equities, and foreign and Canadian equities are lumped together in this category. This disaggregation complicates our management processes as we adhere to asset allocation directives from you vis-a-vis foreign vs Canadian investment.

Currency reporting
The first page summary converts all foreign-currency holdings into Canadian dollar equivalent and reports that exchange rate to you. Note that your US$ account balances and transactions are reflected in US$ on the detail pages that follow. Thus, for instance, your account total on the detail page will be different from the total on the page one summary, the difference being the currency exchange.

The details
Page two onwards reports all of the details of each of your portfolios, in the order they appear on the page one summary. For sheltered accounts (RRSPs, RRIFs, and TFSAs), you will see whom you have named as beneficiary upon your passing. You then will see your contribution status for the year.

Then you will see a monthly and year-to-date summary of cash income (dividends and interest) and cash outgoes (our fees and other charges). Unfortunately, you cannot simply compare those two and conclude how much you are earning, net of our fees. There are two principal, and significant, reasons for this. First, much of your income portfolio may be invested in strip bonds. They do NOT pay you cash income, and thus never show up in the income total. Rather, you receive your return at maturity (which may be several years away) as the difference between what you paid and what you received. Secondly, much of your portfolio return remains as “unrealized” gains at points in time, eg on a stock that you own. Your Trivest Annual Report gives you the total portfolio performance once a year (see back page).

The NBCN details go on to summarize all cash transactions in the account for the month, separated by dividend & interest income, our fees and “other” as well as sales and maturities of holdings, and purchases of new holdings. Annoyingly, cash income from trust units and ETFs do NOT appear in the income section but in the “other” section. All of these transactions are aggregated and shown in the “cash summary” section.

Finally, all of your individual holdings are listed and valued, in the categories that appear on the first page. The fixed-income detailed reporting suffers from disaggregation as we try to monitor the maturity terms of all of your fixed income holdings. The statement gives you both book value and market value. Theoretically, the difference between the two represents your unrealized appreciation for each investment. Unfortunately, this is only partly true: it is true for holdings of stocks and bonds but not true for mutual fund and ETF holdings.

Accrued Interest
In the Bonds section of your statement (Government, Municipal, and Corporate), the market value of each bond includes the accrued interest up to that date. Accrued interest is the interest you have earned on a bond, but has not been paid to you yet. NBCN adds this to the market value of the bond, because if you were to sell the bond today, accrued interest would be part of the purchase price. You can tell which bond’s are affected by this (Strip bonds are not), by noting the small “+” sign to the right of the market value.

On our end
Trivest receives digital copies of your monthly statements, and these are digitally archived. We go through each account every month to determine if attention is required that month. If so, we execute our account analysis to interpret the current status, and then decide on appropriate actions. The analytical tools we apply direct us to the actions required at the “1000” foot level. Then we address the specific action calls at ground level. Sometimes, this requires touching base with you. This same process is triggered when funds mature in your account, when you make contributions or withdrawals, when the market is running, or when your Annual Report is being prepared. For instance, the significant run in equities (particularly foreign) over the past 18 months has convinced us to “profit take” across accounts. You will see the result of that in the monitoring and adherence to your strategic asset allocation plan. Potentially, you also will see the result of that if or when the market “corrects” with a significant drop—we already “sold high” and took profits for you. While a continuing rising market suggests that we took old profits off the table too early and missed new ones, your asset allocation Plan still has you significantly in the market and will enjoy any continuing ride through that. Should the drop come, then we need to shift gears and mine the moment when the drop can be labelled a buying opportunity, or “seat sale”.


Internet Technology

Our custodian, National Bank Correspondent Network, provides free access to your account and to other market information through their world wide web application called “MyPorfolio.”

Here you can find:

  • Your account valued at the previous day’s close
  • The last 60 days of activity for your account
  • Real-time market quotes for stocks
  • Economic and market outlooks
  • The latest market news and price changes for individual companies, sectors and market indices
  • Charts and financial reports for companies

If you would like to obtain access, please inform us and we will request an ID number and password on your behalf.

For immediate tech support, call 1-855-844-0172.


Fees

Our fees are based on a percentage of assets under management. We charge .85 of 1% on the first $100,000 managed, and .6 of 1% on the excess, per portfolio. Our fees are billed either quarterly, semi-annually or annually, based upon the size of the account, and charged directly to your account

If you are unhappy about your portfolio…..If you are unhappy about some aspect of our management of your portfolio, please contact us by phone, mail or email on a timely basis and indicate:

  • The cause for your dissatisfaction
  • When it occurred
  • What remedy you seek

We will acknowledge your communication within five business days. We may need to gather more facts from you and from our own records before we respond.

We will respond to your communication within 30 days, summarizing our understanding of the problem and your dissatisfaction, and our interpretation of a reasonable remedy.

If we cannot resolve the issue to your satisfaction, you may seek free independent dispute resolution assistance offered by a public entity called the Ombudsman for Banking Services and Investments (“OBSI”). They can be found at: https://www.obsi.ca/.

Alternately, you have the right to seek legal counsel or other ways of resolving your dispute. A lawyer can advise you of your options. There are time limits for taking legal action. Delays could limit your options for legal remedies later on.