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.

 

Depositing Funds Electronically to NBCN

There is a new option for depositing funds electronically to your NBCN Cash Trading Account if you already are an online banking customer.

  • In your online banking account, go to Payees (as if you were setting up electronic payment for your Telus or BC Hydro account) and type in NBCN, which then should come up as an eligible payee
  • In the account number box, enter your NBCN account number which starts with 6C57 and ends with the letter A
  • Then let us know you are transferring funds to your NBCN account so that we can catch it sooner

This facility is only available to transfer funds to your Canadian $ Cash Trading account. If you are wanting to make an RRSP or TFSA contribution, you must still transfer the funds to your Cdn $ Cash Trading Account, and we will make the contribution for you. Please call or email us if you have any questions.


Understanding Your Annual Report

You receive our Annual Report on a twelve month fiscal period, which derives from your start-date with us. Typically, the report is sent to you 30-45 days after your year-end.

Strategy Review

The strategy for your invested funds is first described in words, as to the purpose of those funds to your life:

“The strategic plan for your portfolio was conservative growth through retirement,

and the funding of tax payments and monthly cash calls of $3,000.”

 

We report the status of our adherence to the Asset Allocation Plan you charged us to observe:

PLAN ACTUAL
Cash 3% 2%
Fixed income 62% 61%
Canadian equity 15% 15%
Foreign equity 20% 22%

 

Summary Observations 

We report the value of your total portfolio at Report Date, how much investment income was earned and what the time-weighted rate of return was for the year:

“The portfolio totaled $1,365,722 and earned $71,338 (8.07% before fees-see below).”

 

We report the average, annual compound return over various time periods, including from your start-date:

3 year 5.56%
5 year 7.27%
10 year 5.36%
Since inception-2002 9.15%

 

If you have a formal Financial Plan prepared by us, inherently, it has a long term compound rate of return built in to it. We report that figure, which can be compared to your long term inception return with us. Note that long term returns are just that—long term! If your inception return with us only represents a few years since you joined us, then comparing short term past returns with forecasted long term future returns likely is not very instructive.

If you have been with us for a few years, we include a two-scale chart which shows, on the left scale the dollar value of your portfolio, and on the right scale both the annual and running compound returns since you started with us. Return data is always flavoured by the time period involved: the markets in any short period can be skewed: good or bad! If you have been with us for many years, you will see in this graph: a) the annual returns jump up and down a lot and b) most importantly, the running compound return tends to settle, and at a healthy level.

If you are not inclined to financial matters, you can stop reading your Annual Report at the Summary level, and have a good handle on how your portfolio is doing, or carry on…..

Detail Observations

At the back of the Report are the detailed sheets we prepare to support your Annual Report. In there, you can see all of the activity that happened in each of your accounts, security-by-security. Another set of graphs appear there, which are specific to each of your sub-accounts.

A very instructive graph shows the accumulation of your portfolio value across time, as to (bottom bar to top bar) a) your net contributions b) dividend and interest earned and c) price appreciation.

This is a chart to give to your children or grandchildren! It shows the value of investing! Visually, you can see that more than approx. two thirds of this portfolio’s accumulation over 18 years was the growth that ensued (18 year compound of 8.01%) from the investor’s contributions: he contributed $262,000 of the $719,000 portfolio value.

Fixed income portfolio

The fixed income component provides the safe bedrock of your portfolio against the vagaries of the stock market, and is typically 40-60% of our clients’ portfolios. We hold fixed income in a love/hate relationship: today’s low yields are a millstone to our overall portfolio return. But when the current 8 year Bull market collapses, perhaps in a single day, we gain appreciation for that bedrock. This precisely happened in the Fall of 2008. We have written extensively in our website Library about fixed income returns: they have two aspects: the long term return locked in to maturity, and the short term return reflected in the today’s marketplace. Your exposure to interest rate movements is reflected in the future maturity dates of your existing bond portfolio.

“The fixed income component of your portfolio is invested to earn a long term weighted average return of approximately 2.11%. The one-year return on your fixed income portfolio was 2.75%. ”

We continue responding to the current low interest rate environment by a) keeping your average maturity period short and b) investing in alternative forms of fixed income.

“We have attained a staggered bond portfolio which is laddered out at appropriate intervals through 2021. The average term to maturity for your fixed income investments is 28 months. We have responded to the present interest rate environment by investing 10% of your fixed income portfolio in alternate fixed income vehicles, which contributed positively to the one-year return.”

Equity portfolio

The core of our equity management is monitoring the construction of your portfolio across the ten industrial sectors and across global geographic economic regions. Our proprietary systems allow us to analyze this with real time market pricing downloaded from the web.

 

“The percentage allocations of direct equities invested in the various industrial sectors and world geographic zones are currently as follows:”

 

SECTOR Current %

of Equities

Resource 18%
Utilities 6%
Industrial/Transportation 8%
Consumer 11%
Communications 6%
Finance 23%
Health 10%
Technology 10%
Real Estate 9%

 

U.S. 45%
Europe 36%
Japan 8%
Pacific Rim 4%
Latin 0%
Emerging 6%
Misc 1%

Contributions/Withdrawals                                                                                    

In this section, we review the status of any annual contributions you ought to be making for tax purposes: TFSAs, RRSPs and RESPs. We maintain an annual Master Contribution Control List which monitors everyone’s contributions. We also address any pending withdrawals of funds.

“Your RRSP contribution status for the current year will be reviewed vis-à-vis your recent Plan, and is scheduled for August.”

“Your TFSA contributions for the current year are up-to-date.”

“Your annual RRIF payment is scheduled to occur in June.”

 

Subsequent events

Your Annual Report typically takes 30-60 days to deliver to you. Occasionally, there has been activity in your account between your fiscal reporting period and the day we complete your Report.

“A bond matured in March in your RRSP. Your Asset Allocation Plan called for the funds to be deployed back to Fixed Income. The iShares Canadian Government Real Rate of Return Bond ETF was purchased.”

Significant events ahead

Here we contemplate significant changes on your horizon.

“You are retiring in the next twelve months and we should commence planning your new cash calls for this.”

“You are in the midst of preparing a formal Financial Plan with us and we should await its conclusions.”

Proposed changes

In this section, we address the ongoing appropriateness of your Asset Allocation Plan. Occasionally, it may be prudent to amend it somewhat in light of your changing circumstances. We then address specific changes in individual holdings, for purposes including a) rebalancing to your Asset Allocation Plan b) specific profit-taking in individual stocks c) specific profit-taking in specific industrial sectors which have out-performed the general market d) specific profit-taking in geographic regions of the world which have out-performed the global economy e) specific profit-taking in currency appreciation f) funding your pending cash calls.

“We propose to maintain the same allocation plan for the coming year.”

“We will execute the following specific changes to your portfolio:”

In order to manage your wealth well, it is important that you keep us abreast of any significant changes in your world.

“Please contact us if there has been a material change to your financial position.”

Disclosures

Our management fee is calculated monthly and billed directly to the accounts quarterly/semi-annually/or annually, based upon the dollar value of your portfolio. In your Annual Report, we disclose our fees for your fiscal period in total across all of your accounts, based upon our Management agreement at the blended rate of .85/.6 of 1%.  We aspire to deliver the best value in wealth management in Canada, predicated upon the integrated contributions of investment management, financial/estate/tax planning and accountability along with a low-fee structure.   

“Our consolidated fees for the reporting period were $3,882, which represented .69 of 1%.”

“We have mitigated the management fee costs by holding mostly Exchange-Traded Funds and direct stocks and bonds, with very few mutual fund positions.”

Our May Client survey revealed that 82% of respondents believe our value delivery is “excellent”. 


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.