Managed Money Reporter Newsletter — Issue 218, June 2005


Editors: Carl Spiess & Allan McGlade


Featured Articles



Income For Life

by Allan McGlade

As clients (or their parents) approach retirement, a great question becomes, "How do I get income from my investments"?  And once you have accumulated and begin drawing on your retirement nest egg, how much can you withdraw without taking the risk of outliving your money?

An often misunderstood and underused financial tool is the life annuity.  The annuity simply guarantees a monthly income amount for as long as you live.  For married couples the income is guaranteed for as long as you both live, with a higher payment while both spouses are alive.  

Often, clients are concerned that with an annuity, there may be little for the estate in cases of an early death.  However, with 15 year guarantees commonly available, depending on your age, the annuity may actually guarantee more in payments over 15 years than your original investment.

And of course, even if you live to 105, the monthly payments will never stop, just like a government pension.  There is no income trust out there that guarantees 40 years of payments if you hold it that long!  

Naturally, some combination of annuity income and flexible RRIF income will be ideal in most cases.  If you already have a generous pension plan, then the annuity may not be for you.  But for most other clients, it is well worth considering, especially if your goal is to have your last cheque be the one payable to the undertaker, and you want that cheque to be the first you ever have bounce, then the life annuity is the one for you.  Contact Allan today at allan.mcglade@scotiawealth.com for a quote.

More on Annuities ...

Financial Planning - A Review of our Services

Beyond investments, what can ScotiaMcLeod do for you?  You may be surprised at the full range of services we can offer - from financial planning to insurance and everything in between. Our firm's website recently added several pages which describe the breadth of services we provide for our clients.  

  • If it's in your life, it's in your plan (flash)

Please contact us for more information on any of the topics raised.

Fund Loads - A Quick Primer

Front load, rear load, low load, no load, zero load.  There are a lot of terms around fund investing, and sometimes they are confusing.  Here is a quick primer.

In the 1970's and 1980's the only way to invest in a fund, was to pay an up front commission, often up to 9% of the fund value.  In the late 1990's, many funds introduced the Deferred Sales Charges (a rear end load) or DSC which was a declining fee to sell out of your fund early.  Also in the 1980's, a number of no-load fund companies also became available, making their funds available directly, with no purchase or redemption fees.  Each of the banks also began to offer their own no-load fund families.

Today, for firms like ScotiaMcLeod, we can offer our clients all of the "load" fund families (AIM/Trimark, CI, Dynamic, Fidelity, Mackenzie, Templeton etc.) as well as all of the bank fund families.

Load Fund Families 

No-Load Families

Front Load Option Rear End Load or DSC* Low Load Option Zero Load (Front End Load at 0% fee) F Class versions No Load "Advisor Series"
0-5%, Generally 1-2% through typical advisors Typically 6% penalty for early withdrawal, declines 1% per year over 6 years* Typically 3% penalty declines 1% per year over 3 years How we recommend "load" funds for our client's lump sum purchases Lower fee version of funds for "Fee Based" account plans which add 1% fee later How we recommend "no-load" funds for our client's lump sum purchases Many No-Load families are now offering DSC or LL options

eg. AIM/Trimark, CI, Dynamic, Fidelity, Mackenzie, Templeton etc.

 eg. Banks, Altamira, PH&N, Sceptre, Saxon etc. (certain minimums apply)

For the last several years, we have been making available to all our clients of our investment team, all of the "load fund" families with 0% front end load (Zero Load) on any lump sum purchases.  For payroll and PAC plans DSC version may still be the only option due to the very small investment amounts typical of these plans.

*Technically, Rear End Load is a fee calculated on the original purchase amount, Deferred Sales Charge is on the value sold, but terms are often (and inaccurately) used interchangeably.  Since each fund company is different, refer to the prospectus or contact us for exact details.  In most cases, 10% of the fund value can be sold each year, without incurring a DSC, and switches within a fund family can be done without incurring a fee, and without extending the DSC schedule.

For many clients, with existing load funds, who want to know if their DSCs have expired, we would be pleased to move any expired units for you to the Zero Load version of the same fund. 

Most load fund families provide advisor compensation through trailer fees.  While the fees vary, even on Zero Load purchases, your advisor (in our case via ScotiaMcLeod) receives a portion of the fund's management fee.  Unlike per transaction commissions or loads, this trailer fee only goes up if your fund goes up, providing an incentive to keep you in funds that perform well.  You may be surprised to know that most no-load fund families also provide compensation through trailer fees (see the prospectus).  If you aren't getting advice from your no-load fund family, consider transferring your funds to us. You might as well get what you are already paying for.

For clients who hold no-load or other funds directly, we can consolidate all your funds onto your ScotiaMcLeod statement with no change to your holdings by performing an "in-kind" transfer.  Many clients are surprised to know that we can hold CIBC, TD, Royal, BMO, Altamira, PH&N, Saxon, Sceptre and many other fund families in their ScotiaMcLeod accounts.  We can also make purchases of all the no-load fund families (contact us for details regarding minimum investments etc.). 

Please contact us if you have any questions about your funds. 

Investing In Alternative Energy

With oil prices hitting $59 a barrel, it seems that everyone is talking about Hubbert's curve and the end of oil.  There are no less than 81,000 Google hits on "hubbert peak oil".  We think hydrogen cars and solar heating may still be quite some time from being commonplace in Canada, but wind farms are being built today.  Two new wind power investments are being offered that may be of interest, especially if you are concerned about North America's appetite for hydrocarbon based energy.

One is like an income trust, that will generate regular stream.  The Creststreet Power and Income Fund LP will own two recently built wind farms, and will soon trade on the TSX under the symbol CRS.DB.  If you have an interest in sustainable energy, this should present an interesting opportunity, and follows from some of our information on socially responsible investing.

The second offers tax advantages, including an approximate 50% income tax deduction, and functions similar to Oil and Gas limited partnerships. Click the links, below, for more information.

Please note that this investment isn't for everyone. It is a very unique asset, which will be completely illiquid (no-saleable) for two years after purchase.  As there are no long term power agreements in place, there is significant risk if electricity prices do not rise.  Due to the nature of the tax credits, it would only be appropriate for non-RRSP investment of $10,000 or more. Please contact us to see if either the Power and Income Fund or Kettle Hill Limited Partnership might make sense for your individual situation.

Our Email Policy

I can be reached at carl.spiess@scotiawealth.com which is also known as carl.spiess@scotiawealth.com.  Our policy is that my staff or I reply to email queries within 2 business days.  Please note if we haven't responded within 2 days, it could be that your email is being blocked from getting to us.  For example, for some time, emails from Hotmail (addresses with alpha and numeric characters ending in "@hotmail.com") and certain corporations were being blocked due to the large number of spam emails that ScotiaMcLeod was receiving from similar addresses.  Please call us directly at 1-800-387-9273 if at any time you haven't received a reply to your questions in a timely manner so that we can correct any issue on our end. 

Similarly, with the increasing power of Email filters on your receiving email, this newsletter may at some time in the future be caught by your home or work email filters.  So please add carl.spiess@scotiawealth.com and carl.spiess@scotiawealth.com to your email address list or approved list, so you will continue to receive our investment updates.

Mutual Fund Reporter Recommended Website of the Month

The economist magazine, is the most respected analyst of all things business and market related.  In their most recent issue, they bust the bubble on inflated housing prices, a subject we discussed in our December issue.  This is definitely recommended reading.  You can also sign up to get a weekly email update.  I read it regularly.

 

 



Contact Us

T.  416.863.RRSP (7777)
     1.800.387.9273
F.  416.863.7479
E. carl.spiess@scotiawealth.com
    allan.mcglade@scotiawealth.com

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