Commonly Asked CRM II Questions

A New Era of Investor Information

March 3, 2015

This past August we outlined the changes occuring in Canada’s securities industry over the next couple of years, ushering in a new era of investor information. At the Wooding Group, we see this as a wonderful opportunity to strengthen client relationships. Transparency is important to everyone. We strive to ensure that you understand how your investment portfolios have grown and performed, net of the cost. Improvements in the way information is presented to investors, known in the industry as CRMII and Fund Facts, are putting Canada firmly ahead of the rest of the world in providing clear and full information to investors.

These changes are creating opportunities for Investment Dealers and Advisors to adopt consistent language and practices that will put Canadians in an even stronger position to understand their investments and get the most out of their relationships with their advisor. For investors, the new rules mean they will start to see more use of plain language and clearer, timelier presentation of information. We advised that our next update on CRM would include Commonly Asked Questions around CRM II and the Value of Advice.

Q: When will I see some of these changes to my monthly CIBC Wood Gundy statements?

A: The new regulations state that in July 2015, clients will see the original cost of all holdings being reported on their monthly statement. This is already shown on your statements. In 2016 (exact timing is not known) clients will begin to see the cost of their investments reported on their statements.

Q: What’s the driving force behind the changes?

A: The Canadian regulatory authorities are driving the change and it’s based upon the desire to give clients full transparency and understanding of the cost of total wealth management.

Q: I know that all funds have embedded costs – how will this change?

A: Yes, this is correct. All professionally managed funds do have embedded costs. These costs are termed the “MER” (Management Expense Ratio). When funds are held inside a “Portfolio Partner” account, we’re able to strip the MER down to the “internal cost of manufacturing” which is inclusive of the Manager’s compensation. The Wooding Group’s cost for total wealth management is charged outside of the mandate so it’s transparent and tax deductible in non-registered portfolios. The fund’s return is net of the cost to manufacture (the residual embedded portion). Our reporting to you is net of all costs.

Q: What does the Wooding Group’s fee cover? Are there any other fees charged?

A: Our cost includes everything we are in control of: Investment Policy development and implementation, asset allocation, due diligence, security and mandate selection, portfolio construction, annual re-balancing, cash management, banking, retirement income assessments, comprehensive financial and estate planning with our Specialist Partners, insurance planning and implementation, individual, corporate, and family educational opportunities. As well, the personal contact and care that we strive to provide to our clients on a consistent basis.

However, one of our most important responsibilities is helping our clients to maintain perspective and discipline through volatile economic times. Assisting to temper emotional behaviours is one of the single most valuable actions we perform. In fact, Dalbar, Inc shared a 20 year study (1998-2008) that revealed an Investor Behaviour Penalty of 5.43% (the average equity mandate returned 7.30% vs. the average investor returns of only 1.87% on the same mandate; due to emotional market timing behaviour). Inflation during this period was 2.89%. It’s our opinion that professional guidance adds a great deal; it’s not only a trusted relationship but good for the bottom line.

The Wooding Group Investment Thesis

Over the very long term fixed income doesn’t outpace inflation and taxes; ownership of quality businesses does. We own fixed income to temper volatility and for income requirements; it’s a necessary piece of your wealth equation. The greatest probability of success to achieve both wealth preservation and growth lies in adhering to a disciplined asset allocation, rebalancing to the policy, and staying the course during difficult economic times. These times are always times of opportunities that we take advantage of.

Rebalancing is an important key for effective risk management reinforcing the benefits of portfolio diversification. The greatest risk to most investors is inflation, not portfolio volatility. Staying the course with a quality approach = success.

Trying to “time” the markets has proven an unsuccessful strategy by institutional managers (accounting for only 1.8% of overall portfolio return according to Ibbotson and Associates), as well as anecdotally documented a failure by individual investors.

Stick to the plan. For centuries the world’s financial markets have moved both strongly to the upside as well as the downside. The longer we maintain our discipline the smoother the ride. In reality global capital markets don’t change much in the basics of how they function; the people whose interactions make them work also haven’t changed much over a long period of time and we don’t expect a significant behavioral diversion.

We wish you all a wonderful year, happiness, and good health!

Warmest Regards

The Wooding Group