Big changes are coming in 2022 for do-it-yourself investors who hold mutual funds through an online broker, but the time to start preparing is now.
Securities regulators have announced that as of June 1, 2022, online brokers will no longer be able to sell mutual funds with fees that include payments to cover investment advice and service. Online brokers are strictly in the order-taking business, so they’re not really entitled to those advice commissions. Nevertheless, these brokers have been selling funds paying them these commissions for decades.
Check your account if you’re a DIY fund investor – you should be holding Series D funds, with trailing commissions for advice mostly eliminated. If you hold Series A or B funds, check to see whether a D version is available and consider a “switch transaction.”
A check with TD Direct Investing confirmed that switch transactions are available at no cost to the investor. In addition, because such a switch isn’t deemed a sale of the fund, it would not trigger a capital gains tax in a non-registered account. “A mutual fund switch within the same family of funds is generally considered to be a non-taxable event,” TDDI said in an e-mail. “As an example, a switch from an A-Series to D-Series of the same fund fits into this category as both would be considered part of the same family of funds.”
Many mutual fund families have Series D funds, but not all. If you can’t switch from a Series A or B fund in your online brokerage account, consider your exit strategy. In a sense, there’s an argument for selling, in the fact that you own a fund with 0.5 to one percentage point of its management expense ratio paying for advice you do not and cannot receive. Selling and moving to a more cost-efficient investment such as an exchange-traded fund or low-cost mutual fund could make sense.
For clients with Series A or B funds with no Series D equivalent to switch into, TD said it will work with industry partners to find the most investor-friendly process to comply with the new regulatory rules. The challenge for brokers and investors is that some investors may realize taxable capital gains if they sell their Series A funds and would prefer not to. It remains to be seen what options will be available to people who would prefer to stay in their Series A or B fund for whatever reason.
It’s worth pointing out that TD and other brokers have provided notices in the past couple of years to investors about the availability of Series D funds. If you missed that, now’s the time to check your account statement to see what type of mutual funds you own and, where required, plot an exit strategy.
-- Rob Carrick, personal finance columnist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
A&W Revenue Royalties Income Fund (AW-UN-T) The company announced a special dividend alongside third-quarter results this week that showed a smaller drop in same-store sales amid the pandemic versus the previous quarter, sending units higher. As Brenda Bouw reports, one analyst is calling A&W “a good recovery play in a post-pandemic world.” (for subscribers)
PopReach Corp. (POPR-X) Shares of this Toronto-based mobile game company surged this week after it announced a strategic investment from Chinese e-commerce giant Alibaba Group Holding Ltd.'s global investment arm. Analysts suggest the deal could be a catalyst for further gains to come. Brenda Bouw reports. (for subscribers)
H2O Innovation Inc. (HEO-X) This Quebec-based H2O Innovation is a water and wastewater infrastructure play. Year-to-date, the micro-cap stock has seen its share price soar over 80 per cent. Over the past 15 trading sessions, up to this past Wednesday, the stock price has jumped 57 per cent. Given the parabolic move in the share price, the positive price momentum may soon pause in order for the stock to digest these rapid gains. Yet, the average one-year target price among analysts suggests the share price may rally an additional 24 per cent over the next 12 months. Jennifer Dowty has this profile of the company. (for subscribers)
Short sales on the TSX: What bearish investors are betting against
What have short sellers been up to lately? There’s at least three things worth highlighting: they continued to pile into bond exchange-traded funds during September, five companies were targeted by activist short sellers in the third quarter and there were significant increases in the cost to borrow shares in some firms. Larry MacDonald updates the latest trends being seen among short sellers on the TSX. (for subscribers)
Profit outlook brightening fastest for these TSX stocks
Identifying companies with strong earnings momentum – an upward trend in forecast profits – has long been an effective investing strategy and this tactic is particularly relevant in a market environment where revenues continue to recover from full lockdowns and global quarantines. Scott Barlow takes a closer look at earnings momentum for Canadian large-cap companies and uncovers an interesting list of economically sensitive investment opportunities based in the financial, mining and industrial sectors. (for subscribers)
Why a former BMO chief economist is counting on bank stocks and dividends to power her portfolio
When COVID-19 broadsided the stock market in March this year, Sherry Cooper’s financial portfolio sank into an abyss that seemed bottomless. Despite the market’s rally since then, her stocks remain underwater by 10 per cent. But the gyrations of 2020 haven’t caused any sleepless nights for Ms. Cooper, the former Bank of Montreal chief economist dubbed Canada’s “megawatt celebrity economist” for her lively and well-spoken manner. Ms. Cooper hasn’t jettisoned any stocks in 2020. On the contrary, she bought some bank shares with her RRSP and TFSA contributions. Larry MacDonald tells us about her strategy. (for subscribers)
ESG thrives in pandemic but amplifies growth-value split
The scramble for funds screened for Environmental, Social and Governance scores appears to be paying off in the strange pandemic-hit world of 2020 - but it may also be aggravating long-standing market skews. Mike Dolan of Reuters reports. (for subscribers)
Unloved U.S. value stocks seen as cautious bet as election nears
A sustained shift to value stocks has eluded investors for years. Indeed, a casualty this week was the $10-billion AJO quantitative value fund that announced it was shutting, citing the longest “drought” on record in value. Some investors and analysts, however, are making a counter-argument, saying the unloved trade could be worth buying as the U.S. election nears and progress continues on a coronavirus vaccine. Lewis Krauskopf and Svea Herbst-Bayliss of Reuters report. (for subscribers)
Others (for subscribers)
Friday’s Insider Report: Major shareholder unloads $5-million from this hot stock
Thursday’s Insider Report: CEOs trim positions in these two high-flying dividend stocks
Number Cruncher: Five dividend stocks that tap rising demand for copper
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’ portfolios.
Ask Globe Investor
Question: Recently, Nuvei released its IPO and I was wondering what your opinion is on this stock? Given the future requirements of secure transactions, it seems as though they may be a good long-term investment but given the volatility of the world today it is difficult to judge what might happen even tomorrow. Any thoughts on NVEI would be greatly appreciated. – Justin C.
Answer: Montreal-based Nuvei offers a proprietary secure technology service that provides clients with direct access to all major payment programs world-wide. The company says it helps businesses “remove payment barriers, optimize operating costs, and increase acceptance rates.” The company says it has more than 50,000 customers, including gaming companies, financial services, and retailers. It employs 800 people.
Nuvei announced the completion of its initial public offering (IPO) on Sept. 22. The company issued almost 31 million shares at US$26, raising a total of US$805 million. The shares trade on the TSX under the symbols NVEI (Canadian dollars) and NVEI.U (U.S. dollars). The stock has moved higher since it began trading, although it recently pulled back from its higher. The shares closed on Oct. 13 at $52.66 (US$40.05).
The financial reports presented in the prospectus show a company that is increasing revenue and improving the bottom line. In 2019, Nuvei reported revenue of US$245.8-million, up from US$149.7-million in 2018. For the first six months of this year, revenue was US$165.6-million.
The company showed a loss of US$31-million in 2018 and US$69.5-million in 2019. In the latest three months (to June 30), it reported a profit of almost US$14-million. That’s encouraging, assuming it can be sustained.
So, what do we have here? Another Shopify? That seems doubtful, given the narrow base of its product offering (payments). But investors clearly see value, and perhaps takeover potential, in the stock. Moreover, it has momentum, which is essential in today’s market.
I would view it as a speculation at current levels, despite the improving financials. If you have some money you are willing to risk, go ahead. But conservative investors should stand clear.
What’s up in the days ahead
Rob Carrick pits the new VRIF 4 per cent retirement income ETF from Vanguard against a half dozen or so products that can do the same job of producing monthly investment income at higher rates than bonds or GICs.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff