The new edition will (per the author) echo the conversational tone of the original, so it’s a great read for new investors, too. Consider buying a copy for yourself or your children2!
Wealthsimple is a broker who holds some of my retirement assets1. They had a “For Nerds Only” (recording here) event on October 22 where they announced a bunch of new features. The most exciting development for me was the pending availability of Norbert’s Gambit. Here’s my take.
Of no personal interest to me as I don’t trade them. There are an increasing number of ETF products that use “Covered Call” strategies in an effort to eke some (or more) yield out of held equities, but I don’t bother with products like that2. I like my investments simple.
I lump these two together since I have the same amount of interest in both of these developments: none. Although people have made huge profits on gold and crypto, I’d rather make money off of companies that make things or provide services.
An interesting product that allows you to buy into the entire index3 (TSX all-cap4 or S&P 5005) and hold individual stocks. The main benefit of this is automated tax-loss harvesting which should reduce your tax bill in a non-registered account. The idea is logical, but it will come down to how well it is executed — how closely will Direct Indexing actually track the underlying index, and how much tax savings can be realized? The benefit will have to be more than the 0.5% MER being charged for investing in the index this way. Of possible interest in a non-registered account, but not otherwise. I’m not actively adding to my non-registered investments, so I don’t think this is for me either, although I’ve often wondered about how many stocks you actually have to hold in order to get “close enough” to the performance of the TSX 60 / S&P 500.
Sounds like an offer ripped from the pages of CIBC, BMO, or RBC. Dedicated advisors, tailored advice. Wealthsimple’s differentiator appears to be in the fee structure. From https://www.wealthsimple.com/en-ca/advice:
Our fees start at 0.75% and drop to 0.4% for clients who have $10M or more with us.
I am not a fan of percentage-of-net-worth-based wealth management. It implies that larger portfolios are more complex. Anyway, this might be the kind of offer future, less-capable-me might be interested in, but at the moment, no thanks.
“Coming Soon”
The other features announced on the event are not available yet. But here’s a view all the same:
Summit Portfolio: sounds like a robo-advisor that also includes private equity. Since I like my investments to be liquid, this is another development that doesn’t really interest me.
Retirement Accelerator: cheap loans to help you with RRSP contributions. Leveraged investing doesn’t fit my risk profile, and, oh, by the way, I’m already retired 🙂
Norbert’s Gambit: This is something I use all the time given that i have a large amount of USD holdings in my retirement portfolio. The best thing about the Wealthsimple webinar is that they actually trotted out Norbert6 himself to talk about it! This is one feature missing from the Wealthsimple portfolio that was a “must have” for me given my current holdings.
AI Trading Features, Advanced Options Strategies: Yawn.
Wealthsimple continues to be a broker I like to watch as they keep the new features rolling out. They are still not a serious contender to be my #1 broker until they support self-directed spousal RRIFs, something they inexplicably still lack.
Mostly because of the DPSP debacle and the fact I needed a new Macbook. ↩︎
On the webcast, it sounded more like they held “a representative sample” of these indices, which makes sense to me; you couldn’t hold ALL the members of the index AND do tax-loss harvesting at the same time. Their FAQ at https://www.wealthsimple.com/en-ca/portfolios/direct-indexing confirms this. ↩︎
VCN is an ETF that holds the same index, as far as I can tell. ↩︎
VFV is an ETF that holds the same index priced in CAD. IVV is the same index priced in USD. I presume the Wealthsimple product is traded in USD, but they don’t explicitly say. ↩︎
If you have no idea what Norbert’s Gambit is, it’s a way to cheaply convert USD/CAD in your online brokerage account. Most brokers support it1.
Because I hold a lot of USD assets in my retirement savings, and since I live and spend most of my money in Canada, I need a way cheaply convert to Canadian funds in my RRIF. So last week, I had to convert some of my AOA holdings into XGRO holdings and so I updated the log I’m keeping. So far, I’ve done the Gambit three times this year, and twice I’ve lucked out on the FX rate changes and actually made money2 on the transaction.
And many people expect Wealthsimple to join this club soon. ↩︎
What I mean: if the funds had converted instantaneously with no fees rather than waiting around for the 3-5 business days for the Gambit to complete, I would have received LESS money than by using the Gambit. Over time, I expect this will even out, but right now I’m about $55 CAD ahead. ↩︎
(New to asset allocation ETFs aka all-in-ones? Here’s a good place to start.)
Asset allocation ETFs can be purchased from any number of companies. In this article, we look at 4 of the biggest names:
TD, with TEQT, TGRO, TBAL et al
Blackrock/iShares with XEQT, XGRO, XBAL et al
BMO with ZEQT, ZGRO, ZBAL et al
Vanguard with VEQT, VGRO, VBAL et al
The blueprint for each of these ETFs are similar: pick Canadian, US, International and (where applicable1) bond indices, pick a target percentage allocation for each slice of the pie, and carry on…
I previously talked about the variations in percentage allocation (the size of the pie slices) between the major funds over here.
But what about the indices that each of the major fund families track? What’s in the pie? Are there significant differences? Here’s a summary of what I found:
Bloomberg Global Aggregate Canadian Float Adjusted Bond
So there is variation in the pie recipes (the underlying indices), but is it really of any significance? At a glance, I wonder how different the offerings from iShares and BMO actually are — the same index providers show up in each. Without looking at what stocks are actually found in each of these, here’s a quick take, simply based on the names of the indices:
Canadian Equity: All of these funds hold the broad Canadian market, over three different index providers23. iShares and BMO use a capped index, which, in theory, should limit exposure to the very largest Canadian businesses somewhat.
US Equity: Three different index providers seen here (Solactive, S&P and CRSP). TD only holds large US companies, the others hold smaller and midsized US companies. In the last ten years, this has been a winning strategy, but it’s not always been that way.
International Equity: Three different index providers: Solactive, MSCI, FTSE. TD excludes emerging markets (e.g. Brazil, Russia, Taiwan, China, India). The others don’t.
Bonds: Hard to tell just based on the names, but three of them use the same FTSE index. Vanguard uses a Bloomberg index. So I’ll say that it’s likely that Vanguard’s bond portfolio will look different from the other three.
In a future post, I’ll delve into what the main holdings of each of these funds are in each of these categories to see what differences emerge. And whether these differences actually matter!
This excludes 100% equity funds like XEQT, naturally ↩︎
The “composite” in “Capped Composite” means “all the stocks of the TSX”. ↩︎
I am not a lawyer, accountant or tax expert. Your situation may be a lot different than mine. Seek professional guidance if needed.
Part 1 of this blog is found here, Part 2 is here, and Part 3 is here.
Current Status or Why is the CRA so dysfunctional?
Yesterday, I received a series of emails1 from CRA (I had registered for electronic notifications for all things pertaining to the estate, which I highly recommend2). Two of the emails (totally identical) informed me that the address of the estate had changed (what?!!?) and one email, reading very carefully, I think was telling me that a Notice of Assessment for the Estate return had been completed. Here, judge for yourself, this is what the email looked like:
The Canada Revenue Agency (CRA) sent new mail online to ESTATE OF xxx called: Notice of assessment This mail may require your attention. If you have My Trust Account, sign-in via Represent A Client and click on “Mail” to read the mail. If you signed up to receive mail online but don’t have My Trust Account, go to the CRA web page to register.
Ok, I am going to rant a little bit at this point in time about how inept this communication is.
Why is it so hard for the CRA to send email communications that don’t sound like form letters?
Here’s how a normal human might write this: “A Notice of Assessment has been completed for your estate account. Login to Represent a Client3 using your Rep ID and the Trust Account Number to view it.“
Why doesn’t CRA know that I have a My Trust account? Of course I do, that’s how you’re emailing me about matters pertaining to the estate.
Why is no detail offered around where to register for a My Trust account? (“The CRA web page” is about as helpful as saying “Google it”4).
Of course, this is all nit-picking. My biggest beef is that this Notice of Assessment is being posted 17 weeks after they cashed the cheque for taxes owing on the estate return. In a world where we have self-driving cars how is it ok that it takes 4 months to feed a form into some software somewhere? And this is normal, per the CRA website.
Of course, it gets better. I now go to login to My Trust Account (a term I hadn’t heard before, it’s accessed the same way as you Represent a Client), and I see that the address of the estate is correct (phew), but there’s no indication of any Notice of Assessment, and the status message concerning the T3 that was showing up a week ago has disappeared. Clicking through to the “Balances” portion generates a vague error message.
Perhaps it’s helpful to explain what I expected to see at this juncture:
An electronic Notice of Assessment
A balance of zero
Not hard, right?
And so, off to the CRA call centre I went. Speakerphone? Check. Coffee? Check.
After listening to the various options (which take a really long time to work through, especially since one has to listen to messages about My Account and being nice5) I did reach a human in about 10 minutes, which is actually pretty good. Lori was pleasant and helpful, but after about 50 minutes of various holds and questions asked and answered, Lori decided that this was actually a problem for the digital services team to handle. And so I was transferred. I crossed my fingers, since what often happens at this stage is to either get disconnected or punted to the back of a 2 hour queue. Instead, I was connected to another pleasant and helpful agent immediately.
In less than 10 minutes, Sandra had an answer for me: the reason I couldn’t see the Notice of Assessment that was posted was because the estate, in CRA’s eyes, had ceased to exist. The final return was successfully submitted, the balance was zero and so online access was clearly no longer needed.
You can’t make this stuff up
And so, I therefore needed to wait for a paper Notice of Assessment delivered via snail mail which could take anywhere up until mid-November, per the helpful agent.
Next steps
Patience in wrapping up an estate, as I hope this post has illustrated, is an absolute requirement. Even if you do all the things right like
filing on time
using CRA’s e-services like My Account, Represent a Client and My Trust Account
paying your balance promptly
You can still expect lengthy, CRA-imposed delays.
Once I get the paper Notice of Assessment, my accountant tells me filing for a Clearance Certificate (form TX19) is fast. But once again, you’ll have to deal with CRA’s service standard, which is currently stated to be 120 calendar days from form reception (4 months in human terms).
If all goes well, I should be done about a year after I filed and paid the two tax returns (final return and estate return) with CRA; these delays are all CRA-imposed. Instead of talking about non-stories like the $660k tax bill6, perhaps the Canadian media would prefer to take a closer look at how Canadians are being served (or not) by the CRA when it comes to estates.
Especially given how unreliable snail mail has become with labour disruptions and whatnot. ↩︎
Represent a Client is a super-useful CRA service if you’re a financial caregiver. I used it when my parents were alive to help with tax matters, and it’s the same login when dealing with an estate, except then the CRA seems to call it “My Trust Account” in that case. ↩︎
Yeah, sure, don’t include hyperlinks in emails, I know, I know. But is this really the best we can do here? ↩︎
I make extensive use of any digital service offered by the CRA. Telling me about them isn’t necessary. Nor is it necessary to tell me to be nice, I’m always very nice to people on the phone. They are trying to help me and it’s not their fault that they don’t have the tools they need to do their job well. I do wonder whether warnings to “be nice” actually have any effect on the caller who is habitually aggressive or abusive? I really doubt it. ↩︎
Why is it a non-story? Because the “news” is that if you have a massive net worth (715k RRSP, million dollar secondary property), you can expect to pay a massive tax bill when you’re dead. Is this surprising to anyone? ↩︎
The Money Engineer 