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Step 2 Respond to the canadian financial system |
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 Another theme of our site is the manner in which you, as a small player in the Canadian financial system, should act faced with a financial system in Canada dominated by a small number of financial groups composed of six Canadian chartered banks, three insurance companies, and a co-operative movement (what our site calls the Top 10) who are involved in all aspects of investing: certificates of deposit, traditional brokerage (what this site calls full service brokers), discount brokerage, investment advice and mutual funds.
Since most individual Canadian investors do business with them, they must take into account the business objectives of the Top 10:
- It is the growth in assets under management which is their fundamental objective; this explains why they focus their marketing on products and services on different entities within their group; and
- This fundamental objective does not require that they obtain from their clients a better long-term investment than their competitors or beyond recognized indexes.
A recent study to which we will talk to you maintains that investment costs for typical Canadian investors (i.e., those who invest using mutual funds) are not only higher than in the U.S., but are the highest in the world.
An investor can maximize the efficiency of his usage of Top 10 entities, benefiting from their expertise and minimize the inconveniences, by modifying his own conduct:
- Once should recognize that there no limits to the services or products which the Top 10 are will to sell you. It is you as an independent investor who should know your names, obtain as much information as possible to minimize your dependence on the Top 10, and only ask for those services you really need.
- The independent investor should focus on those entities within the Top 10 groups, often they are discount brokerage firms who can provide the services you need at the least cost.
- That employee of a Top 10
 company with whom you are doing business may or may not have the necessary flexibility enabling him to always act in your best interests; does his system of compensation insight him to offer you in priority certain products, namely those of his employer or of his financial group?
- Our site identifies products which have been developed initially in the U.S. market (which is much more competitive and consequently offers lower fund management fees and more favourable commission rates) which an individual Canadian investor can access under Canadian Legislation (which unfortunately seems to be heavily influenced by the lobby of the Top 10).
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Last Updated ( Sunday, 16 January 2011 )
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Quotation
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There has been a significant shift from active to passive management over the 1990’s. Part of this is due to index funds, but an even larger part is due to closet indexers and a general tendency of funds to mimic the holdings of benchmark indexes more closely. Martijn Cremers & Antti Petajisto |
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