New mutual fund performance reports and tax reporting cautions

Early in 2017, a new report will be mailed to mutual fund investors (likely for the period ending December 31, 2016). It will tell investors how well their investments have performed in dollar and percentage terms over different time periods. In addition to this new report, investment gain/losses may be detailed on investor statements as well.

I asked Dan Hallett, Principal of Oakville-based HighView Financial Group and frequent contributor to the Globe and Mail and many other business publications, what investors could expect to see in the new reporting. In this discussion, we will concentrate on two of the calculations that Dan mentioned specifically:

  1. Cumulative Total ($) Gain/Loss: Market Value – Book Cost = Gain/Loss
  2. Percentage return calculation will be IRR (dollar-weighted internal rate of return) using beginning market value, ending market value, and interim cash in/out flows. The result is an annualized percentage return averaged over the entire measurement period.

According to Morningstar Canada, book values and gain/loss calculations will show on investors’ statements.

As mentioned, the brand new Investor Performance Report will be mailed to investors starting in 2017. The report will include percentage return calculations, changes in market values and other performance numbers specific to each investor. Here is a sample Investment Performance Report.

Rudy Luukko, award-winning editor of Morningstar Canada, wrote an article titled, “CRM2 won't solve tax-reporting headaches”. He cautions investors to be careful about using the new gain/loss information for income tax reporting purposes.

He says, “Under new disclosure rules for client statements -- as part of the second phase of the client-relationship model (CRM2) -- it will be mandatory for brokers and dealers to show whether a holding is making or losing money for you”.

However, Mr. Luukko appears to raise a red flag about some of these numbers:

“If you rely on the CRM2-mandated disclosure, you may be overstating or understating your capital gain from the sale of a holding in a non-registered account. You could end up either paying too much tax or you could risk getting in trouble with the Canada Revenue Agency for not paying all the tax you owe.”

Although Mr. Luukko gives a couple of specific examples as to why the numbers should not be used for tax purposes, both he and Dan Hallett point out that the book values listed on your dealer statement may not be the same as the ACB (adjusted cost base) that accountants rely on to calculate the actual gain or loss that must be reported to the Canada Revenue Agency for income tax purposes.

I also asked Dan Hallett about the new Investor Performance Report which will show total percentage rates of return over various time periods including the performance since the account was opened (at the current Dealer) or performance reports starting from a specific date (e.g. January 1, 2016). He emphasized that book values (incorporating original costs) will not be used in any of these calculations. Only market values will be used in the new Investment Performance Report.

Dan and I discussed whether the industry would be better off by using a universal inception date that all dealers would be subjected to. He noted that using a universal inception date starting say, in July 2015 (the CRM2 implementation date), is too short and would not generate any meaningful data for several years. The second best thing he said was to use the dealer account opening date. However, in our discussion, we debated that if the dealer account opening date is used instead of a universal start date for rate of return calculations, it could create unfair rate of return comparisons between advisers. Equally, the regulators have similar concerns about choosing an inappropriate start date like January 1, 20101 that would make rate of returns look unfairly (too good).

What is the big deal about start dates? In case I’ve managed to thoroughly confuse you about how important start dates are, how about a picture instead? Here is a chart of the widely followed S&P 500 Index2, the leading benchmark index of the U.S. stock market. Make sure you click on the link below.

Question: What is the rate of return of this S&P 500 chart?

Chart courtesy of and Advisor Perspectives

Answer: There are tons of different returns! It depends on what start and end point you use. Note the -56.78% return from October 9, 2007 to March 9, 2009 (peak to trough) and the +215% return from March 9, 2009 to May 21, 2015 (trough to peak). Also note how dramatically different the returns can be especially if you start measuring from a high point versus starting from a low point.

If you have made mutual fund purchases prior to the Dealer account opening date, the new Investment Performance Report only measures how your investments performed since the Dealer account opening date, not what your rate of return was since inception3 – a very important and key difference.

[Editor’s note: Dealers can choose either a calendar start date or the client’s account opening date.]

Investors should also be aware that the Canadian Securities Administration is mandating a different way of calculating rates of return – it’s called the money-weighted rate of return. This is different from the time-weighted rate of return calculation that a mutual fund’s portfolio manager would use. There are important differences between the two and you should check out our info graphic for a more in-depth explanation.

To sum up, unless you know for sure that your particular Book Value is equal to the ACB (Adjusted Cost Base), book values should not be used for tax calculation purposes. If you have moved between investment firms, changed advisers, or made mutual fund purchases before the inception date listed on the new Investor Performance Report, some rates of return on the new report could be very different from your own records or the mutual fund companies' statements. The new reports though, have the ability to neatly consolidate the returns of several mutual funds and boil it down to one rate of return.

Although I believe that better reporting standards will allow investors to make better-informed decisions about their investments, it is always best to contact and consult with your financial adviser, especially if any of the above situations apply to you. Don’t forget to bring your new Investment Performance Report with you!

Need help in interpreting the new reports? Have a question about ACBs, book values, capital gain/loss calculations or rates of return? Contact me at


1 Stock market indices (post U.S. Financial Crisis) were at a very low level on January 1, 2010 and some indices have more than doubled in value since then. The regulator mentioned the use of this date specifically, as highly inappropriate. Since you are measuring from a low point, the returns (at current record high levels) would measure out to be very good indeed.

2 S&P 500 Index – used for illustrative purposes only.

3 Since inception: For mutual fund companies; refers to the date the investment was first made.

Jargon alert:

Book value: Original cost + reinvested distributions – return of capital

ACB (Adjusted Cost Base) = The cost of your units or shares, plus any expenses you incurred to acquire them, such as commissions.

CRM2: Client Relationship Model – Stage 2

Dealer: The adviser’s head office

IRR: Internal Rate of Return expressed in percent (dollar/money weighted)


Morningstar Canada, Rudy Luukko – “CRM2 won't solve tax-reporting headaches


Predictably Irrational:

Irrational Pessimism and Irrational Optimism – Winter 2015-2016 market comments

Last year on March 20, 2015, I wrote an article titled, “Everyone is a genius in a rising market”.

 Before I continue, I should point out that trying to time the market (attempting to predict stock market highs and lows) is a discredited investment strategy. My deep concern and caution last year about stock market corrections was not an attempt to “market time”, but an observation about excessive optimism – perhaps even irrational optimism. Students of behavioral economics (I am one of them) believe that human behavior is by far the most important determinant of investor success. Specifically, what we do with our investments after we’ve bought them is the key to our success as investors or our failure. In March 2015, I felt that there was an excessive number of media articles about buying indexes or index-like investments. Some even went as far as to say that professional financial advice cost too much money and buying an index on a smartphone was an inexpensive way of jumping into the stock markets. Active management using a financial advisor, according to the media, was dead.

 That advice was not good to start with and the timing couldn’t be worse. Just a few weeks later, both Canadian and European markets peaked out and started their steep declines. As at the time of this writing, Canada’s stock market delivered a negative 25% loss ( based on 52 week high/low) to index investors in just 9 months, and European indices experienced a similar loss of about negative 22% (based on 52 week high/low). The U.S. fell in tandem (although to a lesser degree) with the decline starting just a bit later in the last half of May 2015.

 Almost all Canadians now know that the collapse in energy prices meant that 2015 was a bad year for Canadian stock markets, and that our year-end statements will likely reflect poor Canadian performance. Canada’s economy didn’t do all that well either. Canada spent the first half of 2015 in recession and the Bank of Canada’s efforts to stimulate the economy by lowering interest rates (twice) did little to improve things other than reduce the value of the Canadian dollar to about $0.68 USD.

 If you held foreign investment funds however, there was a very good chance that your fund held its value despite falling markets or even made money due to the depreciating dollar. Foreign currencies appreciated against the Canadian dollar, giving these funds a nice lift as the Canadian dollar nosedived.

 Big Trouble in China

 Market sentiment is a curious beast. When the Chinese stock market dropped over 40% last summer due to lower economic growth, no one noticed. In January 2016, it was a different matter as news headlines everywhere were reporting Shanghai index numbers daily.. Most foreign investors perceive Canada as strictly an oil producer. Evidently in the eyes of many foreign investors, we produce nothing else and we might as well be a third world emerging market country. If perception is reality, Canada would be its poster child.

 Canada’s stock market and its dollar appear to move lock-in-step with the price of crude oil. As Benjamin Tal, economist for CIBC aptly describes it, “The market is not really trading on fundamentals – it is trading on market sentiment.” The market was “overshooting with momentum”, he said.

 When perception is not reality, this means that such disparities create investment opportunities.

 Last year, I was concerned about a stock market correction. I counselled risk-adverse investors to place new money into fixed income investments rather than equities.

 Now that we have had a significant correction in the markets, we can now start to employ our buy-low strategy and buy equity funds (investment funds that have stocks in them) and invest 10% of our free investable cash into Canadian and possibly, European funds. However, please contact me to ensure that these recommendations are suitable and appropriate with respect to your personal situation.

 Source and references:

Yahoo Finance;range=1y



Currency charting:

Benjamin Tal – Deputy Chief Economist, CIBC World Markets phone conference – 2016 Global Economic Outlook ( Friday, January 15, 2016, 11:00 a.m. ET)


Everyone is a genius in a rising market

And sure enough, with U.S. stock markets trebling in value1 since the lows of March 9, 2009 we seem to have a plethora of geniuses at the moment. Investing is easy and cheap to do. All you need is a smartphone and an app.

We will continue to see many similar comments espoused by the popular press and many, far too many, will make the often fatal assumption that indexes always go up. Many “expert” writers and bloggers conveniently forget (financial amnesia?) that the NASDAQ2 Index – America’s much loved tech index is just about to break even – some 15 years after its highs!

We also cannot forget the Japan NIKKEI3 index which is still more than 50% below its peak of 1990.

Put another way, in 25 years the Japan index is still trading at half its 1990 value.

And just now the U.K’s benchmark index, FTSE4 has reached its high of 15 years ago.

The Great Rotation back to stocks (absent in early 2014) has taken hold with a vengeance and despite the forgotten lessons of Japan, the UK and NASDAQ, index passive-ists has become today’s new religion.

The passive-ist argument is disarmingly simple: Since all indexes go up in a straight line, you just buy the cheapest one and because profits are certain, simply dump your advisor and you surely will be on the path to guaranteed riches.

It is my contention that investors who use index investments exclusively and buy the cheapest things (because they are cheap) will at some point have their heads handed back to them.

Money will flow out faster than it came in, as declines accelerate during the next apocalypse dejour whatever it might be and DIY (do-it-yourself) investors will get out near the bottom as history repeats itself – again.

I see way too much index fervour (fever?) especially with respect to U.S. indexes. In my view, indexing at record highs is not a medium risk strategy. It is a high risk strategy.

My timing will of course, be 100% wrong. Markets can be overvalued or undervalued for long periods of time.

But they do correct.


1 U.S. S&P 500 Index:

2 U.S. NASDAQ Index:

3Japan NIKKEI 225 Index:

4 U.K. FTSE 100 Index:


The opinions expressed are those of the author and not necessarily those of Assante Financial Management Ltd. 

How to make an RRSP contribution – without making an appointment

Some investors have busy lives. Time is a precious commodity and time is sometimes something that they just don’t have.

First of all, you really should be seeing your advisor, especially for your regular financial checkups. If you can make the time to see the dentist or the family doctor, you should be able to make the time to see your advisor.

However, if you just can’t make it into your advisor’s office – no way, no how and the RRSP deadline is looming just around the corner; here are a few ways you can make an RRSP contribution from your home or office.

  1. Call your advisor and say you can’t come in but you would like to add $5,000 to your RRSP before the March RRSP deadline. You and your advisor can discuss which fund to buy or add to. Provided there is still enough time for the mails, all you have to do is to make out a cheque payable to the advisor’s dealer, i.e. ABC Investment Firm Ltd. Enclose a note that says: Please add $5,000 to my XYZ mutual fund. Sign and date the note and mail it off to the advisor’s office. Before the deadline is due, call the advisor’s office to make sure your cheque has safely arrived or better yet, your note might request a call or email confirming receipt of your contribution cheque.
  2. Set up a new nominee account. These types of accounts are the most convenient of all but they do charge a yearly fee for all of the advantages and convenience these accounts provide. For instance, you may be able to make your contribution online, view your accounts online and can verify that your contribution went though. Generally, no signatures are needed for purchases, switches, contributions or redemptions. Withdrawing cash from an RRSP does require a signature.
  3. If you have a client name account, you can arrange with your advisor to setup an LTA (Limited Trading Authorization) which means that you relay instructions to your advisor by phone or by email. Setting up an LTA form (no cost for this) will also eliminate many of the client signatures that are normally required.
  4. Avoid the mad rush to meet RRSP deadlines by making your RRSP contributions automatically from your bank account. Your advisor can set up a PAC (Pre-Authorized Chequing) plan so that your RRSP contributions are made monthly right from your bank account to your RRSP account.

Don’t forget that advisers must send you a Fund Facts document for the fund you are considering buying or adding to. Both you and your adviser have to ensure that the mutual fund being considered is suitable and appropriate for your situation.. So don’t just send in a cheque!



Fund Facts – more tweaking needed

Fund Facts is a new four page document that must be given to a new or existing mutual fund investor prior to purchase.

It is meant to be a short and relatively easy to understand information document about the fund you are buying. Its purpose is to ensure that the buyer can make an informed decision when considering the purchase of a particular mutual fund.

Fund Facts was launched mid-2014. Now that advisors and investors have had some time to familiarize themselves with it, it’s time to look at it with a more critical eye and see whether there is room for improvement.

Although I was initially enthused about the use of a graphical risk ruler as a simple and straightforward measure of “riskiness”, some investor groups have criticized the usage of such a ruler as misleading. The graphical ruler describes a fund on a sliding scale as low, medium or high risk. Their view is that the underlying methodology (standard deviation) is faulty and should not be used.

I do see their point.

Although standard deviation is the basis for statistics and probability theory, its use as a measure of risk is currently in the middle of a raging debate. Theorists indicate that “outliers” near the tails of the conventional probability distributions are perhaps more frequent, and mathematics should account for these occurrences. Now, my background in 1970s mathematics is a bit hazy so I won’t argue as to whether or not we should replace Fourier transforms for Laplace; however, some academics are suggesting doing away with bell distribution curves completely.

Critics of the Fund Facts graphical risk ruler point out that standard deviation measures a too short period of time – perhaps as little as 5 years or less. Since standard deviation is really a measure of up and down fluctuations, you could, theoretically speaking, have an investment that is smoothly declining to zero. In this case, because there is no zigging and zagging (no fluctuation), the graphical ruler could indicate a “low risk” fund. To carry the argument to an extreme, you could market the world’s worst investment as a low risk, low volatility fund!

If we are stuck with using standard deviation and graphical risk rulers, what should advisors do?

I am careful to point out to investors that the ruler is strictly a measure of short-term fluctuation.

Are there better risk adjusted return formulas out there? Most likely there are, but I still like the graphical elements of graphs and rulers, and as an interim step, the measurement periods should be extended to at least a decade. Alternatively, we could have two or more standard deviations: 5 year, 10 year and since inception numbers.

Since we are talking about time periods, one measurement in the new Fund Facts document stands out (in a bad way). As a possible replacement for standard deviation measurements, I think that the maximum drawdown should be published. It is published now but only for the worst 3 month period. That is far too short of a timeframe! To really indicate the “riskiness” of an investment, we should know the maximum drawdown in percent over any period. As an illustration, most investors who consider an index-based fund would be staggered to know that the maximum drawdown for the S&P 500 index is an astonishing -56%[1]. And no, that not a hyphen in front of that 56!

Investors have already forgotten that the stock market dropped 56% from October 2007 to March 2009. For the “passive-ist” investors out there who prefer indexing over active management: are you prepared for that type of volatility? Maximum drawdown numbers, without a doubt, snaps you back to reality pretty quick.

All-in-all, Fund Facts is a great step in the right direction. Advisors and clients that I have spoken with are relieved that they no longer have to deal with a 250 page prospectus* now that a concise, four page document will do the job.

Still, the Fund Facts document is not perfect and it needs to be improved on a continuous basis.

*The more detailed but far thicker prospectus has not been eliminated by the Fund Facts document. It is still available on request.



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