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Desjardins Private Management1. Do I need to be wealthy to benefit from Desjardins Private Management services? Do you know the real extent of your assets? With the assistance of your advisor, have you really drawn up a complete list of your holdings? If you neglect to include important elements, such as retirement plans and your spouse’s holdings, you might well find out that you are richer than you thought! Do a detailed inventory and you will see that you are eligible for Desjardins Private Management services. Portfolio Management2. If I deal with a portfolio manager, how can I be sure I won’t lose control of my capital? When you use the services of a portfolio manager, you are calling upon specialists whose mandate is to preserve your capital and make it grow. You are not giving up control! You are still the master of your money. together with your manager, you determine your investment goals and how the assets are distributed. within this structure, which is periodically reviewed and modified, your manager will act at his/her discretion. In fact, the details of the arrangement are stipulated in the contract. 3. How can I diversify risk by concentrating my holdings with a single manager? A portfolio’s diversification is based essentially on the balance between fixed-income investments (for example, bonds) and stocks. It involves a variety of financial products, investments in different sectors, and, when need be, foreign holdings. That’s what diversification is. It is always best to leave the choice of holdings to a specialist. Nor does a manager operate in isolation. For each category of asset, he works as needed with other specialists. They are given the mandate to stimulate the management process through analysis and diversification by style, by sector or by country. 4. What exactly does asset distribution mean? Asset distribution is the manner in which you allocate or divide your investments into three major asset categories : stocks, fixed-income securities (e.g. bonds), and liquid assets. Liquidity yields the lowest returns and offers little protection against the erosion of buying power by inflation. The return on fixed-income securities tends to be lower than that of stocks but higher than that of liquid assets. At one time, stocks yielded the best long-term returns, allowing the investor to compensate generously for the decrease in buying power caused by inflation. still, their value tends to fluctuate more than other investments. as such, stocks are better suited to long-term investment strategies. A properly balanced portfolio should therefore be comprised of investments in each asset category. This diversification decreases risk. In fact, studies have shown that at equal risk, a diversified portfolio earns better returns than a portfolio invested in a single category. 5. What percentage of my capital should i allocate to each asset category? That depends mainly on the two following elements: Your risk tolerance Because the potential for long-term return is directly linked to the risk you are ready to take on, it is important to establish the combination of asset distribution that will have the level of volatility you feel comfortable with. Your investment objectives Knowing investment objectives helps identify your goals. If the desired return is lower than you expected, you must compensate with additional contributions. In knowing the optimal distribution of assets in relation to volatility or acceptable risk, the manager will be able to evaluate the hoped-for long-term return. He will then be able to determine if the return earned by the distribution of assets is sufficient to achieve your goals. In order to successfully distribute assets for maximum effect, you must also consider other factors, such as the period of time you wish to invest, your age, your needs for investment income and your general financial situation. The portfolio management professional is in a position to identify the distribution of assets that best suits your personal situation. This distribution is detailed in your contract and is the framework for the daily management of your portfolio. The distribution is reviewed and modified as your goals evolve so that the portfolio always meets your short, medium, and long-term financial needs. 6. Why is the stock market such a key aspect in a portfolio? Due to changes in interest rates, it would be unrealistic to hope that a portfolio composed of exclusively of bonds and other fixed-income securities would yield enough returns for you to achieve your financial objectives. In the current market, investment of a portion of a portfolio in stock markets appears to be the best source of growth. Having said that, do you have the expertise to pick and choose among all of the stock offerings on the various exchanges? Our managers have that expertise. Their approach is structured, objective, and organized. 7. Why do you attach so much importance to the signing of a management contract? The management agreement contains all of the rights and obligations of the signing parties and establishes the management parameters of your account. Without a contract, the manager cannot manage your portfolio. 8. Will a manager make investment recommendations? No. Desjardins Private Managers do not make recommendations with regard to buying or selling securities. Managers analyze markets, securities, your portfolio and immediately make the decisions required for each account. This is a significant advantage as opposed to periodic recommendations by a middle-man, such as a broker, because from the time the recommendation is noted, sent in writing, examined and acted upon, the investment can be less attractive and even unprofitable. 9. What is the difference between Desjardins Private Manager and a securities broker? A securities brokerage firm is a go-between that sells securities: stocks, bonds, mutual funds, etc. The broker earns commission on each transaction. In the case of bonds, the commission is included in the bond price; with regard to stocks, it is added to the value of the transaction. Desjardins Private Manager are advisors with unrestricted practice and who manage portfolios. They sell nothing more than their expertise. To do so, they charge a fee as any other professionals would. It we could make an analogy with the restaurant trade, Desjardins Private Manager would be the chef while the brokers would be the food suppliers. But Desjardins Private Manager does not work alone. We take the time to consult with external specialists for asset distribution, a particular management style, sectoral or geographic diversification. If we extend the restaurant analogy, the chef will often use the services of a reputed pastry-maker for desserts, and in some cases a dietician when drawing up menus. 10. Would I continue to pay commissions to my broker? Desjardins Private Management buys securities on the stock and bond markets. To do so, Desjardins Private Management must deal with a middle-man that is a member of the stock exchange (a broker). To complete transactions, the middle-man charges commissions. However, because we operate at an institutional level with major volumes, as opposed to retail, commission rates are very low, often a few cents per share. This is a substantial savings for a diversified portfolio. 11. What part does the fiduciary representative play in portfolio management? Given that Desjardins Private Management can have dealings with several brokers, it becomes crucial that the clients’ assets are not widely scattered, that transaction closings and the holding of securities be consolidated with the assigned fiduciary representative, which acts as an agent and courier of values. That role falls upon Desjardins Trust for its portfolio management. The fiduciary representative keeps track of the accounting side of the investments, ensuring the timely deposit of dividends and interest that you earn. Each month, the fiduciary representative sends out a detailed report with explanations of all the account’s incoming and outgoing funds. 12. Does the fiduciary representative hold certificates in my name representing the holdings in trust on my behalf? The securities trade has changed quite a bit. Very few certificates bearing the owners’ names exist nowadays. The system works like your bank account. at the bank, only certain written documents attest to the fact that the institution holds a given amount of money in your account. This type of system has become the norm and works very well, as it speeds up transaction settlements and securities transfers while eliminating the risks involved in physically dispatching the certificates and keeping them on file (fire, theft, loss, etc.). 13. Can Desjardins Private Management withdraw money from my trust account? The management contract you sign with Desjardins Private Management does not in any way authorize the manager to ask for money to be withdrawn from your account. He is only authorized to allow the trust company to pay for transactions in your account and periodic fees. 14. I would like a cautious form of portfolio management involving bonds only so that there is less risk of losing my capital. What do you think? There are risks involved in bond investment. For example: Interest rate fluctuations As a rule, bond value varies in keeping with changing interest rates on the marketplace. Generally, interest rates and bond performance move in opposing directions: when interest rates rise, bond value drops. The value of bonds held in a portfolio is subject to decreases. Conversely, when interest rates drop, bonds tend to increase in value. The incidence of interest rate fluctuations on the value of a bond portfolio under management will be all the greater the longer the average term of the bonds. Still in this context, when we consider that inflation and interest rates progress in the same direction, it is not surprising to realize that a long-term investment in bonds or investment certificates can reduce your buying power and your holdings. Credit-related risks You risk losing a bond investment if the issuer of a bond or fixed-income security is unable to pay the interest on it or unable to refund the capital on the term date. The risk is greater if the fixed-income investment has a low credit or no credit rating at all. While fixed-income securities with a good credit rating generally earn better returns than their counterparts with low credit ratings, they can also entail a significant loss. 15. I would like to minimize all types of risk. What is the solution? To diversify asset categories. Without diversification, you will not reap the returns associated with the risk you have assumed. The graph below shows the return on different combinations of stocks and bonds (the portion shown near the curve represents the stock weighting). For the period being analyzed, a portfolio composed entirely of bonds would have earned an annual return of 6.1% and would have exposed you to volatility of 9%. Adding stocks to the portfolio (let’s say, 20%) reduces overall volatility to 8.3% while increasing return to 7.2%. It depends on the agreement struck with the client. According to the graph, the portfolio composed of 20% stocks and 80% bonds would allow you to minimize risk while earning better returns than you would from a portfolio entirely composed of bonds. You will also note that a portfolio composed of 40% of bonds will entail the same volatility as one composed entirely of bonds. At equal risk, this portfolio will earn significantly higher returns. Over the long term, the difference can be remarkable.  16. Why does the net value of a mutual fund go down at the end of the year? Mutual funds involve share dividends, bond interest, and capital gains when investments are sold at a profit. All of these forms of income are added to the fund’s value and the net value per share reflects this on a daily basis. The net value of mutual funds and pooled funds often drops at the end of the year because managers remit a portion of the profits earned during the year to investors in the form of what we call distributions. 17. What is the difference between market value and book value? When we talk about an investment, market value represents the current value of that investment on the market. If the price of stocks in company abs is presently $50, its market value will be $50. The price you paid for a share in that company is the book value. If you purchased a share one year ago and you paid $40 for it, that price is its book value. Market value and book value are often different; the former changes over time, often from minute to minute, while the latter stays the same. Within a registered plan (RSP, RRIF, LIRA, LIF) Book value comes into play when you hold investments that are considered foreign in your RRSP. the established limit for foreign content is generally 30% of the book value of your RRSP. this 30% limit is calculated based on the original cost, or book value, rather than on the current market value. Outside of registered plans Outside of registered plans, the term book value is occasionally used to denote the fiscal cost of a security or its adjusted base price. When a security is sold, the difference between the current market value and the adjusted base price is calculated to determine the capital gain or loss resulting from the transaction. 18. What is a takeover bid? The term takeover bid is used when a company makes an offer to acquire majority shares in another company whose shares are publicly traded. It is not unusual for management, the board of directors or a group of shareholders to be unreceptive to the idea of selling, in which case the process is called a hostile takeover. Takeover bids are subject to ratification by the board of directors of the target company; the board can form a committee to study the offer. The committee will hire a brokerage firm to determine if the offer is reasonable. Administrators are required to act in the best interest of shareholders. As a result, if the offer is attractive, they will recommend that shareholders accept it. A takeover bid by a company will usually seek to acquire a majority of shares. After acquiring the majority, the buyer may resort to legal measures to gain control of the rest. When a takeover bid occurs on shares held in portfolios managed by Desjardins Private Management, the manager must analyze the offer and act in the client’s best interest. 19. What is stock splitting? Stock splitting is quite simply a restructuring of a company’s share capital. The company issues a certain number of new shares for each share already on the market. Generally, the company is seeking to lower the price to make the purchase of a regular block of shares (generally, 100 shares) more affordable to a greater pool of investors. The operation improves the security’s liquidity and makes it an attractive transaction for investors and the company alike. Depending on the suggested restructuring, the company can issue a desired number of shares by replacing existing shares. This number does not have to be a whole number; for example, the company could decide to issue 1.5 new shares for each share in circulation. Stock splitting does not increase value for shareholders and is a process meant to lower the price of the company’s share. This decrease is inversely proportional to the increase in the number of shares. In portfolio management, the fiduciary representative is responsible for receiving the replacement shares after a stock splitting operation. After stock splitting Share values Let’s say company xyz decides to double the number of its ordinary shares, which are worth $50. You presently hold 100 of that company’s shares for a value of $5,000. After the stock split, the number of shares in circulation doubles and the share price is reduced by half , or $25 per share. You know hold 200 shares valued at $25 each. The value of your investment is unchanged. Payment of dividends After the number of shares in circulation has doubled, the price of each share drops by one-half. By the same token, the cash dividends paid out by the company are also reduced by half, so that the rate of return of the shares is also unchanged. 20. What is share consolidation? Share consolidation is also capital restructuring. It occurs with new mining enterprises and oil companies whose share price is still low. Unlike stock splitting, the company replaces a pre-established number of shares in circulation by a single new share. The value for the investor remains the same. Let’s say the price of a company xyz share is currently 50 cents per share. The company decides to replace each increment of 10 existing shares with one new share. After consolidation, the number of shares in circulation will have decreased by 90% and the share price will be $5.00 per share. The investor who held 10,000 shares at 50 cents each will now hold 1,000 shares at $5.00 each. Share consolidation increases share price and helps the company seek the capital it needs, generally through a new issue. The portfolio manager’s role In portfolio management, when a company restructures its capital, the manager must analyze the situation and take the appropriate measures in keeping with the long-term investment objectives. 21. Why are the online reports always one month behind? This is normal. the managers’ reports cover the period to the end of the previous month. Private management clients have quicker access to this information; the copies on the public site are posted somewhat later. Financial Planning22. What is financial planning? Financial planning is designed to produce a structured action plan to allow you to achieve your financial and personal goals. It is a stringent process conducted in keeping with your needs and one which takes into account all of the factors that are likely to have an impact on your financial standing. To be fully effective, financial planning must be:
23. What is involved in integrated financial planning? The integrated financial planning process has six phases which, with the help of your financial planner, will allow you to: 1. Identify your financial and personal goals as well as the values you favour most in this area: a child’s education, support of elderly parents, maintaining your current lifestyle over the long term, decrease in immediate financial pressure, etc. 2. Clarify your current situation by collecting and examining all relevant financial information: assets and liabilities, statement of income, insurance contracts, last will and testament, pension plans, etc. 3. Detect financial problems that could be impediments to your financial independence, such as: insufficient insurance coverage, lack of liquidity or investments that are poorly protected against inflation. 4. Develop an action plan that will include the written recommendations of your financial planner and alternative solutions. the scope of these recommendations will vary depending on the complexity of the situation but they will always be developed to meet your individual needs. 5. Put the action plan into motion, both in terms of the application of recommendations and the coordination with other qualified professionals. 6. Periodically review the action plan to ensure that it will achieve your goals. You should have your situation re-evaluated at least once a year to take into account any changes that might have occurred in your life or changes in the economic situation in general. After this process, your financial planner will provide you with a written report that will include recommendations and an action plan. If you wish, he will also help you carry out the recommendations and monitor them, as well as organize or reorganize your finances. 24. Who should I consult to begin the financial planning process? To be authorized to bear the title of financial planner in Quebec, the person must meet two conditions, as follows:
When choosing a financial planner, make sure that you feel completely at ease and confident of his competence. Your financial planner must become a confidant to whom you can frankly explain your personal, family, and professional situation and reveal your needs, values, and goals. Before securing the services of a financial planner, ask for a meeting, talk about how he will work with you, and feel perfectly free to ask questions. After all, you’re asking this person to shape your financial future!
What form of remuneration does he get? 25. What is a financial planner’s remuneration based on? Financial planners can be remunerated three different ways :
Always ask about a financial planner’s form of remuneration when he offers his services. 26. Why would you bill planning fees? Many planners do not charge them. Our financial private management vision can better be compared to the work of a professional, such as a lawyer, a notary or an engineer working in a specialized field, than it can to someone who distributes financial products or services. The fees we charge allow you to benefit from professional service. As a result, the quality of the planner’s analysis and recommendations are not directed by a specific or given supply of products and services. You are therefore free to act as you wish with your usual life insurance provider, your broker or your notary to choose the elements of the action plan recommended by the planner. 27. Can financial planning help me save on income taxes? People often think (wrongly) that financial planning involves magical tax shelters or complex strategies that will allow the tax burden to be reduced. To be sure, there are certain exceptional situations in which the planner can suggest attractive and advantageous short-term solutions, but in most cases, financial planning is a long-term and continuous process. Following are a few current strategies that are used to pay less income tax. These are solutions that taxpayers tend to neglect because they are too concerned with saving a few dollars here and there when they are completing their income tax returns. Family income planning Investment income is often found in the wallet of the spouse who earns more money, when in fact it would be preferable to let the spouse with the lower income to invest more.
Entitlement to RRSP contribution? Do you make use of your right to contribute fully to a rssp or do you contribute a sum every year? Check your government statement to find out how much you are eligible to contribute to a RRSP. New RRSP contributions can be made within 60 days of the fiscal year-end or even during the fiscal year. Capital losses: the most-often overlooked fiscal benefit Perhaps in recent years you have lost capital on certain investments. Losses are deductible, unlike gains. Capital losses for the current year or the previous year can help lower the income tax you pay on capital gains. You can achieve this by selling securities showing capital losses during the year in which you made capital gains. If you have accumulated gains or losses on investments not included in the portfolio we manage, let your manager know. Managing Holdings28. Why would I pay fees to have my affairs managed when everything is automated these days? You are right – many financial transactions, such as bill payments, taxes, bank deposits and investment renewals can be done with automated systems. On the other hand, automated transactions do not detect and cannot correct mistakes; they cannot do conciliation; They do not search for the best rates. they do not consolidate payables and receivables on a single statement of account; they cannot evaluate discovery risks; they cannot complete your income tax returns and often, they do not permit you to talk to a certified advisor. In the end, the fees you pay give you a guarantee that all transactions will be effected – and they also give you peace of mind and face-to-face service. you be the judge. MODIFICATIONS TO THE MANAGEMENT SERVICE AMERICAN ASSETS1. Why appoint a new manager for American assets? We wish to benefit to the outmost from our management partners’ respective expertise. Fiera Capital distinguishes itself by its asset distribution and management of Canadian securities, while AllianceBernstein is recognized rather for its management of American and international securities. The impressive results obtained by AllianceBernstein in the past lead us to believe that this change will be of great benefit to us. 2. To what constraints will AllianceBernstein’s management of American assets be submitted? AllianceBernstein will be authorized to invest in any shares listed on any recognized American stock market so long as more than 95% of the portfolio is invested in shares listed on either the S & P 500, Nasdaq 100 or Russell 1000. 3. How will the spectrum of available securities be broadened? The managers of Canadian and American assets will now be authorized to invest up to 5% of total assets in securities not listed on stock market indexes. We believe this will be advantageous to you. 4. Will this expansion not increase the level of risk? No, as the 5 % ceiling is relatively low, and as the managers will have to respect certain requirements in regards to the capitalization of selected shares. Henceforth, managers will be in a position to invest in shares issued by major corporations in the midst of restructuring, even if not yet listed on the core consumer price index. In fact, the sole risk would be if we were to deprive ourselves of the potential return of these shares… 5. Can you give us a few examples of shares not listed on the indexes? · The shares of de-mutualizing insurance companies; · Certain Income trusts, including those listed in the Yellow Pages. 6. When will these changes come into play and when will their effect be felt? The modifications will take effect on October 1st, 2004. The broadening of our spectrum of investments should not be expected to have an immediate effect on the value of your portfolio. All will depend on the investment opportunities that become available to our managers. More immediate results are expected when the American asset portfolio manager takes up his post as he will undoubtedly want to proceed quickly with his own selection of securities. 7. What to do if in disagreement with the changes? You must contact us as soon as possible. 8. Should we expect further changes? Without a doubt! New elements are already being made ready. These changes will be announced as soon as possible through the channels and at the moment deemed most appropriate, whether by mail, through the newsletters that accompany your monthly bulletins, by teleconferencing or at the next meeting with your advisor. |
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