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
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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.
--Gordon Pape
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.
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Compiled by Globe Investor Staff