The introduction of the HST put the fund industry in a tight spot, having to sort out its complexities at a time when investor confidence is in a slump. The costs associated with sorting out the HST mess will eventually be borne by those same investors.
“There is no way any company could place their systems in place to administer this new tax and the fact that half the country doesn’t have the tax is really problematic,” said CI Financial’s CEO, Bill Holland, on the conference call following the firm’s latest quarterly earnings report.
He made no bones about his disapproval of its logic when he said it has “all the intelligence of bicycle lanes all over Toronto.”
“We can’t just create duplicate funds because it’s expensive,” he said adding that it is something that could be considered though. Without being specific, he said there were “two or three ideas that we want to go through and see what is the most practical to make sure we are not applying a tax to the provinces that are not part of the HST.”
He said the solution would come at a cost. “It is a big cost and an enormous amount of work, but it probably won’t be borne by the companies, (it’s) more likely to be paid for by the funds.
Asset preference
Holland pointed out that investors are increasingly steering clear of equity funds as they find financial refuge in more stable fixed-income funds.
“Any investor who has seen the stock market drop by 70% twice in seven years is going to be scared, (so) you’re seeing a lot more fixed income type and balanced type fund sales than you’d ever expect after a rally like this,” he said . “I think the tone of the sales was improving up until the middle of June when the market started to fall of a cliff for a while.”
Another casualty of current market crash is the segregated funds business which has taken a dive. “If you actually look at the sales, bank and non-bank, almost all of the business that is being done is being done in some type of fixed-income type of product.”
Holland said the trend is being driven by investors’ perception rather than any sales strategy.
At a time like this, he said, sales focus doesn’t matter much. “I think we have a very little moral suasion over what advisors recommend and what clients invest in, especially at times of high fear and high greed.”
The fear amongst retail investors is quite high considering that the market is 65% above its low, he said. “I do think that investors have shown a pretty significant reluctance to get back into equity funds in anything resembling what they did at market peaks of 2000 and 2007.”
(08/12/10)