WP recently ran an article suggesting there’s just no comparing F-class shares and ETFs. Several advisors set us straight on the matter; and we’re very glad they did. Here's why.
The problem with last week’s article, ETFs vs. F-Class: there’s no comparison, is that it didn’t take into consideration a corporate class structure when using mutual funds as opposed to ETFs. That, it turns out, makes a heap of difference.
Financial advisors Tim Affolter of Assante Wealth Management and Bill McElroy, a principal in the William Douglas Group, both provided examples to WP in which the use of this relatively unknown group of mutual funds is worthy of advisor consideration.
Affolter suggests that a corporate class structure is ideal when investing in a taxable account where the 1.25% advisory fee (the example used in the article mentioned above) is tax deductible. The same deductibility, Affolter reminds us, doesn’t apply to non-taxable accounts such as RRSPs and TFSAs.
McElroy points out that you can buy F-class shares within a corporate class structure. They’re simply mutual funds with the compensation stripped out for fee-based accounts.
Both reminded WP that corporate class funds allow investors to defer capital gains taxes incurred by switching funds until the assets are withdrawn from the corporate structure. They’re ideal for long-term investors who like to rebalance every 2-3 years.
As an aside, Affolter commented on WPs website that the term fee-based is a bit misleading because it implies a charge on assets when in fact many financial planners charge a flat-fee for their services, a more transparent option in his opinion. While a legitimate beef, it’s a discussion for another time.
Kim Inglis, an advisor with Canaccord Genuity in Toronto, wrote a piece in April 2014 highlighting Purpose Investments’ ETFs. She was particularly mindful of their corporate class structure. For example, Purpose’s Core Dividend Fund offers both tax-efficient income and tax-deferred switching at an annual MER of 0.55%.
In the end, while WP understands the tax-efficiency of corporate class funds, ETFs still appear to be the better option in our opinion, especially when you consider those offered by Purpose Investments, which provide clients the best of both worlds.
Financial advisors Tim Affolter of Assante Wealth Management and Bill McElroy, a principal in the William Douglas Group, both provided examples to WP in which the use of this relatively unknown group of mutual funds is worthy of advisor consideration.
Affolter suggests that a corporate class structure is ideal when investing in a taxable account where the 1.25% advisory fee (the example used in the article mentioned above) is tax deductible. The same deductibility, Affolter reminds us, doesn’t apply to non-taxable accounts such as RRSPs and TFSAs.
McElroy points out that you can buy F-class shares within a corporate class structure. They’re simply mutual funds with the compensation stripped out for fee-based accounts.
Both reminded WP that corporate class funds allow investors to defer capital gains taxes incurred by switching funds until the assets are withdrawn from the corporate structure. They’re ideal for long-term investors who like to rebalance every 2-3 years.
As an aside, Affolter commented on WPs website that the term fee-based is a bit misleading because it implies a charge on assets when in fact many financial planners charge a flat-fee for their services, a more transparent option in his opinion. While a legitimate beef, it’s a discussion for another time.
Kim Inglis, an advisor with Canaccord Genuity in Toronto, wrote a piece in April 2014 highlighting Purpose Investments’ ETFs. She was particularly mindful of their corporate class structure. For example, Purpose’s Core Dividend Fund offers both tax-efficient income and tax-deferred switching at an annual MER of 0.55%.
In the end, while WP understands the tax-efficiency of corporate class funds, ETFs still appear to be the better option in our opinion, especially when you consider those offered by Purpose Investments, which provide clients the best of both worlds.
