2Archived - Investment Performance and Costs of Pension and Other Retirement

8/2/2019 2Archived - Investment Performance and Costs of Pension and Other Retirement

1/33

ived - Investment Performance and Costs of Pension and other Retirement Savings Funds in Canada: Implications on Wealth Accumulation and Retirement

/www.fin.gc.ca/activty/pubs/pension/ref-bib/jog-eng.asp[06/12/2011 3:12:07 PM]

About Us

News

Publications &

Reports

Fiscal Monitor

Official InternationalReserves

Debt ManagementReport

Annual Financial Report

Debt ManagementStrategy

Fiscal Reference Tables

Tax ExpenditureReports

Canada at the IMF andWorld Bank

Canada at theEuropean Bank forReconstruction andDevelopment

Private SectorEconomic Forecasts

Activities & Issues

Budgets

Legislation

Site Map

Completed Access to

Information

Requests

Proactive Disclosure

Franais Home Contact Us Help Search canada.gc.ca

Home > Publications and reports > Archived - Investment Performance and Costs of Pension and other Retirement Savings Funds in Canada:

Implications on Wealth Accumulation and Retirement

INVESTMENT PERFORMANCE AND COSTS OF PENSION AND OTHER

RETIREMENT SAVINGS FUNDS IN CANADA: IMPLICATIONS ON

WEALTH ACCUMULATION AND RETIREMENT

ByDr. Vijay JogDecember 2, 2009

TABLE OF CONTENTS

SummaryBackgroundScope and Context

The Investment LandscapeExisting Research-Based Evidence: Investment Returns and PerformanceCanadian Investment LandscapeInvestment Landscape: Costs and ReturnsImplications of the Investment Cost Structure on Retirement Income AdequacyOverall Key Observations and ConclusionsReferencesAppendix A: Glossary of Terms Mutual Funds

SUMMARY

This paper presents an analysis of the potential impact of investment returns on the retirement incomeadequacy of Canadians.

Rather than solely looking at whether Canadians are saving enough, Jog argues that there should beequal emphasis (if not more) placed on how as Canadians we can make smarter investment choices.Accordingly, the paper attempts to document empirically the interaction between investment choices, costof investments, investment returns and retirement income and wealth.

The first section of this paper looks at existing research-based evidence on investment returns andperformance through the performance of individual investors, mutual funds and other professionallymanaged savings. The key message from this section is that individual investors typically make poordecisions and while professionally managed funds outperform passive strategies, the investor incurs coststhat are not compensated by returns.

In the second section, Jog looks at the Canadian investment landscape by focussing on the experience ofa hypothetical Canadian individual using data over the last twenty five years. The date shows that: 1)maximising savings through an RRSP makes a significant difference depending on the investment vehiclechosen and the tax rate faced by the individual at retirement; 2) the choice of investment matters; 3)even after saving 18% of salary each year for 25 years, the end period wealth can only sustain theindividual for twenty years or less; and 4) being a regular and an early saver matters.

The third section looks at the costs and returns in the investment landscape. The conclusions drawn fromthis section are that a "do-it-yourself" investor can invest at a relatively low cost though it is stillsomewhat higher than the cost of investing through a private sector defined benefit plan with the costs ofinvesting with a financial advisor being the highest.

The forth section examines the implications of the investment cost structure on Retirement IncomeAdequacy. Table 15 looks at assumptions on cost and the impact on retirement income and notes thatusing a portfolio with both advice and active management that earns the same rate of return as theunderlying index would result in a loss of 4 years of wealth. Table 16 estimates overall costs of the entirepension system.

The paper concludes by highlighting 7 overall key observations: 1) retirement income adequacy dependson tax assistance for savings (RRSP); 2) skipping years of saving or starting late has a significantimplication on wealth accumulation; 3) investments of pension assets were worth $2.1 trillion as of 2007;4) these pension assets are invested in a variety of securities (including 30% in foreign securities); 5) ahigh proportion (55%) is invested through employer sponsored plans (90% are defined benefit) ; 6)active management, over the long-run, does not add incremental value over a passive index and finally;7) using 2007 data, the estimated overall cost of investment is 78 bps per retirement assets totalling

|Skip to content Skip to institutional links

Department of Finance Canadawww.fin.gc.ca
http://www.fin.gc.ca/afc/index-eng.asphttp://www.fin.gc.ca/news-nouvelles/index-eng.asphttp://www.fin.gc.ca/pub/index-eng.asphttp://www.fin.gc.ca/pub/index-eng.asphttp://www.fin.gc.ca/pub/fm-rf-index-eng.asphttp://www.fin.gc.ca/purl/efa-eng.asphttp://www.fin.gc.ca/purl/efa-eng.asphttp://www.fin.gc.ca/pub/dmr-rgd/index-eng.asphttp://www.fin.gc.ca/pub/dmr-rgd/index-eng.asphttp://www.fin.gc.ca/purl/afr-eng.asphttp://www.fin.gc.ca/pub/dms-sgd/index-eng.asphttp://www.fin.gc.ca/pub/dms-sgd/index-eng.asphttp://www.fin.gc.ca/pub/frt-trf/index-eng.asphttp://www.fin.gc.ca/purl/taxexp-eng.asphttp://www.fin.gc.ca/purl/taxexp-eng.asphttp://www.fin.gc.ca/purl/bretwd-eng.asphttp://www.fin.gc.ca/purl/bretwd-eng.asphttp://www.fin.gc.ca/purl/ebank-eng.asphttp://www.fin.gc.ca/purl/ebank-eng.asphttp://www.fin.gc.ca/purl/ebank-eng.asphttp://www.fin.gc.ca/purl/ebank-eng.asphttp://www.fin.gc.ca/pub/psf-psp/index-eng.asphttp://www.fin.gc.ca/pub/psf-psp/index-eng.asphttp://www.fin.gc.ca/act/index-eng.asphttp://www.fin.gc.ca/access/budinfo-eng.asphttp://www.fin.gc.ca/legislation/index-eng.asphttp://www.fin.gc.ca/access/sitemap-cartedusite-eng.asphttp://www.fin.gc.ca/afc/atip-aiprp/cair-daic-eng.asphttp://www.fin.gc.ca/afc/atip-aiprp/cair-daic-eng.asphttp://www.fin.gc.ca/afc/atip-aiprp/cair-daic-eng.asphttp://www.fin.gc.ca/disclose-divulgation/discl_index-eng.asphttp://www.fin.gc.ca/activty/pubs/pension/ref-bib/jog-fra.asphttp://www.fin.gc.ca/fin-eng.asphttp://www.fin.gc.ca/admin/contact-eng.asphttp://www.fin.gc.ca/admin/help-aide-eng.asphttp://www.fin.gc.ca/search-recherche/query-recherche-eng.aspx?lang=enhttp://canada.gc.ca/main_e.htmlhttp://www.fin.gc.ca/fin-eng.asphttp://www.fin.gc.ca/pub/index-eng.asphttp://www.fin.gc.ca/pub/index-eng.asphttp://www.fin.gc.ca/fin-eng.asphttp://canada.gc.ca/main_e.htmlhttp://www.fin.gc.ca/search-recherche/query-recherche-eng.aspx?lang=enhttp://www.fin.gc.ca/admin/help-aide-eng.asphttp://www.fin.gc.ca/admin/contact-eng.asphttp://www.fin.gc.ca/fin-eng.asphttp://www.fin.gc.ca/activty/pubs/pension/ref-bib/jog-fra.asphttp://www.fin.gc.ca/disclose-divulgation/discl_index-eng.asphttp://www.fin.gc.ca/afc/atip-aiprp/cair-daic-eng.asphttp://www.fin.gc.ca/afc/atip-aiprp/cair-daic-eng.asphttp://www.fin.gc.ca/afc/atip-aiprp/cair-daic-eng.asphttp://www.fin.gc.ca/access/sitemap-cartedusite-eng.asphttp://www.fin.gc.ca/legislation/index-eng.asphttp://www.fin.gc.ca/access/budinfo-eng.asphttp://www.fin.gc.ca/act/index-eng.asphttp://www.fin.gc.ca/pub/psf-psp/index-eng.asphttp://www.fin.gc.ca/pub/psf-psp/index-eng.asphttp://www.fin.gc.ca/purl/ebank-eng.asphttp://www.fin.gc.ca/purl/ebank-eng.asphttp://www.fin.gc.ca/purl/ebank-eng.asphttp://www.fin.gc.ca/purl/ebank-eng.asphttp://www.fin.gc.ca/purl/bretwd-eng.asphttp://www.fin.gc.ca/purl/bretwd-eng.asphttp://www.fin.gc.ca/purl/taxexp-eng.asphttp://www.fin.gc.ca/purl/taxexp-eng.asphttp://www.fin.gc.ca/pub/frt-trf/index-eng.asphttp://www.fin.gc.ca/pub/dms-sgd/index-eng.asphttp://www.fin.gc.ca/pub/dms-sgd/index-eng.asphttp://www.fin.gc.ca/purl/afr-eng.asphttp://www.fin.gc.ca/pub/dmr-rgd/index-eng.asphttp://www.fin.gc.ca/pub/dmr-rgd/index-eng.asphttp://www.fin.gc.ca/purl/efa-eng.asphttp://www.fin.gc.ca/purl/efa-eng.asphttp://www.fin.gc.ca/pub/fm-rf-index-eng.asphttp://www.fin.gc.ca/pub/index-eng.asphttp://www.fin.gc.ca/pub/index-eng.asphttp://www.fin.gc.ca/news-nouvelles/index-eng.asphttp://www.fin.gc.ca/afc/index-eng.asphttp://www.fin.gc.ca/disclose-divulgation/discl_index-eng.asphttp://www.fin.gc.ca/afc/atip-aiprp/cair-daic-eng.asphttp://www.fin.gc.ca/access/sitemap-cartedusite-eng.asphttp://www.fin.gc.ca/legislation/index-eng.asphttp://www.fin.gc.ca/access/budinfo-eng.asphttp://www.fin.gc.ca/act/index-eng.asphttp://www.fin.gc.ca/pub/index-eng.asphttp://www.fin.gc.ca/news-nouvelles/index-eng.asphttp://www.fin.gc.ca/afc/index-eng.asp


2/33



$17.7 billion for $2.1 trillion of total assets. Of that $17.7 billion, the costs associated with investmentadvice, administration and active management account for $9.3 billion, almost 50% of the total costs.

Acknowledgements: This paper is written for the Research Working Group on Retirement IncomeAdequacy. I would like to thank many people for providing input, data and comments including: KimDuxbury of Sunlife Financials, Blake Hill of Manulife Financial; Louis-Georges Mongeau of Standard Life ofCanada; Terrie Miller of CEM Benchmarking Inc.; Keith Ambachtsheer of KPA Advisory Services Ltd.;Dennis Yanchus of Investment Funds Institute of Canada; Ronald Sanderson of Canadian Life and Health

Insurance Association of Canada; Alfred LeB lanc of Department of Finance, Government of Canada;Christopher Donnelly and Paul Bean of RBC Asset Management Inc.; Jack Mintz, University of Calgary;Suzanne Paquette, Universit Laval; and many others who also commented on the paper. I would alsolike to thank Mariela Wong, Ruben Palencia and Patricia Robertson for providing expert researchassistance under very tight deadlines.

BACKGROUND

Retirement income adequacy of Canadians depends upon a variety of sources of income. However, fiveof these seem be the most important.

First is the income support provided by the government through broad based programs such asOAS/GIS and CPP/QPP.Second is the employer (public and private sector) sponsored defined benefit (DB) pension planwhere an employer is contractually obligated to provide benefits based on years of service andsalary.The third source is the employer-sponsored defined contribution (DC) plan where both employerand employee contribute to a fund and the retirement income depends on the investmentperformance of the fund.The fourth source is the individual tax preferred savings vehicles such as RRSPs (including groupRRSPs) and TFSAs. The main difference between the RRSP and TFSA is that the contributionmade in the former (RRSP) investment vehicle gets a tax deduction at the time of contribution butis taxed when the funds are withdrawn, whereas with the latter (TFSA) it is the reverse.The fifth source is income that can be earned on assets accumulated outside these four sources,namely, non tax assisted savings and other real assets such as home and cottage and businessassets.

Each of these five sources/components is associated with different levels of risks and costs. The firstsource is probably the least risky while the risk of the second component is employer bankruptcy alongwith a high unfunded pension plan (e.g., Nortel or GM Canada). The risk of the other three sourcescomes from investment choices, rates of returns and costs associated with the investment vehicles beingused.

Thus, retirement income adequacy depends not only on the various types of savings vehicles and thetiming and amount of savings, but also on the investment choices and returns at least on thoseinvestments which are not guaranteed by the government or the employer. It is also important to notethat, except for public sector plans, the risk of employer bankruptcy with an underfunded DB plan is non-trivial since, in many cases, this is the time when DB plans also become severely underfunded due to adecline in the market value of the pension fund.

The intent of this paper is to focus on the investment component (as opposed to the savings component)of the retirement income debate and its implication on retirement income adequacy. More specifically,the paper focuses on expanding our overall understanding of the investment choices available to aCanadian resident and investment performance of various savings and investment vehicles andintermediaries who assist in channelling individual savings so that they can provide adequate postretirement income to individuals.

SCOPE ANDCONTEXT

The importance of investment returns on the retirement adequacy of Canadians should not beunderestimated even though the focus of traditional debate is whether Canadians are saving enough fromtheir current income to prepare them for their post-retirement life, especially in a world where lifeexpectancy is expected to increase almost monotonically. A simple example about the importance ofinvestment returns would suffice to emphasise their importance. If rather than earning, say, an 8% returnannually, an individual earns 6.5% per year, then $1,000 savings would result in $4,828 (at 6.5%) as

compared to $6,848 (at 8%) at the end of 25 years, a reduction of 30%. In other words, the sameindividual would have to save almost twice the amount to account for a poor investment choice/lowerinvestment return. This simple example illustrates the potential impact of investment returns onretirement income adequacy and why we must place equal (if not more) emphasis on how Canadians caninvest better as we do on how Canadians can be encouraged to save more. The former (making smarterinvestment choices) may be much easier for most Canadians than the latter (increasing savings rates).

THEINVESTMENT LANDSCAPE

Understanding the investment landscape in Canada is not that easy, since like any other developedcountry Canada has a gamut of investment vehicles and intermediaries available to individual Canadians.In this paper, we focus only on traded assets (e.g., stocks and bonds) and not on assets that are eitherheld for consumption (home) or for leisure (cottage) and thus are considered to be somewhat illiquid andnon tradable. We investigate costs and returns of both the direct vehicles for investment (e.g., buyingshares of a company by placing a direct order) as well as investing through the various intermediaries


3/33



(e.g., DB or DC plans and managed mutual funds).

In essence, there are three ways to accumulate wealth for post-retirement years: personal decisions(RRSP), through DB, DC or group RRSP plans, or through an intermediary that provides both advisoryand investment options. In each case, the ultimate investment can be in an individual security (e.g.,common stock or bond) or a passive index (either an Exchange Traded Fund (ETF) or an Index fund) oran actively managed (and recommended by a financial advisor) mutual fund or a segregated fund with orwithout an insurance guarantee. In all cases, the ultimate choice can be based on a "do-it-yourself"

process or through a financial advisor.1

In addition, the assets underlying the DB and DC plans are being invested by pension fund managers andinsurance companies on behalf of investors and employers. Moreover, a portion of CPP assets are nowbeing invested by the CPP Investment Board.

It is also clear that these different choices and vehicles would be associated with differences in costs andrates of returns. The typical assumption would be that, on average, an individual expects to be better offwith his investment choice when the costs incurred to undertake an investment are more than offset by ahigher risk-adjusted return.

Accordingly, the main objective of the paper is to document empirically this interaction between theinvestment choices, cost of investments and investment returns. Our review includes a broad range ofchoices and investment vehicles to provide a better understanding of costs (historical and current) andrisk adjusted returns. We also provide a perspective on existing research evidence on various issuesassociated with this trade-off. With respect to empirical evidence on historical rates of return and costs,we investigate the following vehicles/assets:

Direct assets: T-bills, bonds and common stocksIndirect assets: Exchange Traded Funds (ETF), Index funds (passive), active (professionallymanaged) funds (by mutual fund companies, banks), segregated funds managed by Insurance

companies (available for group RRSPs and DC plans2

Professional indirect vehicles: Pension funds (DB) and the CPP Investment Board

In addition, wherever the data permit, we investigate and document gross and net returns withappropriate benchmarks, differences between public and private sector plans, possible rationale for costsand differences between gross and net returns, economies of scale and scope aspects that have directimplications on our understanding of the influence of investment choices on retirement income adequacy.

Our data comes from a variety of diverse sources including CANSIM, Statistics Canada, Sedar, CEMBenchmarking Inc. (for pension funds), IFIC (for mutual funds), CLHIA (for segregated funds) and otherpublicly available sources. We are aware that the diversity of sources may pose a challenge in crosscomparisons; we do our best to ensure that a clearer picture emerges from our analysis with appropriatecaveats.

EXISTINGRESEARCH-BASED EVIDENCE: INVESTMENT RETURNS ANDPERFORMANCE

There exists a large body of evidence on the investment returns earned on different vehicles and throughdifferent choices by individuals. While most of the research is from the United States, some of it isspecific to the Canadian environment.

PERFORMANCE OF INDIVIDUAL INVESTORS

Some of the most interesting evidence comes from a series of papers by Barber and Odeon (1999, 2000)and Odeon (1999) about the performance of individual investors. They investigate investments andtrading patterns of a large number of active individual investors using the data set from a large discountbrokerage firm in the United States. While the commissions for buying and selling stocks were much

higher in those days3, they show that, on average, individuals typically make poor sell and purchasedecisions. Odeon (1999) states that in his sample, the investors tend to buy securities that have risen orfallen more over the previous six months than the securities they sell. They sell securities that have, onaverage, risen rapidly in recent weeks and they sell far more previous winners than losers.

The evidence presented by Barber and Odeon (1999) leads them to conclude that the gross returns evenbefore accounting for transaction costs earned by these households are quite ordinary, on average. Thenet returns after accounting for the bid-ask spread and commissions were even poorer. They found thatthe average household underperformed a value-weighted market index 1.1% annually and, after account-ing for the fact that the average household tilts its common stock investments toward small value stockswith high market risk, the underperformance averages 3.7% annually. The average household turnedover approximately 75% of its common stock portfolio annually and the poor performance of the averagehousehold can be traced to the costs associated with this high level of trading.

They conclude by saying "our main point is simple: Trading is hazardous to your wealth. We believe thatthese high levels of trading can be at least partly explained by a simple behavioural bias: People areoverconfident, and overconfidence leads to too much trading." (Italics added)

Similar conclusions are presented in a recent paper by Frazzini and Lamont (2008). Using the flow offunds data into U.S. mutual funds, they conclude that fund flows from retail investors into mutual fundsare "dumb money". By reallocating across different mutual funds, retail investors reduce their wealth inthe long run. This "dumb money" effect is strongly related to the value effect. High sentiment also isassociated high corporate issuance, interpretable as companies increasing the supply of shares in


4/33



response to investor demand.

As far as we know, there is no direct evidence ( la Barber and Odeon) on the investment performance ofCanadian retail investors. The research analysing flow of funds into Canadian mutual funds (Deaves,2004; Sinha and Jog, 2005) concludes that, unlike the U.S. investor, Canadian investors do not investdisproportionately in winning funds, and they do seem to punish losing funds. They claim that pastperformance and past asset allocations, as well as fund size and the size of the fund family are significantdeterminants of current fund flows and Canadians are more forgiving of losing funds.

PERFORMANCE OF MUTUAL FUNDS

In addition to investing money on their own, investors have increased their dependence on investingthrough mutual funds. As per the Ontario Securities Act, a "Mutual Fund" means an issuer whose primary

purpose is to invest money provided by its security holders and whose securities entitle the holder toreceive on demand, or within a specified period after demand, an amount computed by reference to thevalue of a proportionate interest in the whole or in part of the net assets, including a separate fund ortrust account, of the issuer. "Mutual fund in Ontario" means a mutual fund that is a reporting issuer or

that is organized under the laws of Ontario, but does not include a private mutual fund 4. Worldwide, themutual fund industry net assets reached $26.2 trillion peak by year-end 2007, declining to $19 trillion byyear-end 2008; the corresponding numbers for Canada are Cdn$636 billion and Cdn$506 billion. As canbe seen, the net asset values declined by 21% in 2008 mostly due to the decline in valuation of theequities.

Given this tremendous growth in mutual funds around the world, it may come as no surprise that theperformance of mutual funds is probably the most researched topic in the investment field. Our analysisshows that 166 mutual fund papers were published in a 22-year period (1987 to 2008) in the top 12

finance journals.5 The interest of this research is focussed in three broad areas: 1) fund performance; 2)persistence in performance; and 3) relation between flow of funds and performance (see Exhibit 1). Giventhis breadth of research, it is impossible to review individual papers, so we provide some broadconclusions without referring to a specific paper; a list of key papers is provided in the reference section.

Since the research is still predominantly U.S.-based, we provide some key observations from this largebody of literature. The first observation is that the U.S. mutual funds underperform on a net (net ofmanagement fees) return basis, fund managers do not have significantly positive market timing abilityand fund style migration does not create value for investors. Second, there is no persistence in mutualfund performance; the performance is mean reverting. Third, the results on the relation between the flowof funds and fund performance are mixed. Some studies show that investors do chase past performance(and then are disappointed with actual performance) and are reluctant to abandon bad performing fundsdue to the costs of switching; others show that investors (at least in Canada) do not chase performanceto a great extent. The same conclusions are valid for Canadian mutual funds (Sinha and Jog (2005) andDeaves (2004)). Overall, the conclusion from this voluminous literature is that actively managed mutualfunds, net of costs, underperform passive investment strategies and that there is no performancepersistence.

Then the legitimate question to ask is that, in light of this evidence, why do investors invest in activelymanaged mutual funds? One could speculate on at least five reasons. First and perhaps the most

dominant reason may be investor ignorance about investment choices due to lack of knowledge or lack oftime. Many may simply not know or have time to find out how easy or difficult it is to invest in passivelymanaged index funds or ETFs and how to choose amongst them and when. And thus, they are more thanwilling to pay for advisory fees and for the associated active management. Second, many investors relyon financial advisors for choosing investment vehicles; these advisors may have financial incentives tosteer investors towards actively managed funds rather than passively managed lower fee index funds or

ETFs.6 Third, the media continues to interview fund managers that outperform the passive strategies(even though the evidence shows non-persistence) and talks and writes about undervalued stocks,indicating that there is a way to find undervalued stocks by relying on professional advice. Fourth, asnoted by Barber and Odean (1999, 2000) and recently by Statman, Thorley, and Vorkink (2006),overconfidence is probably the other major reason investors are willing to incur the extra fees, expenses,and transaction costs of active strategies either by themselves or by searching for professionallymanaged mutual funds. Lastly, it is also possible that an individual investor may think that she mayactually be worse off in making the right timing decisions with respect to when and how much to invest,when to rebalance the asset mix (equity versus bonds), what type of passive vehicle to choose and sheis actually better off letting the professionals handle it.

OTHER PROFESSIONALLY MANAGED SAVINGS

In addition to mutual funds, a significant fraction of savings is channelled through DB or DC plans.However, many of these, in turn, choose mutual fund managers to invest their funds but due to theirscale they pay lower fees than those paid by retail investors. Many also invest in passive index funds ormanage the funds by themselves or give them to institutional asset managers who act as externalmanagers of pension funds. Compared to the voluminous research on the mutual fund performance,however, there is scant evidence in the academic literature on the performance of these funds or the

institutional asset managers (IAMs) they hire.7 This is in spite of the fact that in the United States alonethese funds represent a total asset value of more than $6 trillion, of which 40% to 50% is invested inequities. In Canada, of the $2.2 trillion pension assets, trusteed DB plans constituted $1.0 trillion as of2007. The two recent papers partially fill this research gap.

In a study of institutional asset managers, Busse et al. (2006), using a large sample of IAMs in the UnitedStates came to three conclusions. First, even after accounting for fees and expenses, IAMs, on average,


5/33



outperform the benchmark which is significant both statistically and economically. Second, a significantmajority of the IAMs use performance-based fee structures, quite unlike the mutual fund fee structurewhere MERs are independent of performance which may lead to reduced agency costs. Third, and moresignificantly, there is a significant inflow of new funds into high performing (first quartile) asset managerswhose performance declines due to this high influx of funds. As a result, they state that "however, thepersistence that is the source of potential gains for plan sponsors is its very own death knell: we findthat portfolios in the winner deciles draw an in?ux of capital from plan sponsors, and in the year followingthis capital in?ow, the excess returns disappear." These results of outperformance found by Busse et al.are, however, in contrast to some earlier papers such as Lakonishok et al. (1992) and Coggin, et al.(1993) who find that performance is poor on average, investment managers have limited skill in selectingstocks, and Survival bias and a short time series does not allow for a robust conclusion about

persistence.8

The Bauer and Frehen (2008) paper provides evidence on the U.S. DB and DC pension funds usingbenchmarks self-selected by pension funds. They report that DB and DC pension funds slightlyunderperform benchmarks and a passively managed large cap investment is, in relative terms, most

attractive.9 In addition, they conclude that persistence in yearly pension fund equity performance is weakor nonexistent.

In summary, this extensive evidence on investment performance of individuals either investing directly orthrough intermediaries leads to some key conclusions. First, left to himself (or herself), an individualinvestor performs poorly as he makes wrong market timing, asset selection and security selectiondecisions . Second, there is very little evidence that professionally managed funds outperform the passivestrategy, especially after considering costs. Third, there is very little evidence that there is persistence inperformance. Fourth, performance based fees may be a partial solution to reducing agency costs, butwhile this mechanism may be available to larger pension funds, the individual investor does not have

access to it as mutual funds do not provide such performance based fee contracts.10 Fifth, to gain accessto professional management, the investor incurs costs which are not compensated by excess returns.Sixth, this leaves the question as to why an individual investor would invest on her own or search foractively managed mutual funds.

With this backdrop, in the following section we provide direct empirical evidence on the investmentlandscape faced by a typical Canadian investor and its implications on the retirement income ofCanadians.

CANADIANINVESTMENT LANDSCAPE

One of the basic tenets of finance is that high returns are associated with high risk, and since equitiestypically have high risk (higher variations in periodic returns) overall they should provide investors with ahigher return. To set the stage, Exhibit 2 provides three different snapshots of historical evidence onreturns on three types of securities: t-bills, long-term bonds and TSX index. Exhibit 2 shows 82 years ofhistory (beginning in 1925 but excluding 2008), Exhibit 3 shows 53 years of history beginning in 1956and Exhibit 4 starts in 1984. In each of these exhibits, we track the cumulative value of $1 invested in thebeginning of the relevant period assuming reinvestment and excluding costs of investment and taxes. Ascan be seen, over the long period, stocks provide a higher end-period wealth. However, and mostsurprisingly, in the last 25 years long term bonds have outperformed stocks. In addition, three other

observations are important. First, the longer the time period, the higher is the impact of compoundingreturns and higher the end-period wealth. Second, stock returns are more volatile than bond returns.Third, investment choices do matter in end-period wealth, focussing only on savings and not worryingabout investment may not be prudent.

Next, we focus on the experience of a hypothetical Canadian individual using the data over the last25 years. Our main purpose is to show how choices made by an individual with respect to savingspercent, RSP versus non-RRSP and asset selection have implications on end period wealth.

We start at the end of December 31, 1983 and assume that, in that year, this individual earned $40,000taxable income and decided to save 18% of her salary. She has two choices: to invest 18% ($7,200) inan RRSP (maximum allowed) or the same amount in a taxable account. Since the RRSP contribution getsa tax deduction at a 35% tax rate, she invests the tax refund of $2,520 in a parallel taxable account. Atthe end of 25 years, the RRSP account faces taxes at withdrawal, but the taxable account does not facesuch penalty as these amounts faced taxes on their annual investment returns depending on the type ofasset classes chosen (see below). We further assume that her salary grows by CPI + 1% and shecontinues to invest the same percentage of her salary each year at the end of the year and reinvests any

interest and dividend receipts after paying the associated taxes. We make some simplified assumptionabout tax rates. To keep this illustration simple and manageable, we further assume that this individual

faces a marginal 35% tax rate throughout her career and a 20% tax rate at the end of 25 years. 11 Thistax rate of 35% applies to the investment income from T-Bills, the corresponding tax rates would be:20% effective tax rate on bonds (meaning 60% of the total return on the bond index is interest) and0.48% of equity assuming a 3% dividend payout with a 16% effective tax rate on dividends; we assumethat the investor holds a buy-and-hold portfolio. Note that this is an illustrative example and these ratesand assumptions can be changed.

We then chose four asset classes: t-bills, long term bonds, equity and a balanced portfolio of 60% equity,30% long-term bonds and 10% t-bills. Table 1 shows the results of the various investment choices andcompares the end-period wealth as a multiple of 60% of the 2008 salary which has grown to $76,554.We use 60% of salary as it is typically said that this percentage allows for the same standard of living inthe post-retirement period. We then show the impact on end period wealth if this individual does notinvest for five years during that period and if he starts investing in 1998 (15 years later than our base

12


6/33



case).

Table 1 leads to the following observations. First, even after noting that the RRSP account will have taximplications at withdrawal, maximising savings through an RRSP (tax deferred vehicle) makes asignificant difference depending on the investment vehicle chosen and the tax rate faced by the individualat retirement. More specifically, since interest is taxable, the table illustrates that holding debt in a RRSPaccount benefits more than holding equity, all else being the same. Second, the choice of investmentmatters. A very risk-averse investor who invests exclusively in T-Bills would have significantly less wealththan if they chose either equity or a blended portfolio. In addition, since interest is taxable, the table alsoillustrates that holding debt in a RRSP account benefits more than holding equity, all else being the same.Third, even after saving 18% of salary each year for 25 years, the end-period wealth can only sustain the

individual for 20 years or less.13 Fourth, being a regular and an early saver matters. There is a significantdifference in the end of period wealth between a regular saver and a saver who skips some years or

starts late.

Note that the above example assumes that the cost of investment is zero. However, we know that is notthe case and thus it is important to understand the cost structure that a typical Canadian individualinvestor may face.

INVESTMENTLANDSCAPE: COSTS AND RETURNS

As noted earlier, there are many ways to invest ones savings: the investment vehicles range from directinvestment in stocks and bonds, Exchange Traded Funds (ETFs), index funds mostly marketed by thebanks, bank managed non index funds (similar to other mutual funds), mutual funds, DB plans, DCplans, group RRSPs (administered mostly by insurance companies), insurance company funds withinsurance and embedded guarantees, company sponsored DB plans and lastly the CPP Investment Boardfor CPP contributions. In some cases, financial advisors may be involved whereas some individuals maymake their own decisions (outside of defined benefit plans). Table 2 shows the aggregate value of thepension-related assets as of 2007. As can be seen, of the $2.2 trillion in assets (note, this is prior to 33%decline in equity values in 2008), trusteed pension plans constitute $921 million followed by RRSP assetsof $739 million.

Also, in each case, the ultimate investment securities can vary: for example, money market, bonds andequities including both domestic and foreign. Thus, the range of investment vehicles and intermediariesand choices is wide. Table 3 shows the asset mix of the Pension assets as of 2006. As can be seen,pension funds invest 41% of their assets through mutual funds or IAMS; the total equity component is44% and bonds constitute 41%; foreign assets (equities and bonds) represent 24%. Next we turn ourattention to costs and, wherever available, investment returns.

PENSION FUNDS

As noted earlier, our data comes from various sources: public and private. Since DB plans constitute themost significant fraction of retirement assets, we started with them; the data for this part of the analysiscomes from both Statistics Canada (Table 4A) which is aggregated for all funds from 1993 to 2008, and

from CEM Benchmarking Inc. (Table 4B) beginning from 1990 (53 funds) to 2008 (81 funds). 14 Asshown, the costs of managing DB plans vary across private versus public sector funds but on average a

private sector DB plans costs are anywhere between 30 to 45 bps and corresponding figures for a publicsector plan are between 25 to 35 bps. Using the CEM Data, we find that the total costs do not declinemonotonically with the total asset size; for both 2007 and 2008, the costs seem to stabilise at 35 to 40bps using data on all funds. Thus, there do not seem to be economies of scale after a particular size and

expenses seem to be somewhat independent of fund size at these levels.15 Similarly, we find very littleevidence that larger funds consistently outperform smaller funds at the total fund level, not withstandingconsiderable differences in asset mix of these funds. We also find that the larger the fund, the larger aretheir investments in non-conventional and potentially non-benchmarkable and illiquid assets (e.g., privateequity and hedge funds).

It should also be noted that one would expect a DB plan to have a lower cost because of the nature ofthe plan. It is designed to provide for a stream of payments over time that are somewhat predictable, itlowers the cost of portfolio management because both inflows and outflows are lower and predictable and,the portfolio manager can invest without worrying about changes in plan members opinions about assetmix and withdrawals and having to respond to member questions.

Next we focus our attention on the investment returns of pension funds in the CEM database. While wehave data on every investment category, we restrict our focus to two major investment classes, Canadianequity and Canadian bonds, as these typically constitute a significant portion of pension assets. Thedatabase consists of benchmarks self-selected by pension fund respondents, but to avoid self selectionbias, we use the TSE index and CDN bond Index as the respective benchmarks. The results of thiscomparison are shown in Table 5A and 5B.

In both tables, the first column shows the year, the corresponding benchmark returns used forcomparisons, # Funds, Weighted (by assets) Average Return All Funds, Weighted Average Return Funds Quartile 1, # Funds whose returns for that year are higher than the corresponding benchmark, and% Funds that exceeded the benchmark return. As can be seen, in equity portfolios, 60% of the fundsexceed the benchmark returns and the performance is better more in "down" years than in "up years".This may suggest a more conservative investment policy of stock selection and changes in cash- stockmix.

The results for bond portfolios are not good; except for recent years and one or two years in between,the bond portfolios have significantly underperformed the TSX DEX long-term bond index. However, one


7/33



can argue that the bond portfolios of the sample funds also include short-term bonds and thus the indexchosen may not be representative of the benchmark. Since it is almost impossible to find the rightbenchmark, we consider another approach to compare the performance of sample funds.

The CEM database provides data for 19 years beginning in 1990; however, the data is not available forevery year or for every fund since some funds started providing data only later in the period and somefunds stopped providing data in the latter part of the period. So, we decided to focus on those fundswhere we have at least five years of data. Next, we categorised these funds in four quartiles based ontheir performance (this is a standard practice). We categorised the funds based on four types of returns:total fund return, Canadian equity returns, Canadian bond returns and U.S. equity returns since the lastthree categories constitute a significant percentage of total assets. Table 6 shows the results of thatanalysis.

As can be seen, we have data on gross returns for 134 funds for at least five out of the 19 years. If therewas (perfect) persistence in superior performance, we would expect that the fund in quartile one (Q1) the high return quartile remains in quartile one in all the years it is in the database and, if so, this willcorrespond to a value of 100% in the "Q1 persistence" column. Similarly, if the fund remains in quartile 4(Q4) low return quartile all the years, it would show a value of 100% in that column. Thus, the valueof 24% in the "Q1 persistence" column indicates that, on average, a typical fund remained in first quartilefor only five of the 19 years; in other years, it was in quartiles 2, 3 or 4. Similarly a value of 25% in the"Q4 persistence" column indicates that a typical fund was in Q4 for four out of 19 years.

As seen from table 6, what is remarkable is the lack of any persistency over the 19 year period; whilethere is some year-to-year Q1 persistency displayed by some funds, they are unable to maintain theirmembership in Q1 over a longer period. The results are almost identical for all four categories. Althoughnot shown here, we also see very little relationship between costs of the fund and weighted averagereturn performance; the correlation coefficients between costs and asset weighted total returns, Canadianstock returns, Canadian bond returns and U.S. equity returns are -0.037, -0.028, -0.006 and -0.050,respectively. The overall conclusion is that pension funds in this sample do not show any consistency anddo not outperform the benchmark even without accounting for costs.

INSURANCE COMPANIES: DEFINED CONTRIBUTION PLANS AND GROUP RRSP PLANS

Investments in these plans are typically administered by insurance companies on behalf of corporateclients, but in general managed by third party money managers. Exhibits 5A and 5B provide aggregatestatistics on assets managed by insurance companies under different types of plans and thecorresponding member coverage. We were fortunate to get confidential data from large insurancecompanies to get a representative fraction of managed assets.

This data allows us to calculate the costs of investing that are borne by investors and their net rate of

returns.16 To maintain confidentiality, we have decided to not report the size of the assets undermanagement (AUMs) and made minor changes to the data without impacting it in any fundamental way.We believe that the results provided in Table 7 can thus be viewed as a highly representative examinationof over $120 billion retirement assets managed by Insurance companies.

As can be seen, the overall cost structure indicates that the cost of investing for all types of plans isapproximately 70 BPS; the costs of managing RPP Plans is approximately 60 BPS with somewhat higher

costs for managing RRSP assets (92 bps). The overall costs can also be broken down (table 7B) by"commissioned" and non-commissioned assets and there is a considerable difference (almost 60 basispoints); the cost structure of "non-commissioned" plans is just a few points over the costs of managing

DB plans.17 As shown in Table 7C, the costs also vary by asset class: managing domestic and NorthAmerican equities (90 bps) costs less than global equities (124 bps).

It should be noted that the higher costs of managing "non-commissioned" assets compared to the DBplans may arise for three reasons. First, these plans require a considerable administrative infrastructurethat the captive DB plans do not have. Second, the captive DB plan itself does not have a requirement toearn a return for the shareholders, whereas that is not the case for shareholder-owned insurancecompanies. Third, it is not clear what cost structure will be incurred by DB plans if they were to nowcompete for assets outside their own organisation and have to incur all the administrative costsassociated with dealing with individuals. We should also note that the asset mix of this group issignificantly different than the DB plan sample and, therefore, we cannot make any conclusions onwhether there is a difference in the relative performance of these groups, although it seems highlyunlikely that a difference exists.

Next, Table 7D shows the inherent economies of scale that depend both on the number of plan membersand the average asset value. These costs are based on representative typical plans based on samplepricing scenarios by insurance companies. As can be seen, the larger the plan (based on # of members)and higher the average asset value per member, the smaller the corresponding costs. For a plan with 25members and average asset value per member of $25,000, the costs are 1.25%, whereas for a plan with7,500 members and with average asset value of $50,000, the costs decline to 0.44%. Similarly, if theplan decides to invest in a passive index, the costs are naturally lower. It should also be noted that theseassets are in turn invested in mutual funds. The costs are lower due to lower regulatory, administrativeand reporting requirements and, for the most part, a lack of individual advice provided except in somespecial situations.

In Canada, insurance companies also provide investment vehicles that provide guarantees to savers ontheir investments guaranteed investment funds (GIFs). These come in a variety of shapes and formsand include: Guaranteed Withdrawal Balance (GWB), Annual Lifetime Withdrawal Amount (LWA), Annual

Guaranteed Withdrawal Amount (GWA) and a GWB Bonus, to name a few.18 In essence, these guarantees


8/33



reduce the risk of investments and are affected by the timing and the amounts of deposits andwithdrawals. Insurance companies, in turn, invest these amounts in mutual funds and charge anadditional amount for providing these guarantees. The costs of these "guarantees" can be inferred fromdifferences between the total cost of these investment products with guarantees and the costs of thecorresponding underlying mutual fund. Table 7E provides a sample of the representative costs associatedwith these products. As can be seen, typical additional cost of insurance is approximately 27 bps and thecost of Guaranteed Withdrawal Balance (GWB) is an additional 62 bps. As noted earlier, these arerepresentative numbers and would vary across insurance companies and by the underlying mutual fundcategory.

CPP INVESTMENT BOARD (CPPIB)

Next, we turn our attention to the CPP Investment Board (CPPIB) which was formed in 1997 when the

Canadian government decided to invest CPP assets in capital markets and established the CPP InvestmentBoard as a federal Crown Corporation by an Act of Parliament with a mandate to invest the assets of theCanada Pension Plan in a way that maximizes returns without undue risk of loss. Its first investment tookplace in 1999; the funds invested through the auspices of CPPIB are now in excess of $100 billion. Table8 outlines the growth in CPPIBs portfolio, reported rates of return and costs.

A review of Table 8 leads to some interesting results. Prior to 2007, the CPPIBs cost structurerepresented 7 basis points of assets. It invested (according to its annual reports) through two externalinvestment management firms (TD and Barclays Global) and, except for 2001, did not do much betterthan the benchmark. However, there seemed to be a clear policy change in 2006 with an increasedinvestment in non Canadian private assets and what is labelled as "inflation sensitive assets (real estate,inflation-linked bonds and infrastructure)". During the same period, consulting fees went up 265%,salaries went up by 425% and the analysis shows that CPPIB reported that it earned 2.5% higher thanthe benchmark with the inflation sensitive assets and non Canadian private assets earning excess returns.The costs of running CPPIB now have reached 20 bps; still lower than DB plans but the growth of thecost base has been significant. .

MUTUAL FUNDS

Mutual funds are a big part of the Canadian investment landscape as they constitute approximately$500 billion of investment by Canadians at the end of 2008. Naturally, just as the investmentperformance of managed mutual funds has received considerable attention, even more attention has beengiven to the fees (management expense Ratios MERs) charged by mutual funds especially since they donot seem to generate consistently higher returns than passive indexing. A recent paper by Khorana et al(2007) provides a comprehensive analysis of mutual fund fees using data on 46,580 mutual funds offeredfor sale in eighteen countries with assets in excess of $10 trillion. To account for cross sectional variationsacross countries, they define costs as total shareholder cost (TSC):

Total Shareholder Cost = TER + initial load/5 + back-end load at five years/5

where TER, in effect, is defined as "all annual operating costs (including administration/share registration,trustee/custody, audit and legal fees), not just the basic annual management charge." Their results foryear 2002 show that the TSC for Canada for bonds, equity and full sample are 1.84%, 3.00% and 2.41%,

respectively. These results also show that Canada has one of the highest costs for investing throughmutual funds using three different measures of management fees. Obviously there are many challenges

with such cross country comparisons.19 This Morningstar study (2007) gives Canada an overall grade of"B+". More specifically, the study gives Canada an "A" grade in Investor protection, transparency inprospectus and report, transparency in sales and media; a "B+" in distribution/Choice; a grade of "C" intaxation; and an "F" in Fees and Expenses. So if the costs are higher in Canada, it is also clear that theyare well reported and with full transparency. It is also possible that other factors such as economies ofscale, costly regulatory requirements and differential levels of individual advice may be at play here.

In this section we provide more recent evidence on these fees and also ensure that the comparisons aremade in the right context. Accordingly, we discuss mutual funds in general including Exchange Tradedfunds (ETFs), index funds and managed mutual funds.

EXCHANGE TRADED FUNDS (ETFS)20

Table 9 shows the most recent data on 103 ETFs traded on the TSX constituting $28 billion in marketvalue; the sub groupings show that they comprise 11 categories and are marketed by five organisations.Equity ETFs represent over 40% of the market value, followed by Canadian bond ETFs, leveraged andcommodity ETFs. These ETFs can be bought and sold as stocks and represent the lowest cost ofinvestment in broadly diversified portfolios of underlying securities. The costs vary by type with equitybond and balanced funds costing 40 bps and specialty funds (which do have some active management)costing approximately 80 bps. It should be noted that the managed funds by insurance companiesanalysed in Table 7 have a similar cost structure. However, for an individual investor, ETFs may constitutethe lowest cost of investment in the capital market and most are eligible for RRSP investments.

BANK MANAGED MUTUAL FUNDS

Next in the cost ladder are funds marketed and sold by Canadas five large banks. These banks provideopportunities to invest in indexed funds (similar to standard ETFs) as well as their actively managedfunds. Table 10 shows the results of our analysis of these RRSP-eligible funds. As can be seen, the costof investing in index funds is approximately 100 bps and for non-indexed funds is 200 bps. This indicatesthat the cost of active management charged by the banks is 100 bps. It should be noted that there are


9/33



some advantages in investing in index funds over ETFs. An individual can make a regular deposit anddoes not have to incur costs of buying ETFs regularly ($10 per trade for an active high income investorbut $30 for a regular investor). For an investor who wants to invest $1000 per month through ETFs,these costs would be significant. On the other hand, once ETFs are bought, there are no annual fees.

It should be also noted that if individual wants advice as to the asset mix decisions (bond versus equity)from an advisor and then invests the funds in ETFs, the advisor may increase advisory fee since he wouldnow get no part of trailer fees. The question really is, what is the adequate level of compensation for pureadvisory services and why does one not find a large number of advisors who simply provide advisoryservices and do not automatically steer investors to the most cost effective funds?

NON BANK MANAGED MUTUAL FUNDS

Table 11 shows the variety of domiciled mutual funds currently available to a Canadian investor alongwith their average and median expense ratios and table 12 shows it for the segregated funds.21 A fewobservations are in order. As can be seen a Canadian investor has a choice of 46 types of mutual fundsand forty types of segregated funds. The expense ratios (MERs and MAFs) vary considerably across thevarious types of funds. Overall money market funds exhibit MERs of less than 100 bps, bond funds andNorth American equity funds just below 200 bps and specialty and global funds approximately 250 to 300bps. In the segregated fund categories, the numbers are approximately 30 to 40 bps higher perhapsreflecting costs of insurance guarantees. Overall, an investor is subject to 200 bps costs which howeverare significantly lower than reported by Khorana et al (2007).

We now provide a more detailed analysis of the mutual fund cost structure by separating various

components of mutual fund fees.22 We focus on various components of the cost structure: passiveinvestment through ETFs or index funds, management advisory fees (MAFs) and management Expenseratios (MERs) of similar funds, MFs that are sold to individual retail investors (series A) compared tothose sold targeted to advisors offering fee-based accounts (series F). Appendix A provides a glossary ofthe necessary terms. Data in these two tables are based on top 10 funds by assets in each respective

CIFSC categories and thus exclude many smaller funds.

23

Also note that these numbers are significantlylower than reported by Khorana et al (2007) as they focus on assets that are of most relevance toCanadian investors and those that are marketed by large well-known funds.

These two tables allow us to analyse the cost structure and services embedded in a typical mutual fundsold through the retail advice channel from the point of view of the retail investor. Based on Tables 13and 14, we separate out the various cost components for a typical Canadian Equity fund and a typicalCanadian Fixed Income fund sold through the retail advice channel from the point of view of the retailinvestor in the chart below. (Numbers are average but highly representative).

As noted earlier, from the point of view of the retail mutual fund investor, they could buy an ETF or anindex fund through a discount brokerage, foregoing the cost of advice and services provided by theportfolio manager and individual advisor or alternatively, they could purchase a mutual fund with portfoliomanagement and individual advice. The primary service provided by an index fund is passive moneymanagement the buying and selling of securities to match the particular index tracked. The costs


10/33



associated with this portfolio management service are represented here by the management advisory fee

(MAF) of the lowest cost index fund in each CIFSC category.24 The costs associated with the second

choice are made up of the additional cost of the services provided by the portfolio manager25 and the

additional cost of the services provided by individual advisor.26 In addition to these costs, there are alsoadministrative costs and GST that are included in the total management expense ratio (MER) of bothpassively and actively managed mutual funds.

We are able to draw some broad conclusions from this analysis. First, a "do it yourself" investor caninvest relatively inexpensively either through ETF or through an index fund and it would costapproximately 40 to 70 bps somewhat higher than the cost of investing through a private sector DBplan. Second, it costs approximately 70 to 80 bps to get advice from a financial advisor whose naturalinclination may be to recommend managed mutual funds; this is not to say that advisors do not explainthe options of ETFs and Index funds. Third, the cost of pure active management is about 60 bps. Fourth,

although not shown here, there is an additional cost incurred by these funds which represents the cost oftrading, termed as the Trading Expense Ratio (TER), that is almost 23 bps for equity funds and verysmall for bonds and approximately10 bps across all funds.

However, as noted earlier, there is a considerable difference between a mutual fund and a DB plan. Amutual fund, whether passively or actively managed, must price daily, must provide a prospectus andinformation form annually, must provide financial statements and a report of fund performance semi-annually as well as an annual report of its independent review committee among other documents. Theunit holder must also receive account statements at least annually and is provided access online or byphone to his/her account balance through either the fund company or the advisor or both, 24/7. Thesedo add to the cost structure of a mutual fund compared to a DB plan. Thus, one could say even thoughactive management may not result in consistent excess returns; it is simply a cost of avoiding badinvestment decisions that may be made by an uninformed investor.

IMPLICATIONS OF THE INVESTMENTCOST STRUCTURE ON RETIREMENTINCOME ADEQUACY

We estimate the implications of this cost structure on retirement income adequacy in two ways. First, weturn our attention to the representative investor and estimate the impact of costs of investing on hisretirement income using estimates from Table 14. Table 15 shows our assumptions about costs and itsimpact on the retirement income of this representative individual (see Table 1 for base case). As can beseen, for a blended portfolio (with blended costs of 1.6%), using ETFs alone would result in reduction ofeight months (0.7 years) worth of wealth; advice only (but investment in ETF) costs 2.8 years of wealthand using both advice and active management that earns the same rate of return as the underlying indexwould result in a loss of four years of wealth. These differences are somewhat higher for an all equityportfolio than an all bond portfolio since the cost of advice and active management is relatively higher forequity portfolio relative to the bond portfolio. Note that a crucial assumption in this table is that activemanagement does not, on average, earn excess returns than the underlying passive index. If advisor-recommended active management earns 1.85% per year higher than the underlying equity index andearns 1% higher than the underlying bond index, an investor would be indifferent between investingthrough ETFs and active management with advice.

Table 16 estimates overall costs of the entire pension system; given the complexity, these are roughestimates. Here we take the Canadian retirement asset values as of 2007 from Table 2 and associateestimated costs of investing to each of the asset classes based on our analysis so far. For social securityplans, and trusteed public sector plans, we use costs of public sector plans as a proxy (0.35%), and thecorresponding costs for trusteed private sector plans of 0.44%; we estimate these costs based on Table4A and 4B. For insurance company contracts, we assume that 90% of these are non-guaranteed and therest are guaranteed; accordingly, we use a blended cost of 0.7 % using estimates from table 7A and 7E.For government annuities, we use an arbitrary 0.1% (using no-advisory T-bill costs from Table 15 as aproxy). For Deferred profit sharing plans and RRSP deposits, we use 0.50% and 0.90% estimated fromTable 7A. For mutual funds and segregated funds, cost estimates are more slightly complicated. We knowfrom Table 3 that the overall asset mix resembles our blended portfolio (used to provide estimates ofwealth in Table 15) but with a 28% investment in either foreign funds or in foreign assets. Their blendedcosts are higher than domestic equity; these can be estimated as approximately 2.25% (see Table 14).We also know that of the approximately $911 billion of pension assets (table 3), insurance companieshave $35 billion under their management (CLHIA data) which, on average, cost 0.65%. So, using the1.60% annual costs of a blended portfolio (table 15) and assuming that this represent 60% of theseassets; knowing that foreign assets actually have a 2.25% costs and represent 30% of these assets and a

small portion (the remaining 10%) of these assets are under insurance company management (cost0.65%); we arrive at an estimate of the overall costs of 1.7%. Since we have no detailed knowledge ofthe asset mix of "other individual RRSP accounts" and neither do we know how these are invested, weuse the same estimate (1.7%) as above. One may argue that these assets include foreign assets, indexfunds, bank managed non-index funds and mutual funds and may not have any economies of scale, sotheir costs would be actually higher and 1.7% is actually a conservative number.

Table 16 shows that these costs, 78 bps for a representative retirement dollar, were worth $16.5 billion.If we assume that 80% of assets classified under mutual funds and other RRSP accounts are investedthrough advisory services and active management (the rest invested through index funds and ETFs orwithout any advisory services), these costs (1.7% times 80% of assets under the last two categories inTable 16) can be estimated to be $9.4 billion. These costs represent investments being made byCanadians in financial advisory sector of the economy with the expectation that it would provide themwith higher than benchmark investment returns or to prevent them from making bad investmentmistakes if they are left on their own.


11/33



OVERALLKEY OBSERVATIONS AND CONCLUSIONS:

The main intent of the paper was to focus on the investment component (as opposed to the savingscomponent) of the retirement income debate and its implication on retirement income adequacy. Thepaper focussed on analysing various investment choices available to a Canadian resident, and investmentperformance and associated costs of various savings and investment vehicles and intermediaries whoassist in channelling individual savings so that they can provide adequate post retirement income toindividuals. As can be seen, this is a complex area as the investment field comprises of many investmentvehicles. We offer following observations.

First, retirement income adequacy critically depends on the tax assistance for savings (RRSP versus nonRRSP), timing of investments and the type of investment. An individual investing 18% of her saving since1983 in blended portfolio at zero cost and invested in corresponding passive equity, debt and t-bills would

have saved 18 years worth of 2008 replacement income (60% of 2008 salary). The same amountinvested outside RRSP would have resulted in 14 years worth replacement income. Both these numbersassume a 35% tax rate during work years and a 20% tax rate at the retirement year.

Second, these numbers are sensitive to investment choices and savings patterns; skipping a few years orstarting late has significant impact on wealth accumulation at retirement. Third, as of 2007, $2.1 trillionworth of pension assets were invested through a variety of vehicles ranging from assets under socialsecurity type programs (CPP and QPP) to assets invested by individuals through individual RRSP accounts.Fourth, the composition of these assets shows that these assets are invested in many different types ofsecurities; Canadians have invested approximately 30% of their assets in foreign securities. Fifth, asignificant fraction (55%) of these assets is invested through employer sponsored pension plans, and90% of these are in DB plans. Thus, the returns and costs of assets under these plans have aconsiderable impact on the retirement adequacy of Canadians. Our analysis indicates that the costsincurred by these plans are in the range of 35 to 45 bps and there is no evidence that these plans showany persistence in performance or that they consistently outperform the passive investment options. Itshould be noted that these funds do not have any distribution or advisory or administration or reportingor regulatory costs associated with administering a large number of individual accounts. In addition, we

also review the costs and performance of CPPIB and find that the costs have increased rapidly and thefocus of investment has shifted from marketable assets to non-marketable assets; the latter are hard tobenchmark.

Sixth, we spent considerable efforts documenting and detailing costs of other financial intermediaries,namely insurance companies and mutual funds. Our analysis of the overall cost structure of insurancecompanies that manage defined contribution plans (RPPs and Group RRSPs) indicates that the overall costis approximately 70 BPS; the cost of managing RPP Plans is approximately 60 BPS with somewhat highercost for managing RRSP assets (92 bps). With respect to mutual funds, we find that the combined costsof advice and active management approximately 160 bps split almost equally amongst the twocomponents and varying considerably depending on the type of asset (Canadian equity, foreign equity,bonds, money market, specialty funds, etc.). It should be noted that costs associated with mutual fundscannot be compared with a DB plan; one would expect a higher cost associated with a mutual fund. Wealso show that the costs of bank-managed mutual funds are no different than a comparable non-bankmanaged mutual fund. Given the fact that banks with their existing retail infrastructure and continuousrelationship with clients may have lower incremental costs, this observation is somewhat surprising.

Although the debate on the benefits of active management would continue, we document that the existingacademic evidence shows that active management, on the long run, does not add incremental value overa passive index. This does not mean that, from time to time, active managers do not outperform thebenchmarks or that investors would do better on their own. Actually, the available U.S. based evidenceindicates that, when investors are left on their own, they make bad investment decisions . One mayconclude that many investors are not sophisticated and do need advisory services from financial advisors.The question is whether financial advisors should channel the savings in actively managed funds or inETFs or index funds; if they do the latter, then what cost structure would be appropriate for such a purelyadvisory service? We also note that a recent survey of mutual fund investors indicated that 83% usefinancial advisors and that the industry receives high marks from analysts for investor protection,transparency in prospectus and report, transparency in sales and Media and in distribution/Choice. So ifthe costs are higher in Canada in comparison to other countries, it is also clear that these costs are wellreported and with full transparency. We also note that costs noted by Khorana et al seem to be muchhigher than those we report here. It is also possible that other factors such as economies of scale, costlyregulatory requirements and differential levels of individual advice may be at play.

Lastly, we provide rough estimates of costs associated with various components of pension assets. Using

the 2007 data from Statistics Canada, we estimate the overall cost of investment to be 78 bps perretirement assets totalling $17.7 billion for $2.1 trillion of total assets. Of the $17.7 billion costs, the costassociated with investment advice, administration and active management account for $9.3 billion, almost50% of the total costs.

REFERENCES

Aggarwal, Rajesh K., Galin Georgiev, and Jake Pinato, Detecting Performance Persistence in FundManagers, Journal of Portfolio Management 2007, pp. 110-119.

Alessie, Rob, Stefan Hochguertel, and Arthur van Soest, Ownership of Stocks and Mutual Funds: A PanelData Analysis," Review of Economics and Statistics, 2004, pp.783-796.

Ang James S., Gregory L. Nagel and Jun Yang, "A Critical Long View of Capital Markets and Institutions:Realized Returns from Corporate Assets, 1950-2003", Working paper 2006.


12/33



Antolin, P., "Pension Fund Performance", OECD Working Papers on Insurance and Private Pensions, #20,OECD Publishing, doi: 1787/240402404057, 2008.

Baks, Klaas P., Andrew Metrick, and Jessica Wachter, Should Investors avoid all Actively Managed MutualFunds? A Study in Bayesian Performance Evaluation, Journal of Finance, 2001, pp. 45-85.

Barber, Brad M., and Terrence Odean, Boys will be boys: Gender, overconfidence, and common stockinvestment, Quarterly Journal of Economics 116, 2001, pp .261-292.

Barber, Brad M., Terrence Odean, and Lu Zheng, Out of sight, out of mind: The effects of expenses onmutual fund flows, Journal of Business, 2005, pp. 2095-2119.

Bauer Rob and Rik G. P. Frehen, The Performance of US Pension Funds, 2008,http://ssrn.com/abstract=965388

Bogle, John C., The Mutual Fund Industry 60 years Later: For Better Or Worse? Financial AnalystsJournal, 2005, pp. 15-24.

Bogle, John C., A question so important that it should be hard to think about anything else, Journal ofPortfolio Management, 2008, pp. 95-102.

Brown, S. J., and Goetzmann, W. N., Performance Persistence, Journal of Finance, 1995, pp. 679-698.

Busse Jeffrey A., Amit Goyal and Sunil Wahal, Performance Persistence in Institutional InvestmentManagement, http://ssrn.com/abstract=890319, June 2006,

Chan, Louis K. C., Hsiu-Lang Chen, and Josef Lakonishok, On Mutual Fund Investment Styles, Review ofFinancial Studies, 2002, pp. 1407-1437.

Carhart, Mark, On persistence in mutual fund performance, Journal of Finance, 1997, pp. 57-82.

Chen, Joseph, Harrison Hong, Ming Huang, and Jeffrey Kubik, Does fund size erode mutual fundperformance? The role of liquidity and organization, American Economic Review, 2004, pp.1276-1302.

Cici, Gjergji, Gibson, Scott and Moussawi, Rabih, For Better or Worse? Mutual Funds in Side-By-SideManagement Relationships with Hedge Funds SSRN: http://ssrn.com/abstract=905600, (December 14,2006).

Coggin, T.D., F. J. Fabozzi, and S. Rahman, The investment performance of U.S. equity Pension fundmanagers: An empirical Investigation, 1993, pp.1039-1055.

Deaves, Richard, The Comparative Performance of Load and no-Load Mutual Funds in Canada, CanadianJournal of Administrative Sciences, 2004, pp. 326-333.

Del Guercio Diane and Paula A. Tkac, The Determinants of the Flow of Funds of Managed Portfolios:Mutual Funds vs. Pension Funds, Journal of Financial and Quantitative Analysis, 2002, pp. 523-557

Elton, Edwin, Martin Gruber, and Christopher Blake, Incentive fees and mutual Funds, Journal of Finance2003, pp. 779-804.

Fama, Eugene F., and Kenneth R. French, Mutual fund performance, working paper, Dartmouth College,2008

Frazzini Andrea and Owen A. Lamont, Dumb Money: Mutual Fund Flows and the Cross-Section of StockReturns, Journal of Financial Economics, 2008, pp. 299-322.

French, Kenneth, R., Cost of Active Investing, 2008: http://ssrn.com/abstract=1105775

Golec, Joseph and Laura Starks, Performance fee contract change and mutual fund risk, Journal ofFinancial Economics 2004, pp. 93-118.

Gruber, M., Another puzzle: the growth in actively managed mutual funds, Journal of Finance, 1996, pp.783-807

Jensen, Michael C. The Performance of Mutual Funds in the Period 19451964, Journal of Finance, 1968,pp. 389416.

Ajay Khorana, Ajay, Henri Servaes and Peter Tufano, "Mutual Fund Fees Around the World", 2007Forthcoming, Review of Financial Studies.

Lakonishok, J., A. Shleifer, and R. W. Vishny, The structure and performance of the Money managementindustry, Brookings Papers on Economic Activity: Macroeconomics, 1992, pp. 339 - 391.

McGuigan, Thomas P., The Difficulty of Selecting Superior Mutual Fund Performance, Journal of FinancialPlanning 2006, pp. 50-56.

Malkiel, Burton G., Returns from Investing in Equity Mutual Funds 1971 to 1991, Journal of Finance, June1995, pp. 549 72.

Sinha Rajeeva and Vijay M. Jog, "Fund Flows and Performance: A study of Canadian Equity funds"Canadian Investment Review, summer 2007, pp.28-34.

Sinha Rajeeva and Vijay M. Jog, "Performance of Canadian Mutual Funds and Investors", Advances in
http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=184949http://www.fin.gc.ca/ssrn.com/abstract=965388http://ssrn.com/abstract=890319http://ssrn.com/abstract=905600http://ssrn.com/abstract=1105775http://ssrn.com/abstract=1105775http://ssrn.com/abstract=905600http://ssrn.com/abstract=890319http://www.fin.gc.ca/ssrn.com/abstract=965388http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=184949


13/33



Investment Analysis and Portfolio Management, 2007, pp. 227-259.

Statman, Meir, What do investors want? Journal of Portfolio Management August 2004, 153-161.

Statman, Meir, Steven Thorley, and Keith Vorkink, Investor overconfidence and trading volume, Reviewof Financial Studies, 2006, pp. 1531-1565.

Stoll, Hans R., 1993, Equity trading costs in-the-large, Journal of Portfolio Management Summer, 41-50.

Sun Chengye, Review of Studies on Mutual Funds Performance, unpublished document, Sprott School ofBusiness, Carleton University, Canada, 2009.

Tonks, I., Performance persistence of pension-fund managers, Journal of Business, 2005, pp. 1917-1942.

Table 1:Investment Choices and End period Wealth

Table 2

Canadian Retirement Assets

Type of plan 1990 1995 2000 2001 2002 2003 2004 2005 2006

millions of dollars


14/33



Social security 54,900 54,491 60,010 62,456 70,244 84,470 101,181 121,444 145,820 1

Canada Pension

Plan 40,577 40,611 41,660 46,004 52,119 65,716 78,760 94,471 113,581 1

Quebec Pension

Plan 14,323 13,880 18,350 16,452 18,125 18,754 22,421 26,973 32,239

Employer-

sponsored

pension plans 322,263 523,093 818,781 792,713 778,691 850,547 940,752 1,048,170 1,162,236 1,2

Trusteed

plans1 199,408 349,984 577,155 566,916 543,341 603,228 679,421 773,923 873,639 9

Public sector 111,142 212,572 361,003 362,416 344,891 382,720 432,197 498,481 568,172 6

Private sector 88,266 137,412 216,152 204,500 198,450 220,508 247,224 275,442 305,467 3

Governmentconsolidated

revenue

arrangements2 89,170 131,909 180,082 165,576 177,055 180,197 184,194 188,241 193,738 1

Other 33,685 41,200 61,544 60,221 58,295 67,122 77,137 86,006 94,859 1

Insurancecompany

contracts3 30,968 38,411 53,389 49,538 51,552 57,802 61,441 66,667 70,986

Government of

Canada

annuities4 829 628 495 505 427 395 369 344 331

Deferred profit

sharing plans5 1,887 2,162 7,661 10,179 6,316 8,924 15,326 18,995 23,542

Individualregistered

saving plans6 135,263 273,281 411,464 409,829 378,932 428,348 500,475 570,776 641,003 7

Deposits inRRSP

accounts7 97,588 134,760 102,504 104,531 106,346 110,305 110,634 110,243 111,836 1

Mutual funds

andsegregatedfunds in RRSP

accounts8 12,748 74,364 188,581 190,056 175,348 193,697 211,255 231,458 250,301 2

Other

individualregistered

saving plans9 24,927 64,157 120,379 115,242 97,238 124,346 178,586 229,075 278,866 3

Total assets10 512,426 850,865 1,290,255 1,264,998 1,227,867 1,363,365 1,542,408 1,740,390 1,949,059 2,1

Source: Statistics Canada, Latest Developments in the Canadian Economic Accounts, catalogue number 13-605-XIE.

Notes:1

Trusteed pension plan estimates by sector are derived by applying asset ratios for the public/private sector split from the Quarterly Trusteed PenFund survey to the National Balance Sheet Accounts total trusteed pension plan estimate.2Includes public sector retirement compensation arrangements. These supplementary employee retirement plans were set up to provide pensionbenefits to senior employees beyond the maximum permitted registered pension plan benefits as set out in the Income Tax Act.3Estimates for insurance company contracts are taken from the Canadian Health and Life Insurance Association. Estimates for 2007 were derivedthe growth rate of the private sector trusteed pension plans.4Data for Government of Canada annuities come from the Public Accounts of Canada.5Estimates for deferred profit sharing plans are derived from the Survey of Financial Security and Canadian Life and Health Insurance Associatio

survey data.6Estimates for individual registered saving plans are derived from the Survey of Financial Security in Canada, Canadian Life and Health InsurancAssociation survey data, Quarterly Survey of Financial Statements, and the Ipsos-Reid Canadian Financial Monitor.7Estimates for deposits are taken from the Quarterly Survey of Financial Statements and the Canadian Health and Life Insurance Association.8Estimates for mutual funds and segregated funds in Registered Retirement Savings Plan accounts are taken from the National Balance SheetAccounts and the Canadian Health and Life Insurance Association, respectively.9Includes Registered Retirement Income Funds (RRIFs), Life income funds (LIFs), Locked-in Retirement Income Funds (LRIFs), and self-directed

Registered Retirement Savings Plans (RRSPs) not captured elsewhere.10Excludes retirement compensation arrangements for the private sector (see note 2). Research in this area is continuing (Statistics Canada).
http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt1http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt1http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt1http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt2http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt2http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt2http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt2http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt2http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt3http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt3http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt3http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt3http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt4http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt4http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt4http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt4http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt5http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt5http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt5http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt6http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt6http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt6http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt6http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt7http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt7http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt7http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt7http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt8http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt8http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt8http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt8http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt8http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt8http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt9http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt9http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt9http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt9http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt9http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt10http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng.htm#ftnt10http://www.fin.gc.ca/activty/Documents%20and%20Settings/vjog/Local%20Settings/Temporary%20Internet%20Files/Content.Outlook/OEV3LKK4/5213171-eng