Instead of helping typical investors ravaged by fees, the government plays gotcha on total returns for ‘the rich’.

This was budget week in Canada. And government finances certainly get most of the attention and most of the ink. But there were some investment issues that made it into Budget 2019. Not the larger societal issue of Canadians paying the highest mutual fund fees in the developed world combined with the standard and unscrupulous and unethical practices of the typical financial ‘advisor’ in Canada.

Nope, this made it into the budget. From a post on and John Robertson the author of The Value of Simple.

2019 Buget Total Return

The derivative transaction mention means they will target total return ETFs such as Horizons’ TSX 60 Total Return (TRI) index ETF. Here’s the link to HXT that replicates the TSX 60 by way of swaps. These funds are derivative based and they can be incredibly tax efficient. They remove the funds’ income. From Dan Bortolotti in this MoneySense article

There are several advantages to building an ETF with a swap rather than holding the stocks or bonds directly. The first is tax-efficiency. The most important advantage of swap-based ETFs is their potential to defer or reduce taxes. As we’ve noted, these ETFs do not pay dividends or interest, which means you won’t be taxed on any income as long as you hold your units. All of the gains in the fund are considered capital gains, which are not taxable until you eventually sell the holding. And even then, capital gains are taxed at only half the rate of regular interest income and foreign dividends. (Canadian dividends enjoy favourable tax treatment too, but for high-income earners, capital gains are still taxed at a lower rate.)

And this ETF allows Canadians to invest at an incredibly low MER of just .03% with rebate. Horizons offers a suite of total return funds that includes US and International stock indices plus Canadian and US bonds. One could build a tax-efficient portfolio.

Eat the rich investors.

There is almost $1.9 billion in the HXT. There is well over $1.6 trillion in Canadian mutual funds. Now certainly not all of those funds are crap, but most of ’em are quite poor due to average fees in the area of 2.2% annual. Of course couch potato investors will know that passive low fee index investing drastically outperforms high fee actively managed funds over longer periods.

So instead of going after the 2.2% fee junk, they go after the .03% offering.

I’d estimate that the amount that Canadians pay and lose needlessly to high fees is in the range of $20,000,000,000 or more annually. Yes that’s $20 billion. That’s massive. It’s so massive it’s the size of our annual deficit projections. Ha. I’m not sure that picking up some tax scraps to the tune of tens of millions of dollars from swap based funds is going to close the deficit gap.

But of course this has nothing to do with tax revenue generation or fairness. And my disappointment with this measure has nothing to do with the targeting of swap based funds. Maybe it’s the right thing to do to close tax efficient investment vehicles, we can all make up our own minds on that.

I simply think it’s asinine to skip over a massive societal issue such as the squashed retirement goals and dreams of typical Canadians. We lose a massive amount of monies to high fees and unscrupulous switching behaviour where Canadians are switched from fund to fund to generate additional fees for the advisors and the mutual fund companies.

To see the effect of high fees on your investments over longer periods I’d invite you to read Larry Bates’ Beat The Bank. And on you can check out how much you will lose to fees by clicking on the T-REX Score link.  It’s astounding. You might hand over half of your investment wealth (needlessly) in fees over an investment lifetime.


Larry is a former banker who tells all and lays out the sad truth as to what actually happens in the investment industry. Canadians told me what ‘goes on’ when I was an advisor with Tangerine Investments. Tangerine offers a wonderful suite of lower fee index-based portfolios. In my position at Tangerine I would conduct portfolio analysis of clients’ external holdings. It was not pretty. How they were treated and the information that they were fed by their ‘advisors’ was alarming. Poor investments combined with poor advice or no advice is not a good combination.

So instead of helping Canadians retire with 30%, 40%, 50% or more, we’re going to take some small change out of the pockets of a few affluent investors.

Kill the tax efficient investment options, sure, go ahead. I’d be happy to sacrifice those for some common sense policy and regulatory moves that protect the Canadian investor.

I won’t hold my breath.

Canadians – help yourself. You have options. 

You can access the advice you need and obtain low fee investment portfolios. Have a read of my Canadian Robo Advisor reviews. You can also access a fee-for-service advisor. You can get the advice you need and pay as you go. You might self-direct and create an ETF Portfolio. You can use a One Ticket Asset Allocation Portfolio – well diversified investments with fees in the range of just .20% annual.

I discovered a long time ago that politicians and regulators do not have your back. Heck, it’s a self-regulated industry. It’s up to you to take an interest in your own financial affairs.

Questions to Dale or better yet leave a comment on this post. Maybe send this post to your MP, friends and family.

Thanks for reading. Kindly hit those share buttons for Twitter, Facebook and LinkedIn at the bottom on this article. You can Follow Cut The Crap Investing at the very bottom of this page.

7 thoughts

    1. Hi Angelo, for now I think we have to sit tight and see what happens. They are looking to make changes but nothing is concrete or announced, is my understanding. When or if it happens, I’ll update. And if you have any questions you can ask them here and I’ll get our friends at Horizons to provide an answer. It’s wait and see from now.

      I don’t think there would be a T3 for a total return fund as there is no distribution.


  1. All Hail Morneau!

    Thank you for writing this article Dale … and for having the backs of us hard pressed retirement savers and over paying financial management / fund fee refugees. I also applaud Horizons ETF’s for their efforts and products to assist the average small Canadian investor to prosper and fend for ourselves without requiring the nanny state our politicians are determined to invent. Unfortunately the current Liberal government doesn’t agree.

    Hey I’m just a retired small business owner trying to cobble together a viable retirement income in a government manipulate forever low interest environment. Reducing management fees and the legal deferring of taxation being one of the only ways to get ahead without reaching for returns by taking on excessive investment risk. All incentive and reward for doing so being constantly punished by our fearless elitist leaders.

    Obviously Mr. Morneau can’t relate as he has no such mundane problems or concerns :

    Would the Conservatives (PC’s) see the light and roll back these window dressing tax changes? I’d like to hear the opposition leaders address this issue. If so let’s run Trudeau’s war on small business and middle class retirement savers out on a rail come the next Federal election !

    Sadly … First time in my life I WON’T be voting Liberal! Who would like my vote? .. Step up and lead !!!


    1. Thanks Jay for your comment and for stopping by. I know small business owners are not happy with the current government, and I understand why, but I guess that is a different issue, but it all demonstrates the current priorities.

      With respect to the investment arena, I doubt anything would change with a Conservative government. They had their chance too right? Canadians have been paying the highest fees, and the unscrupulous and often unethical and predatory tactics have been on display (and in plain sight) for decades and decades. And the Provinces need to step up as well to protect consumers.

      I am just a small fry but I will try and push this into the political arena. But at the same time I know it’s pushing on string. It can be seen as wasted time and energy. Every hour spent lobbying a politician or ‘regulatory’ body is an hour that is not spent trying to help Canadians help themselves to get away from the investment mess and the advisory world mess.

      Canadians need to get educated and help themselves. We need to help each other out. We need to spread the word. We can’t wait for for regulators or politicians or government bodies to do the right thing. It’s likely not going to happen.

      There’s a whole community of writers and educators and advisors and investment firms on the side of the investors and retirees. We’re the minority but it’s a powerful team.

      Spread the word is all I can say. Help out your friends and family. It’s sooooo easy to take control of your own finances, even with needed advice at the right price. The options are there.



  2. Dale, thank you for exposing this issue. Would you have the time and energy to get a movement going to oppose this? Perhaps a draft of a letter we can send our MP’s, or a petition we can sign, if such petitions are valid.

    “I am just a small fry but I will try and push this into the political arena.” One idea is to contact the CBC’s The Fifth Estate and see if they might think it’s news worthy.


  3. Pathetic—first time I won’t be voting Liberal as well—swap etfs are a good way for all types of investors to simplify their investing, plan for taxes, and save money. Without these types of investments, people may be less inclined to to go at it themselves (for me, the convenience of not having to keep track of adjusted cost base is a big relief). This forces them to seek solutions from the self-serving financial industry. My parents had limited knowledge of investing and I saw what the 2.5% mutual fund fees did and and continue to do to their life savings. I can imagine that many Canadians fall victim to overpriced financial instruments.

    The Liberals have been hell bent on tax rules for the past few years in order convey that they’re doing something about the wealth gap; but in reality, these measures do nothing but discourage people from creating wealth. Why work hard when the government takes more than half of what you make through taxes? The incentive to work hard is even less when you can’t even foresee being able to afford a place to live. Indeed, this government has been distracted and has completely missed the big societal issues that needed to be solved. I’ve lost faith in this country for real.


    1. Hi Ehan, thanks for that. Yes the reporting simplicity was also a big plus. As per the article I think they could spend their investigative energies in areas that would do some massive ‘good’ in the financial industry. Like those fees and lack of disclosure.


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