Tuesday, July 16, 2013 | 11Loblaw to buy Shoppers Drug MartLoblaw Cos. Ltd., Canada’s largest food retailer, said it will buy Shoppers Drug Mart

Corp. for $12.4 billion. The offer of $61.54 in cash and stock represents a premiumof 27% to Shoppers Drug Mart’s Friday closing on the Toronto Stock Exchange.

yourfinance

J onathan Medved,CEO of Israeli start-up OurCrowd, spoketo about 300 peoplein Toronto last week

on the topic of crowdfund-ing.That termdescribes thecollectiveeffort of individu-als who network and pooltheir money, usually via theInternet, to support effortsinitiated by other people ororganizations.It is a brilliant concept and

can be used to support greatcauses, such as disaster re-lief, scientific research andinventions development.Mostpeoplearefamiliarwithcrowdfunding portals likeIndiegogo and Kickstarter,where investors get a non-monetary return, like a pro-ducer credit or a copy of anewcomputergame.But crowdfundingcanalso

meanraisingsmall amountsof money from hundreds oreven thousands of smallinvestors, rather than themore traditional route of

getting $500,000 from oneor two angel investors orventure capitalists. Thisconcept is exciting for thosewho want to participate instart-up companies, buthave not been able to comeup with the minimum levelof investment required,usually $150,000 or moreper investment. Imagineowning seed shares in thenext Facebook.A company like OurCrowd

doestheworkofresearchingand selecting the best ideas,

posts them on the websiteand then leaves it to the po-tential investors to decidewhichof thedeals theywantto participate in. But it’sonly foraccredited investors(there are various tests, butin Canada one rule is morethan$1million inassets, notcounting yourhouse).The process is simple —

you can go to their website,verifythatyouareanaccred-ited investor using the defi-nitions of your own country(every country is different),

search for promising busi-ness ventures, click a but-ton, and invest $10,000 ormore to help support yourpreferred idea. You feel partof the project and you arehelping to build a companythat may one day have realvalue. You are immediatelyconnected to investorsfromaround theworld—allunited by being involved inthe same start-up.Regulators in Canada

and the U.S. are looking atchanging the laws around

equity crowdfunding forthosewho aren’t accreditedinvestors, but that hasn’thappened yet.In my experience, regard-

less of whether you are anaccredited investor or not,the rules of human natureapply. I have met manypeople who deeply regretmaking snap investmentdecisions such as bettingtheir retirement on onestock (!) or liquidating theirentire portfolio based on ascary headline. Medved is

a leading Israeli venturecapitalist and serial en-trepreneur. Not only is heone of the most compellingspeakersIhaveseeninmorethan 20 years in the invest-ment industry, he was alsorefreshingly honest duringthequestionandanswerpe-riod. When asked whetheran investor should selectjust one or two companiesfrom the list to start the ballrolling, he respondedwith aclear “no.”Even for accredited in-

vestors, it is critically im-portant to understand thatyou need to put together aportfolio of five to 10 com-panies. The reason? Half ofthe companies are probablynot going tomake it.Whether we are talking

about crowdfunding orany other type of investing,Medved’s advice is wise.Make sure your portfoliois protected against thespecific risks related to thecompanies inwhich youareinvested.Thebestprotection isgood

old diversification. Standapart from the crowd andtake care of your own nestegg.

— Barbara Stewart, CFA, is withCumberland Private Wealth

Management Inc. Visit her websiteat barbarastewart.ca

Lately, buzz in the invest-ment world has revolvedaround trailer fees paid toadvisers. This follows arecent roundtable discus-sion held by the OntarioSecuritiesCommission andthe release of a report latelast year from theCanadianSecurities Administratorsdeliberating the issue.Currently, some advisers

are compensated by mutualfund companies via trailerfees embedded in manage-ment expense ratios. Thisis typically done in lieu ofcharging clients a separatefee for investment servicesandprofessional advice. Forthemostpart, theseadvisersdo not earn a salary but in-steadrelyonthiscompensa-tion structure.Investor advocates argue

this practice lacks the trans-parency investors need tomake educated decisionsabout their portfolios. I be-lievetheargumenthasmerit,although I think the focus issomewhat misdirected andthe discussion should bewider than trailer fees.Thekey issue isn’twhether

or not advisers should bepaid. Advisersprovideapro-fessional service and shouldbe compensated ac-cording to the qual-ity of their advice.Simply put, feesare paid in anyindustry, tradeor profession forservices rendered.Nobody works forfree.The focus of the debate

should instead be directedtoward educating investorsand creating an environ-ment where fees are openlydiscussed and completelydisclosed. Investors shouldbe fully apprised of the costof doing business and theyshould understand what

they are getting in return forthe fees. These are impor-tant issues, which must be

addressed accordingly.Surveyshaveshownthatmanyinvestorsare unaware ofthe fees they pay.The number ofinvestment prod-ucts has increased,

translating into a va-riety of fees with some

embedded in the cost of theproduct and others chargedseparately. It’s no wonderinvestors are confused.To remedy this, investors

should have the entire feestructure clarified in detailand provided in writing.When contracting for anykind of service, a customer

gets a price — and invest-ing should not be different.Neithershouldadviserswaitfor investors to ask beforedisclosing fees.Costs shouldbe part of the discussion be-fore the investor signs on asa client.Advisers should fully

explain what the fees arepaying for. What servicescan the investors expect inreturn? Is the fee associ-ated purely with the cost ofthe investment transactionor will other services beincluded, such as financialplanning? All too often feesare an afterthought thatis only discussed when anissue arises. This needs tochange. Advisers must takea more active role in the fee

educationprocess.Nomatter what the indus-

try, there is always a cost ofdoing business. However,in the investment world, achange is needed and thatchange is transparency.Investors must fully un-derstand their costs so theycan be confident in theirinvestments and can makeinformeddecisions.Withoutthat openness, the industrywill remainmiredindistrustand there will forever be adisconnect between adviserand client.

— Kim Inglis, CIM, PFP, FCSI, AIFPis an Investment Adviser and

Portfolio Manager. She can becontacted via reynoldsinglis.ca.

The views in this column are solelythose of the author.

Don’t crowd financial eggs in one basket

Adviser fees currently a hot issue in the investment world

kim inglisSpecial to QMI Agency

BarBara stewartSpecial to 24hrs

Crowdfunding can mean raising small amounts of money from hundreds or even thousands of small investors, rather than the moretraditional route of getting a large sum from one or two investors. FoToLIA

nobodyworks

for free