All About Estates

Fiduciary Investing Series – Fun, fun, funds

This blog has been written by Robert Boyd, Director, Scotiatrust.

Mutual Funds, Hedge Funds and Exchange Traded Funds (ETFs) are all well known to the general public and reasonably well understood investment vehicles, however there is a trust specific fund that has fallen out of favour in recent years, somewhat unduly in my view.

Common Trust Funds (CTFs) are a type of pooled fund that can be created under trust legislation in Canada and allow Trust Companies to manage small to medium trusts with a low cost structure. Unlike Mutual Funds, there is no management expense ratio (MER), which allows the overall trustee fee to remain reasonable.

In addition to a low cost structure, the funds can be structured in a way to avoid falling afoul of trust legislation or the common law, and with the right mix of funds, an appropriate strategic asset allocation can be achieved quite easily. Another overlooked advantage is that the funds can carry an investment mandate that is suitable for the Estate and Trust community because the nature of the funds is not used for any other purpose.

One disadvantage can be the inability to control capital gains on individual securities, however in small to medium size trust structures, this is not usually an issue.

CTFs are suitable for almost all trust arrangements, and if low cost is a high priority of the settlor, they may fit the bill.

Fiduciary Investing Series

The blog is the second in a series focusing on Fiduciary Investing that will cover a range of practical topics.

Blog #1   How to avoid compounding liability in trust accounts
Blog #2   Fun, fun, funds
Blog #3   Powers of Attorney and Investment Portfolios
Blog #4   Don’t REIT around the bush

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