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Discussion Starter #1
Hi, I am hoping you will give me advice and opinions on 2 main questions.

My husband and I are ready to get out of mutual funds and move to the couch potato style of investing. We are currently in a 'fund portfolio' program with a big name bank/investment company. Some time ago I set up a direct investing account, planning to do a little on my own, but didn't do it yet because I thought I'd have to just buy stocks and bonds and felt too ignorant. Now I realize I can fairly safely make a couch potato portfolio so am ready to start. So these are my questions:
1) we currently have 2 RRSPs, a LIRA, RESPs for 2 kids, a non registered account and a non-registered in trust. Do we just ask the company to take all our money in these accounts (which are all invested in their portfolio of mutual funds) and put them in cash into the direct investing account. And, how do we manage the registered/non registered issue once we decide to on the exact mix of ETFs to buy.
2) I know our current FA will try to talk us out of getting out of their funds but we are determined to do it. Once we go to direct investing should we just deal with their brokerage arm and not be in contact with the original person again. Will he still have access to our account? We like him well enough as a person but don't think he's given us any good advice...just long lectures on holding and waiting and 'don't worry, you have time'. Yeah, well, my husband would like to retire before he's 85!! :rolleyes:

Advice opinions would be much appreciated. Thanks,
Laura
 

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For starters, you will need to open as many separate accounts at your discount brokerage as you currently have at your full-service firm: 2 RRSPs, LIRA, RESP, a cash account and an in-trust account. Make sure that your discount brokerage can accommodate all of these various account types. The big bank discounters can, but some of the independents don't offer certain account types. See if you can get your discounter to pick up all transfer fees for the various accounts. This is generally standard practice if account size is sufficient. The carrot that you can offer them is that you will transfer everything, not just a portion.

Next you will want to transfer in-kind. This is very important for the registered and locked-in account to avoid full taxation because selling and taking the cash out of these accounts will be deemed to be a wind-up rather than simply a transfer. Once the funds have reached the new accounts then you can decide what to do in terms of buying and selling funds without triggering taxation in the registered accounts. Selling in the cash accounts will trigger a taxable event, but that can't be avoided unless you continue to hold the current funds.

With the discount brokerage there will be no advice whatsoever, you will be strictly on your own, so be prepared for that.

As long as you hold the expensive fund-of-funds the discount brokerage will get to collect the trailer fees without providing any service so you want to sell them a soon as it makes sense -- IOW when the reduction in fees will more than off-set any deferred sales charges that are still outstanding on your fund-of-funds. If you've been regularly contributing to these, they could be substantial, so the first order of business is to quit adding new money to them by cancelling any regular investment plans you have. Contact the fund companies to find out what the outstanding (if any) DSCs are. If you have high DSCs remaining on the current funds, you can at least sell 10% annually without triggering any DSC charges.
 

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if it were myself, i would take this step slowly, and would probably space this transition out in gradual steps out over 3-6 months. Each step would also be a learning point.

it's important to realize that if you liquidate any holdings in non-registered accounts, such liquidations will be taxable events. That is, you will have a capital gain or loss depending upon the cost base of each fund and the price at which you redeem/sell it.

one way to avoid this taxation consequence would be to transfer non-registered accounts in kind, rather than in cash. Such transfers are not taxable events, because you are not disposing of any of the securities.

with respect to what your existing advisor can "see," at some large bank-owned wealth managers with diversified service platforms, it is possible to "not share" certain types of accounts. If your firm offers this privilege, you could elect to "not share" your self-directed investment accounts with any other part of the financial institution, including the bank itself where you might have regular banking accounts, and so on.

in any event, your existing advisor will know where you are transferring your assets or your cash.

if you do elect a slower rather than an abrupt transfer strategy, as i mentioned above, one thing that i believe will happen is that your advisor will become shorter and shorter with you, less and less willing to offer any sensible advice, even perhaps in the end not returning phone calls for days on end. This is understandable. He has to concentrate his efforts on his sales, and you will be slipping out of his grasp. This is also why i suggested a transition period of only 3-6 months, rather than a full year ... because within a few months you will be at or near the bottom of his strategic client list.

as for this part of your message:

" ... how do we manage the registered/non-registered issue once we decide to on the exact mix of ETFs to buy ..."

this, i believe, is a separate issue and one that you could perhaps think through before you make these transfers. It's a difficult issue in these times, because traditionally an investor would hold high interest-bearing securities in registered plans while holding more favourably taxed securities, ie the kind that pay tax-credit-bearing dividends or potentially can lead to capital gains, in non-registered plans.

however at present there is almost no interest being paid, so the traditional approach is askew. You will see many discussions here in this forum on the advantages & disadvantages of various bond or dividend approaches. I do believe this is a serious issue that deserves a lot of study & reflection. In addition, i believe that Canadian Capitalist is an expert practitioner of what one can call the couch potato or sleepy portfolio approach, and although i haven't studied his blog at length nevertheless i would expect that a new investor can find a great deal of exceptionally helpful information over there.

wishing you great success. It's a big & brave step you're taking, so baby steps are a good idea.

(signed)
one who has had a lot of fun at it.
 

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I wouldn't worry, in your shoes, about the feelings of your current advisor. Believe me, this is a very, very, very common event in your advisor's life. (I don't mean him or her particularly - I just mean that people really come and go in a typical advisor's client base). :)

I see you have different advice from the previous two posters about in-kind versus cash transfers. My understanding, from my experience as a (former) advisor, is that you can transfer between registered accounts in cash or in-kind - there's no deemed sale. Only withdrawals from registered accounts are taxable events, not transfers (whether in cash or in kind) between two registered accounts.

I'd pay attention first of all to any deferred sales charges upon the sale of your existing mutual funds. You will be able to determine whether you have charges if you sell your holdings by looking at the codes on your statements. If this doesn't make sense to you, ask us more questions.

Good luck! This is an exciting step you are taking.
 

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See if you can get your discounter to pick up all transfer fees for the various accounts. This is generally standard practice if account size is sufficient.

Yes, your new institution should be able to help you out with the transfer -- it's sometimes easier to "pull" money rather than "push" it.
 

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hey gal you are right about registered accounts ...

but please note i was talking about NON-registered accounts since there are a couple of these. Dispositions-of-securities-in-non-registered-accounts-are-taxable-events-etc. I know that you know that.

scomac's view on registered account transfers is slightly different from yours, so it would pay kyah to persist in ironing out this detail until she gets it perfectly. It may even be necessary to review the literature of the revenue authorities. It's for reasons like this that i suggested a 3-month carefully-planned transfer period, not an abrupt leap with pieces that could crash down painfully afterwards. I'm not knowledgeable about locked-in accounts but for ordinary registered accounts and for the nonce, i tend to agree with gal.

scomac has important suggestion i didn't think of. Especially because there are so many accounts, kyah wants all the transfer fees to be picked up by the online discounter. So she may have to offer the carrot, which is transfer everything at the same time. In that case, i would lean towards transferring everything exactly as it is, in kind - after first identifying any rear-load funds or other fees - and then working up the accounts into couch or sleepy mode later.
 

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Discussion Starter #8
advice..

Thank you for taking the time to give me such detailed input. I'll print it off, digest it for a while and talk it over with my husband some more. If there is anything I don't understand I'll come and ask more questions. We have a lot to learn but are willing to put in the time and effort to learn it.
 

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Although the posters above do not disagree with the following, I don't believe it was made clear:

There are two separate issues here: the transfer of accounts and the changing of assets owned.

The transfer of accounts is accomplished by approaching the recipient firm - without saying anything to your old advisor/broker. It is the recipient firm that fills out the forms and starts the process of transfer. There is a system just like Interac for doing this. You should transfer all accounts in total and in kind without getting your hands on any of the cash personally.

Then you start managing the selling of the mutual funds and purchase of new ETFs.
 

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Good point, Leslie.

One additional point: sometimes the receiving institution is unwilling or unable to hold the securities from the original account (Investors' Group funds come to mind).

If you are transferring in-kind -- which is probably the easiest course of action -- you will need to confirm with the receiving institution that they are able and willing to hold the particular securities you intend to transfer.
 

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Discussion Starter #11
advice...

Thanks for your additional comments. Moneygal invited me to ask more questions if I didn't understand that. Hopefully she won't regret it :)
First, I just want to clarify a couple of things...hopefully that will make it easier to give my advice.
I don't know if I'm allowed to mention institutions but I have to in order to clarify...we are in a fee based program with ScotiaMcLeod. The direct investing account we set up is under their umbrella, I see it when I log into look at my other accounts. Because we are in the Pinnacle program, which according to our documentation does not charge a fee to get out (because you pay quarterly fees based on your assets) I'm thinking we should be able to opt out (within this quarter to minimize fees) .
Humble_pie suggested taking baby steps but we have to take the first big step of getting out of the fee based program.
I have been reading the likes of Bogle, Bernstein, Carrick, Graham and following the blogs of The Canadian Capitalist and the Couch Potato. It all makes me aware of how much we don't know and we have to be cautious but at this point, I'm sick to look at the spreadsheets I've made and see we've lost principle, a few hundred thousand in dividends and disbursements, payed a lot in fees, and paid tax on capital gains that we never benefited from.
I apologize if I broke a forum rule by mentioning specifics. Please let me know if I did.
As to the last note from Leslie...is it reallyl necessary to be that stealthy? Or I just naive. I would rather not have to completely change financial institutions but can do that if it looks like we'll get shafted where we are.

BTW, we are planning to have one working partner until the kids are both finished an undergrad degree. That gives us a timeline of about 12 years before we may want to pull any money out of these funds for living expenses.
thanks again for your insights.
Laura
 

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Kyahgirl: it isn't stealth. If you want to transfer institutions, the new institution is the one that will do the paperwork. That's just how the business works.

However: sounds like you don't want to transfer institutions but from the Pinnacle program to a self-directed set of accounts. If that is the case, someone at Scotia will help you, and your current advisor may be the best place to start (and you may have to ward off some advice to stay put).

Looks like the Pinnacle funds have both A-class and F-class versions. From what you've described, you are in the F-class versions -- but you will need to confirm that. The A-class versions may have trailing commissions and DSC fees at redemption - the F-class versions (usually used in a fee-based account) will not.

I have one other note of caution which you are totally free to disregard (of course!). You mention a lot of regret about the investments you've had over the past little while, including loss of principle, and inefficient capital gains tax issues. The concern I have is that you may not have done any "better" on your own (although ETFs are much more tax-efficient than mutual funds, for sure).

Don't get me wrong -- I think that creating spreadsheets that track your performance over time and resolving to leave a situation that doesn't work for you are phenomenal steps. It's just that if you go into a self-directed situation expecting to do better than you have been...you may not. Lots of people are showing LOTS of losses over the past two years, including very involved, DIY investors. I personally think the control you can regain when you are a DIY investor is really priceless...but everyone's tolerance for losses and variability is different. :)
 

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Discussion Starter #13
Thanks Moneygal I appreciate the notes of caution.
I am not thinking of any get rich quick opportunities and am prepared for slow growth. We will be careful but at the same time we really feel we have to make a change.
As much as possible, we will take the baby steps recommended here and we will try hard to trigger as few fees and taxes as we can.
If I have any updates to report that I think someone else can learn from I'll be sure to write a note about it.
 

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hello kyah,

i had suggested baby steps because there were at least 2 issues at work, one being leaving the present advisor and the other being taking control and direction of the portfolio itself. So i'd thought of a gradual withdrawal as a way of navigating the shoals, rocks & narrows.

however upon learning more it seems you'll remain with scotia, seemingly within the pinnacle program but as self-directed rather than advised investors. And you want to make the change soon, all at one time, so as to stop the advisory fees this quarter. Yes, it's true that the receiving institution (if you were to go outside scotia) does all the transfer work. It's true that the jilted advisor has an ultra-thick skin & will not even shed a tear. And it's true that a transfer-in-kind (don't raise extra cash) will not trigger any tax consequences.

what i am wondering is, what are the fees attached to a pinnacle self-directed program. The rock-bottom least expensive DIY approach at scotia would be itrade. However, there is an eye-blistering thread of complaints about itrade going on now in this forum which you must have noted. So - assuming no one wants to join an online broker that can't answer a phone call for 2 hours - i'm wondering why you would stay at scotia, unless this pinnacle self-directed program offers the same multi-exchange buying opportunities and the same ultra-low commish as itrade, but with better customer service. For example, will you be free to buy any ETF on any exchange anywhere in north america, for a commish ranging from less than $10 to less than $30.
 

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"Thanks Moneygal I appreciate the notes of caution.
I am not thinking of any get rich quick opportunities and am prepared for slow growth"


She wasn't cautioning you on your rate of return, she was preparing you for the next freefall in the value of your investments, with you not having a tremendous amount of knowledge to deal with it. Of course, you can come back to this board, but at times of extreme market volitility, you will receive replys that are at all ends of the spectrum and everywhere in between. At times not being very helpful. You will understand more clearly what I mean when your investments go through the next freefall.

In any event, good luck to you.
 

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Yes to OptysEagle.

My other thought (as I have said in different ways in different threads all over this board) is that people use the term "investing" to cover a broad range of activities. Someone who is 12 years away from retirement probably needs to start to do actual retirement income planning, not just "investing."

The reason I would distinguish investing and retirement income planning is that the issues when you are withdrawing from a portfolio are very different than the issues in accumulation portfolios.

If you read the Shakespeare primer (linked in a recent thread), you can see some of the issues that arise in decumulation portfolios. Quickly, though, the risks are different and greater than the risks for an accumulation portfolio - partly because you have less time to correct mis-steps, and partly because a bigger amount of money is at stake (a 40% loss on a big portfolio is a bigger deal than a 40% loss on a smaller portfolio for someone further away from retirement), and partly because you enter a new risk "zone" where inflation, sequence of returns, and longevity start to emerge as risks to your income stream in retirement.

I often feel that the general "vibe" in discussions of investing are about how to grow assets, with lots of people talking about how to grow assets safely ("I am prepared for slow growth"). But the issue when you are nearing retirement is not so much how to grow your pile of assets, but how to preserve your existing assets while converting them to a form which produce retirement income - and how to set the balance of equities and other asset classes to optimize income streams in retirement.

These are not easy questions to grapple with. The advisory industry as a whole is moving towards greater consideration of these issues, but there's not enough attention on them yet (IMO) and way too many shortcuts, workarounds, ballparks and "guesstimes" in the retirement income field.
 

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Discussion Starter #17 (Edited)
Humble pie, just responding to your queries:

hello kyah,

...So i'd thought of a gradual withdrawal as a way of navigating the shoals, rocks & narrows.

(Excellent advice-we've been working on some education before doing anything and will continue)

however upon learning more it seems you'll remain with scotia, seemingly within the pinnacle program but as self-directed rather than advised investors.

(We will definitely get out of the pinnacle program because it is in their fee based investing offerings. The total fees work out to about $1000/mo on the combined accounts-ouch! There is no 'pinnacle self directed' option. We will leave Scotia if they try to ding us with a bunch of fees or unwanted pressure. A lot depends on how our current advisor responds to the challenge. I do understand the point that has been made about pulling money and getting another institution to do the paperwork and eat the fees, but, I don't think we're going to take that step without first testing the situation with our current advisor. We'll see where his ethics lay first...he's supposed to be a 'wealth advisor' with no interest in selling us a particular product but we'll know pretty quickly when we meet with him.)

what i am wondering is, what are the fees attached to a pinnacle self-directed program. The rock-bottom least expensive DIY approach at scotia would be itrade.

(Here is an interesting question...when I look at Scotia's investing offering, Direct investing is a separate option from iTrade. We will have to inquire more about how they differ. My current understanding is with a direct investing account you can access their research and on line market info and, for a fee, phone a broker and buy/sell. There are 'bundles' so people that do a lot of trading can pay as low as $8.95 but infrequent traders, [such a person managing a couch potato portfolio] would pay the top range around $29. Also, I have read the threads on troubles with itrade and would seriously hesitate to move that way...we'd probably move to another institution such as RBC or TD but that is putting the cart before the horse)
My current understanding is that we can chose to get out of the pinnacle program and leave our money, uninvested, in the accounts we have set up, registered and unregistered. That wouldn't be ideal but it would be better to have it sit for a short while doing nothing then rush into investing in something we don't understand. As OptsyEagle implied...we'd be hurt by our investments going through a big freefall but that presumes we will put them all into investments right away. We'll buy GICs or stuff our mattress with money before investing again on the advice of a professional advisor who only wants to sell a product.
As I mentioned, I've been reading a lot, learning a lot, and recognize that it will take a long time before I'm knowledgable enough to buy individual stocks. We are on the road being DIY investors and have heeded the advice of many of these authors who say you'll lose a lot of money in the learning process if you jump into the market and learn as you go. In the meantime, plugging the leaky boat is a priority.
 

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Kyahgirl,

The same thing happened to my mom and dad with Scotia McLeod. My mom cashed out her retirement fund with the Teacher's pension plan because she needed a tumor removed from her brain and they did not know if she would survive.

In one year her financial advisor lost over $100,000 about 16% of their retirement fund. Scotia also charged their "management fee" on the original amount invested rather than the current amount invested which was rich. This was not in a down market either.

In any case after this they became avid DIY investors. They are doing very well with it. So good luck !!!
 

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Discussion Starter #19
Kyahgirl,


In any case after this they became avid DIY investors. They are doing very well with it. So good luck !!!
Thanks for your encouraging words :) That helps.

I'm sorry to hear about your parents loss...I have an idea of how much that hurts but I'm sure, on top of a devastating health concern, it must have been very painful indeed.
 

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The same thing happened to my mom and dad with Scotia McLeod. My mom cashed out her retirement fund with the Teacher's pension plan because she needed a tumor removed from her brain and they did not know if she would survive.
I don't want to hijack this thread, but I am very curious as to who talked your mom and pop into cashing out of the OTPP? If that was at the behest of the advisor, then a very serious conflict of interest breach occurred that maybe grounds for legal action.
 
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