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Discussion Starter · #1 · (Edited)
First time poster... Seeking advice for a loved one in her early 80s recently widowed. She (and deceased husband) has been invested with RBC for several years. Roughly a few hundred thousand is invested with them (less than 1/2 mill). The fees are 1% to the advisor then I assume there are MERs attached to the investment products. I will be finding out more about exactly where the money is invested but I am assuming it's dividend stocks, bonds, and the like. To be honest, I am not investor savvy and I simply hold TD e-series funds and practice passive investing. Simple and long-term strategy I suppose. She has asked me to dig around for some advice. I am wondering if there are retirement income ETFs or similar products that she could invest in. Laddered GICs are always safe but the rate of return is pathetic these days.

Any simple suggestions that could give her a 3% to 4% without the costly advisor fees?

I came across this.. thoughts? Vanguard Canada

Thank you so much. Looking forward to some basic direction for further research...

Sam
 

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Until we know more about portfolio makeup, what is registered and what is not, and which RBC entity the accounts are with, e.g. RBC Dominion Securities? or?, we can't offer much for an orderly (if necessary) transition. That all said, my first reaction would be this widow could be perfectly suited for the Vanguard VRIF ETF you linked but one needs a DIY brokerage account , e.g. RBC Direct Investing, for that.

She could also be well suited for RBC InvestEase robo-advisor with a 0.5% AUM that puts her into a suitable asset allocation of iShare ETFs (total MER less than 0.7% including the 0.5% AUM).

I use RBC as the financial platform simply for ease of transition and comfort of familiarity. There is no point chasing other institutions.

The intent would not be just to get a 3-4% yield but to potentially also draw on invested capital to provide her with more cash flow. The VPW Withdrawal Table gives a perspective of portfolio withdrawals that are possible. It has similarities with RRIF withdrawal factors but is more granular (asset allocation based) than the plain vanilla RRIF withdrawal table.

Added later: A lot of this depends on cash flow components. What else is there...such as CPP, DB pension survivor benefits, OAS? All of these are factors in determining how little, or how much, the portfolio needs to generate. Portfolio choice/selection is the very last part of the overall analysis. Example: If all her primary cash flow needs are met in some form by annuity income, she can take more equity risk. If she is in need of portfolio cash flow, then it is a much trickier selection requiring on the one hand, capital protection but also income. FWIW, the Vanguard VRIF ETF is designed to pretty much guarantee a 4% sustainable payout indefinitely per Vanguard's backtesting analysis BUT that is not necessarily the right answer for this widow.
 

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Unless an elderly person requires continual cash infusion, my inclination would be to put capital preservation at the top of the list.

Someone in their 80s would not have enough time to recover from a major market correction, which some say is long overdue.

Short term GICs might be the best option to preserve capital. There is a time of life when equities of any kind don't fit the investor profile.
 

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Discussion Starter · #4 ·
Thank you to the above responses. ALTARed you bring up some good questions/points to which I don't have all the answers. I am pretty certain she's invested with RBC Dominion Securities. How much is registered, I am not sure. I don't know the exact fees that she pays, but I may have stated 1% in my OP. Now are there other fees (MERs?) that are applied to the funds (depending on what they are?) My guess is yes, and so she may be paying in excess of 1% per year. I want to ask this advisor what the total fee(s) is. I hope that a clear answer is provided.

You state, "my first reaction would be this widow could be perfectly suited for the Vanguard VRIF ETF you linked.."
- are you suggesting that all (or most) of her investment could be placed in this ETF?

This is the first time seeing the VPW table. Thanks for linking that. I will give it some thought.

"CPP, DB pension survivor benefits, OAS?" She will retain her CPP and OAS but lose his OAS and retain 60% of his CPP (this is what we were told by a person in a similar position). We will confirm this this week when we meet with the funeral home. The funeral has passed but they offer a post-funeral consultation to go over what she will be entitled to, which is included in their fees. They did not receive a DB pension as they were self-employed.

You seem to suggest that the Vanguard VRIF ETF might be a viable option. I will look into it further. I wonder if that plus some laddered GICs would be worth looking into. Is there a general rule of thumb as to how much should be placed in equities (probably no more than 20% for), fixed income, cash, etc?

I am helping her with a budget this week as well. She (and he) weren't good at tracking a budget. Never too late, I suppose. This will help in determining the answer to some of the topics covered above.

I will have more answers by mid-week. I look forward to continuing this conversation if others are so obliged!

Thank you!
 

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Thank you for additional information . With no DB pension, the most annuity income the widow will likely have then is full CPP + OAS. That likely wasn't enough to live on so they were living off their portfolio as well, either just the investment income, but more likely some of the invested capital as well (which is what 4% SWR or VPW is all about anyway).

RBC DS has a standard "% of AUM" fee schedule that shouldn't be hard to discover. There is no way that advisor will talk to you with out the widow's presence though. Whether there are other MERs will depend on what the investments are in BUT the MERs should be minimal (F class mutual funds which can still have a management fee of 2% or more, or the low MERs of ETFs). You can only ascertain that by knowing what is in the portfolio.

I mention VRIF because it is 50/50 equity/fixed income and is designed as a retirement income vehicle to deliver 4% yield in a sustainable way (Vanguard themselves expect to only have a Return of Capital component 1-2 years out of 10 and I believe that). She could basically get 4% out of that holding indefinitely. But she will need a DIY brokerage account or pay an advisor anyway to manage that on her behalf. VRIF may be too much equity (50%) for her and if so, then a combination of VRIF and a GIC ladder could be a better choice, albeit at a lower return and investment income yield. Someone will have to still manage that portfolio for her.

There are rules of thumb for equity/fixed income asset allocations. Rules of thumb for amount of equity could be 100-age, or 110-age.... the latter having more traction in recent decades because having some equity will always be important to participate in the market to some degree. Some folk think a balanced portfolio (60/40 equity/fixed) is appropriate for all ages. FWIW, my mother was still 15% equity at age 96 when she died. Equity allocation can always be a bit higher when there is a lot of annuity income available that may cover all the basic expenses.

The point about asking how much is registered vs non-registered is because the non-registered will have unrealized capital gains. Any overhaul of the non-registered portion will trigger cap gains taxes.
 

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I am in same age group! Not quite ready yet, but I have looked at what RBC have to offer. For the portfolio size, the options are RBC Direct investing (their DIY on-line brokerage), RBC Dominion Securities (their full service brokerage that likely charges a % of portfolio value), Invest-Ease that is aimed at smaller portfolios (under 1/2 million?) and offers a mix of ETFs that varies according to investor's objectives. Fee is lower. Through their PH&N subsidiary, they likely also offer portfolio management. Many options to investigate an choose from. RBC probably as a good a choice as any. BMO and others have similar offerings.

My advice, would be to contact RBC and get their advice on which of their programs would be most suitable. If there is a PH&N office in your area, maybe contact them directly.

I wouldn't get too hung up on fees because their offerings will likely outperform most DIY options you may choose. I wouldn't hang her hat on one or two ETFs that you learned about on the internet :)

I don't know if you mentioned whether or not the funds were unregistered or partly in a RRIF or TFSA. That is important and would be useful to know.

If you go with one of the age based formulas Alta quoted for % fixed income, the funds almost certainly will not generate the desired income. Again, get advice from RBC/PH&N based on her needs. They should hopefully be able to do better than a DIY GIC ladder for fixed income.

ADDED: Don't assume she will get 60% of deceased's CPP just because someone else did. When applying for CPP, there was, I think, an option to share CPP with spouse that may have reduced the pension. They may or may not have chosen that. They also may or may not have chosen to have tax deducted on payments. There are other factors that can seriously affect the amount of CPP survivor will receive:

These links explain:
Survivor's Pension - Canada.ca
 

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Discussion Starter · #7 ·
Thank you.. I will consider these updated posts and reply accordingly once I have more info... btw, I will most definitely be present when the advisor is contacted. I am her son and have power of attorney.
 

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Reflecting on the various posts, including what Agent99 just wrote above, and my very first response, product selection is really the last leg to be selected in the financial plan. I believe the first thing to understand is what the widow needs the portfolio to deliver by first calculating the budge and then seeing how far annuity income meets that plan. It is only when one knows the shortfall (including an allowance for income taxes) can one determine what the portfolio needs to deliver to close the gap with the appropriate equity/fixed income asset allocation (age based rule, etc).

I agree with Agent99 that an advisor can often make up for at least a portion of their fee, but that is often more applicable to larger and less senior portfolios (younger clients) who can tolerate inclusion of alternative investments such as private equity, gold, prefs, etc. in them. Alternative investments are not the place to be for an early 80s plus widow with a portfolio <$0.5M. Thus, regardless of who manages the portfolio, there are still only X numbers of market investments and products to pick from, i.e. a deck of cards still has only 52 cards. The only difference is how to play them. If the existing advisor cannot earn his/her AUM fee, then it is time to consider RBC Investease at 0.5% (<0.7% including ETF MERs) as a viable alternative. KISS principle.

Added later: As already mentioned, the first few things for us to understand in order to provide more suggestions are: 1) percentage of portfolio in each of RRIF, TFSA and non-registered accounts, and the types of assets, e.g. individual securities, ETFs and/or mutual funds, 2) portfolio performance vs performance benchmarks such that after fees the advisor is paying his/her way. The appropriate benchmark can be obtained from Asset Mixer for 1, 3, 5, 10 year periods if one wishes. One can use 3-5 allocations of components from the list for the time period being tested to see how well the portfolio has performed against the performance benchmarks. It may be the advisor is doing a fine job and nothing more needs to be considered.
 

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Unless an elderly person requires continual cash infusion, my inclination would be to put capital preservation at the top of the list.

Someone in their 80s would not have enough time to recover from a major market correction, which some say is long overdue.

Short term GICs might be the best option to preserve capital. There is a time of life when equities of any kind don't fit the investor profile.
This is not necessarily true. If the client is still generating positive cash flow and can plan around potential retirement care costs then equities shouldn't matter.
At that point the money is more invested for the estate/beneficiaries so discussions with them would make sense.
 

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Assuming annuity income and the portfolio is large enough to do so.

In this particular case, annuity income is limited to CPP and OAS (either at maximum or less so) plus whatever <$0.5M portfolio can deliver. Circa $24k of CPP+OAS and 4% of $500k is $44k which requires either some equity returns or a good depletion of invested capital. That is a relatively modest lifestyle. One of the reasons I initially posted in support of VRIF but I digressed by jumping ahead to possible outcomes.

Knowing budgetary cash flow need from the portfolio is the starting point.
 

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One thing I sometimes do, is look at what would happen if we put our savings into virtually 100% safe fixed income and plan to draw our portfolio down for the rest of our life. A base case for comparison with other options.

Current case (You are welcome to check this pensioner's assumptions and math!)

The widow is in her early 80s. Lets say she has a 15 yr horizon. She has something less than 1/2 a million. Lets assume $375,000. Lets also assume that both inflation and interest on savings will be 2%. So we can work in current dollars. $375,000/15=$25,000 per year.

She will have CPP and OAS on top of that and it too will be indexed. From what I can gather, this will be $635/mo OAS plus $1204/mo CPP (If the deceased received the maximum) Total 635+1204 x12= $22,068. (GIS would not apply because even without investment income, this is above the GIS limit (~$19k) )

Total indexed income would be ($25k + $22.068k) = $47,068pa before taxes. Maybe ~$40k after taxes? Not great, but not that bad? But does it meet widows' requirements?

This would be risk free if the savings were invested in GICs. But you can't get 2% at big banks and other major institutions. Rates also vary depending whether registered or not. 2% also assumes 5yr GICs with the funds locked in. A ladder would be needed so that funds would be available annually.

I am sure something could be worked out to provide an on-going risk free income while gradually drawing the savings down to zero over 15 years. After that point OAS/CPP may be sufficient.

This would be the base case. An advisor could add some risk and increase the withdrawal rate. A yield that will exceed the inflation rate - after taxes will help a little. But an extra 0.5% won't change the available annual income much. (+$1875pa) Higher yields come with risk of losses in capital. Probably should be minimized at this stage given small amount of retirement capital.

I sometimes do this type of analysis for ourselves. Convert everything to cash and draw our savings down!
 

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Discussion Starter · #12 ·
She does have $500 of other income - a private loan to family that she will receive until she passes. They did this with a 5% interests tacked on - interest only loans. As well, she has brought in a tenant at $1,500. I don't know how long this person will remain there but definitely for the foreseeable future.

I got a hold of her statements from RBC DS. As I stated at the beginning, I am by no means an authority on investing (as is probably evident by this point!). I am in the process of trying to distil the info. At a quick glance, they are various corporate bonds, ETFs and the like... I will be back tomorrow to add comments and questions!
 

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Discussion Starter · #13 ·
So here is an asset summary of her investment account as of Sept 30 as it is listed in the RBC DS print out she just received:

Cash 1.54%
Fixed income 0%
Preferred shares 0%
Common shares 77.61%
Mutual funds 0%
Foreign securities 20.85%
Managed assets 0%
Other 0%

I will be contacting the portfolio manager (hopefully today) to find out what his fees are. What should I ask him other than what his management fee is?

Here is the list of assets:

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This is a classic portfolio from a full service advisor. It does not surprise me but it disappoints me there are more than 10-15 holdings in an account of that size. This is the way full time advisors make clients believe they are doing something sophisticated to earn their keep.

There is no reason to mix individual common share holdings with ETFs, nor is there any need to have a number of 'boutique' ETFs that sound cool but are financially engineered products with high(er) MERs. Several of those ETFs likely have MERs more than 0.1-0.2%. There is also no reason to have more than about 3 ETFs in this portfolio, or at the very most, about 5-7 ETFs that Vanguard would have in their VBAL ETF or Blackrock would have in their iShares XBAL ETF. What is in this portfolio is a dog's breakfast.

Additionally, the asset allocation as depicted by DS is not correct either because they mis-classify the bond ETFs as common shares when they actually fixed income. The advisor needs to provide his client with a correct asset allocation re-classifying the bond ETFs as fixed income.

What you can ask the portfolio manager is what "% of AUM" is being charged, but that should be on the monthly statement anyway, or at least once per quarter. There should be no need to ask. Lastly, ask the portfolio manager what the total MER is (dollars) that is being paid each month by the total of the ETFs in the portfolio. While a DIY investor would also have MERs on ETFs they would select for themselves, the true cost in this portfolio is the portfolio manager's fee PLUS the MERs of the underlying ETFs.

Lastly, there needs to be as assessment of actual portfolio performance measured against the right performance benchmark (which I indicated earlier in post #8 using the Asset Mixer... or something as simple as Vanguard VBAL or VGRO performance of the past 3 years depending on equity/fixed income mix is closer to 60/40 or 80/20. If the actual portfolio net of management fee is beating the performance benchmark, then the dog's breakfast portfolio can be excused. If the portfolio is underperforming the benchmark, then the advisor needs to advise what he/she is going to do to simplify and streamline and cut costs to get it to the performance benchmark.

Added later: This is the sort of thing I have been helping friends and family with for over 10 years and so it hits a raw nerve with me, and hence my 'assertive'? tone in this post. I have torqued out more than one advisor and fired more than one advisor for playing these games. That all said, if most of this portfolio is in a non-registered account, unrealized capital gains may make this difficult to overhaul without incurring too much tax, and if this portfolio is actually meeting performance benchmarks, it may be best to leave well enough alone. Remember it is not the advisor's management fee itself that matters as much as how the portfolio is performing for the client net of fees.
 

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Discussion Starter · #15 ·
Interesting and thank you very much for the candid response. Would love to hear from others as well.

I cannot find the % of AUM anywhere on nether statements, btw. I will ask him all the questions you've raised. I'll probably come back here for more info and I'll likely have a few more questions along the way. I have no idea how much is in registered accounts but I believe that my dad did request that he max out his TFSA somewhere along the line. Not sure what came of that so I will need to ask specifically what portion is registered (I guess?).

Thanks again.
 

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Discussion Starter · #16 ·
And to address your last statement: "it is not the advisor's management fee itself that matters as much as how the portfolio is performing for the client net of fees."

Her YTD income is less than $8000 (I assume after all fees?) - she needs more than that! I calculate that less than 3% over the course of 12 months based on what she has invested..
 

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You said in post #13
So here is an asset summary of her investment account as of Sept 30 as it is listed in the RBC DS print out she just received:
What kind of 'investment account' or in plural 'investment accounts'? The summary presumably has to identify what is in each of TFSA, RRIF, non-registered and there has to be separate monthly (or quarterly) account statements for each type of account.

Presumably, the monthly or quarterly account statements have to provide something regarding advisor fees, whether a "% of AUM" arrangement, or whether classic commission based, e.g. charging a commission for each trade. At one time, all full service accounts were commission based but most of the industry has converted to "% of AUM". That has to be indicated somewhere, and at least once at the end of each year either on the December statements or a separate statement.

As to your post #16, I am not talking about just YTD income when I mention investment performance. I am talking about the "Total Return" of each account, which is investment income plus portfolio capital growth on an annual basis. For 2021 YTD to Oct 14th, for a balanced 60/40 equity/fixed income portfolio, it should be in the order of 7% as measured by VBAL as an example, Vanguard Balanced ETF Portfolio, TSX, ETF, performance | Morningstar (investment income + capital growth).

Regulations require that portfolio managers calculate and disclose both annual and multi-year returns for each account at the end of each year. It is those Total Return numbers that get compared with the appropriate benchmarks to see how well the advisor is managing the accounts.
 

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Discussion Starter · #19 ·
Another question, ALTARED - you state "Several of those ETFs likely have MERs more than 0.1-0.2%."

- so each time something is bought and sold in this account, are fees applied? I have no idea if fees are being applied if and when the portfolio manager (or whoever is working behind the scenes) buy and sells a product within this envelope.
 

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Discussion Starter · #20 ·
ALTARED, you state "there needs to be as assessment of actual portfolio performance measured against the right performance benchmark (which I indicated earlier in post #8 using the Asset Mixer... or something as simple as Vanguard VBAL or VGRO performance of the past 3 years depending on equity/fixed income mix is closer to 60/40 or 80/20. If the actual portfolio net of management fee is beating the performance benchmark, then the dog's breakfast portfolio can be excused."

-so if I obtain three years of statements, and calculate the performance of the entire portfolio, then measure it against something like VBAL, I should be able to see how it performs.. but are his fees being subtracted from the Income summary? What do I refer to when trying to calculate this? The income summary? In that summary I see Dividends, Interest, Other, then a total. And there is a column for the current month and YTD. So if the year to date is say, $8000 or so, do I take that figure and divide into the overall investment total? So $8,000/500,000 - a 1.6% return?

Just a little confused as to how one arrives at figuring out how to calculate the performance of the portfolio.
 
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