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Hi,

I'm 58 years old and am thinking of moving my money out of the current mutual funds I have them in, with CI, since they have a MER of 3.12%. I was naive about investing and just went with what the advisor told me. I have now done some research and have noticed that this MER is way to high, and that is the reason that my RRSP's have been around the same balance (~50,000).

I am now thinking of changing my funds to 80/20 split between bonds and equities using a S&P/TSX ETF funds (MER: 0.5%) and a Canadian Bond Index (from RBC, with MER: 1%). I would like to start drawing the money from my RRSP at the age of 65, so in 7 years. What do you guys think about this investing strategy.
 

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Going from high MER to low MER is usually a good idea. However, I suspect that you may need the help of a good financial advisor. I'm not sure you've thought through whether someone 7 years from retirement should keep 80% in stocks.
 

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Not commenting on the investing strategy, per se; but letting you know that depending on how long you've had your money in those funds, there may be a fee (called the "deferred sales commission") to get them out.

Before you follow through on any plans to get out of those funds, you should check whether there is a cost.

We can tell you how to check, and what the next steps could be (for example: "if the cost is $y, should I just leave my money in those funds until the DSCs are gone? When should I cut my losses and just pull the money out?" etc.)
 

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Also if you have a DB pension, then your investment allocation will be a function of your need for short-term funds.
 

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I think it may be 80% bonds. Seems to me that it was a financial advisor (good or otherwise) that got him into this position in the first place. Your plan sounds better than the status quo. I hope your RSP isn't the only component of your retirement plan.
 

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Here is a link to an article concerning the best and the worst of the bank no-load funds:

http://opinion.financialpost.com/2010/08/04/the-best-and-the-worst-of-the-bank-no-load-mutual-funds/

Whenever I read of some advisor who has put their client into managed mutual funds with an average MER over 2 or 2.5 percent, it makes my blood boil. These so-called 'professional' advisors are recommending such funds with, at the very least, a conflict of interest or straight out full self-interest.

Here is an example of how advisors can do very well by collecting trailer fees from their clients whether or not the client is making any money:

On an average MER of 1.6, the advisor would collect .5% per year which works out to $450 per year on an $87,000 portfolio.

I use this example because I just came across it elsewhere.

If you have enough clients, you can make a tidy living for you and your family just from the fees that are being charged and there is a huge financial services industry out there making money off of other people's money whether their clients are winning or losing.

With lower returns expected going forward, fees matter more than ever.

Two solutions that I have come across is to own a diversified portfolio of dividend paying stocks from solid companies with a history of increasing those dividends or by holding some form of 'Easy Chair' portfolio as found at the website www.canadiancouchpotato.com under the model portfolios tab.

Generally speaking, high fund fees are obscene in my view.

Make sure that you understand the long term impact of these fees on your portfolio results.

By the way, did you ever notice how little time advisors spend discussing fees and their impact? Gee, I wonder why!!:confused:
 

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Discussion Starter #8
I was talking about 80% in bonds and 20% in stocks. I don't want to take to much risk right now since I am only 7 years away from withdrawing this money.

I do have other investments (i.e. real estate) which also be used to fund my retirement.

Yes it is a total piss off when these advisors don't tell us about all of these fees. I will be able to pull my money out of the current funds on December. 31, 2010 without any type of penalty or fee. So I'm just doing some research to figure out where to invest the money next.

I might also allocate 10% of my bonds to foreign bonds, to try to make a little bit extra return. What you guys thinks?
 

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I dunno. I'm almost wondering if you could move this money into 3 and 5 year GIC's, after Dec 2010. That would be the ultimate in safety since the markets are basically crap and have been for the past 10 years, with no obvious signs of improvements. IMO the majority of growth has already occured, so you may want to move towards something safe at this point. Just my opinion, which I realize some will disagree with.
 

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How can you say that the markets are "crap" when the DOW and S&P were down more than 4 percent in August and the Nasdaq was down 6 percent for the month!!??:mad:

Not only that, but the period between Labour Day and Halloween is historically the worst time of year for stocks.:(

Hang on for a bumpy ride!!!:eek:
 

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Whenever I read of some advisor who has put their client into managed mutual funds with an average MER over 2 or 2.5 percent, it makes my blood boil.
Yes indeed. Much better to go to an advisor to pick some cheap index funds for you and charge you 1.5% annually for that handy work. :)

These so-called 'professional' advisors are recommending such funds with, at the very least, a conflict of interest or straight out full self-interest.
If you call earning a living a conflict of interest than I suppose I'm guilty too. You cannot judge a conflict by simply looking at the end product. If you don't have the full picture - i.e. all of the work done and time spent by the advisor and services requested by the client - you cannot intelligently comment on anybody's situation.

Here is an example of how advisors can do very well by collecting trailer fees from their clients whether or not the client is making any money:

On an average MER of 1.6, the advisor would collect .5% per year which works out to $450 per year on an $87,000 portfolio.
And what do you think $450 is going to buy you? That's not a lot of money dude. It's maybe enough for one meeting annually. Sure, let's say it's 60-90 minutes of meetings but there is prep time, phone calls, e-mails, postage (for mailings) and other incidentals. And since I'm in business, there should be some profit, otherwise I won't be around very long to help my clients.

There are more sensational examples to make your point. With your scenario, I'd need 200 clients just to gross $90k annually. Once I pay my costs, there isn't much left for me to make all of this worthwhile.

The fund companies are the ones with all of the money and it's the reason why I do try to keep fees as low as I can for my clients.

With lower returns expected going forward, fees matter more than ever.
Absolutely.

Two solutions that I have come across is to own a diversified portfolio of dividend paying stocks from solid companies with a history of increasing those dividends or by holding some form of 'Easy Chair' portfolio as found at the website www.canadiancouchpotato.com under the model portfolios tab.
Good idea but easier said than done. For instance, there is the discipline required to carry out this strategy. Then there is the insight and knowledge required to distinguish between "solid" companies and those that are not so solid. Example: not so long ago, Manulife would have been held out as a solid company. Not so much any more.

By the way, did you ever notice how little time advisors spend discussing fees and their impact? Gee, I wonder why!!:confused:
I certainly spend the time to disclose fees in writing for my clients. I want them to know what they pay and understand that I'm providing a valuable service. You should certainly expect some frank discussion on fees from your advisor.
 

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OntFA, your points are great. It is late, and I don't have any clear thoughts to add, but having been on the advisor side of the fence the acrimony towards advisors in general sometimes gets tiresome.
 

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And such acrimony accomplishes nothng! Many people statistically need advisors and willingly pay their fees even though they understand the costs. They are only an anethma to some DIY investors.
 

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When all is said and done, investors need to know exactly what fees they are paying and the long term impact on their portfolio returns.

The main point which I am trying to make is that fees very much matter and that some investors do not pay enough attention to them.

The other point is that an advisor can continue to make money off of their clients' money even while those clients are losing on their investments which is nice work if you can get it!!

If either of these points can be refuted, please have at me!!

Put up your dukes!!!!
 

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OntFA, your points are great. It is late, and I don't have any clear thoughts to add, but having been on the advisor side of the fence the acrimony towards advisors in general sometimes gets tiresome.
Thank you. The harsch criticisms bug me too, since I am one of "them".

If either of these points can be refuted, please have at me!!

Put up your dukes!!!!
Okay, here goes...


When all is said and done, investors need to know exactly what fees they are paying and the long term impact on their portfolio returns.

The main point which I am trying to make is that fees very much matter and that some investors do not pay enough attention to them.
A good point and one that I agree with. What investors don't see and have trouble accepting is the cost they incur when left on their own. The trading costs of making changes; the opportunity costs of making changes; and the cost of poor construction and selection of investments in the first place. For individuals that need advice (whether they want it or not), these things add up to a multiple of the fees that the average client pays.

The other point is that an advisor can continue to make money off of their clients' money even while those clients are losing on their investments which is nice work if you can get it!!
Sure, all of us advisors keep earning money when clients lose money. But how long do you think we'll realistically keep those clients if that continues - whether it's the market's 'fault' or the advisor's 'fault' or some combo? The more dangerous aspect is the advisor preying on disappointed clients by making big promises that plays on clients' fear of not earning enough. I'll admit that some of these advisors might actually be able to deliver on such promises but I haven't seen them yet.
 

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OnFA,

Yeah, I would say all financial advisers are guilty of a conflict of interest - it is built right into the business model and pretty well unavoidable*.

*The wise ones are the people who take the time to justify why they are picking higher rate MERs, or offer a detailed explanation of three ratio's and have the customer decide what is appropriate.

Anyone who sells a product that kicks back a commission on the sale of a product to the middleman is. The temptation is clear, the higher the MER the higher the kickback even if it is to the detriment of the buyer. Simple.

The internet trading platforms, the blogs, forums and books mean more and more people are taking their business back from FA's and doing it for themselves. The publicity in the media and articles extruding the virtues of a couch potato, index funds, Sweetwise ads, the recent financial downturn have focused peoples' attention on their retirement saving and what is actually happening with them.

Is there a role for FA's - yes, I would say there is - when it comes to estate planning, high income earners, family trusts/ inheritance. But it is my impression the market share on joe public saving for their retirement is shrinking fast. As a 35 year old the majority of my friends are doing it for themselves.

I disagree with you on the amount of discipline needed to stick with the mix of dividend stocks and index tracking funds. - I find it quite simple, a little research, cross reference any advice read with other independent sources, make your picks based on your risk tolerance.

MG - you find the criticism of FA's tiresome, but without further explanation, I am unable to see your basis, I am guessing at a "Don't hate the player, hate the game" defence.... it seems the people are speaking and changing the game, taking their business home to their own computer and the players dont like it.
 

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I don't think anyone here will disagree with either of these points: fees do matter, and many commission-based advisors get paid no matter how their clients' accounts perform. I don't think that's what OntFA and I were objecting to. :)
 

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X-posted with you, SM. I'm not a player in the advice game and I truly don't care how many people manage their own money and how many work with advisors.

If you read my posts, you will see that I am actually a huge advocate of financial literacy in general and I believe far MORE people should be steering their own financial ships than currently do.
 

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OnFA

"
Yes indeed. Much better to go to an advisor to pick some cheap index funds for you and charge you 1.5% annually for that handy work. :)"

Erm, I think he means do it yourself for < 0.35%:eek:


"And what do you think $450 is going to buy you? That's not a lot of money dude. It's maybe enough for one meeting annually. Sure, let's say it's 60-90 minutes of meetings but there is prep time, phone calls, e-mails, postage (for mailings) and other incidentals. And since I'm in business, there should be some profit, otherwise I won't be around very long to help my clients."

This is where you are out to lunch... $450 is alot of money to most people. That is one expensive single yearly meeting for joe public who is say 50 -60 yrs old. On $55,000 a year and hoping his $87,000 will see him through his retirement. Especially if he has seen that retirement pot reduce by 33% on his statements in the last 2 years.

I would also be interest to know how much work goes into these clients after the portfolio is set up in the first year other than minor tweaking, (and I hold my hands up to not being up to speed on the fee break down) yet the same yearly costs and commissions appear to charged.
It seems natural to me that the biggest clients get the most attention, and the small accounts suffer from a lack of attention because they offer a significant smaller return compared to the amount of time it takes to deal with them.

The amount of institutional funds still in Manulife show that the experts did not see that one coming either, yet you seem to insinuate that it was only home gamers left holding the ball on that one. This week on BNN on the guest fund "experts" was saying that they will hold their MFC for the long haul - as to off load it now is not an option.

MG - thank you for the explanation on fee's and commission, I have read many of your previous costs and i am aware of your stance on financial awareness, but I dont agree with your support of OnFA points mainly because I did not feel he put a strong case forward. (as he probably feels i didn't either) :p
 

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It seems natural to me that the biggest clients get the most attention, and the small accounts suffer from a lack of attention because they offer a significant smaller return compared to the amount of time it takes to deal with them.
This is a big reason why fee-for-service financial planning doesn't really work as a business model for most advisors and most clients. It is only natural that servicing a big account takes priority over servicing a smaller account.

People who have smaller accounts are probably the best positioned to become DIYers for that reason - but the stakes can be higher for them if, as you've alluded to with your example, they don't have a DB pension and are relying on their funds to get them through retirement: the relative importance of their portfolio can dwarf its actual size from an advisor POV.
 
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