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Hello financial knowledgers and knowledgees,

I met with my Financial advisor a little while ago, he works mostly with Sunlife products.

For my TFSA, he recommended the CI Harbour Fund:
http://pdf.globefund.com/servlet/FundProfile/EN/html/cif?mode=HTML&fund_id=50037&tf=Financial/FundProfile/html/en/pages/ci/ci_mutfund&universe=CI_FUNDS&branding=cif&product_id=

The returns over the years are pretty good, but the MER really has me in doubt of who's interest my FA had in mind. I've heard some will recommend these high MER MFs because they will get paid lucrative trailer fees...

I would like to hear your perspective on this fund and know if you would buy this under your TFSA.

Many Thanks!
 

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I'd never buy a high-MER fund in general, but I particularly would not buy a fund with DSC (deferred sales charges) loads for a tax-free account, because you would need to pay a penalty to redeem units before the DSC charges elapse, typically 5 years but sometimes as much as 7 years after initial purchase.

This defeats the purpose of a TFSA, in my view, which is a place to stash savings so they are accessible. If you have to pay a fee to access your own funds...blech.

Also, low-MER, no-DSC ETFs which invest in mid-and large-cap Canadian equities are readily available. You don't need to pay these MERs or DSCs in order to meet the same equity profile.
 

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But in general - this fund will not pay your advisor a higher trailing commission than any other high MER fund. They all pay 5% at initial purchase. So your advisor would earn 5% x $5,000 = $250.

The reason he is recommending this fund is so that he can get that commission for serving your account. But frugal this ain't.
 

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Is you relationship with your advisor important to you?

Can you do the things that he/she does for you on your own?

If you don't value the relationship and you can perform your advisor's functions on your own, then you don't need to invest in this product, or a similar high fee fund.

If you do require the services of your advisor, then you must pay for this, either directly or indirectly.

There is nothing wrong with the fund that has been recommended; it's one of the best actively managed Canadian equity funds. Whether or not it is appropriate for you and this account will depend on what the purpose of the TFSA is for you and your risk tolerance. I have to assume that it meets these criteria.

Either you follow the advice of your advisor because you have confidence that what he/she is telling you is appropriate for your situation, or you get rid of the advisor and DIY. It's about that simple.
 

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The main difference between higher MER funds and lower MER funds is the advisor. If you prefer to have their advice then you need to decide how you will pay them for it. I imagine that he did not leave you with a bill for the advice you have received so far. How did you expect to compensate them for their time?

Only you can decide if the advice is worth it, but keep in mind that they have no more ability to pick a good fund than you do, however, they can sometimes keep you from making really amateur mistakes that can be very costly.

And CI Harbour is a fine fund. As good as about 4000 others just like it.
 

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Scomac: Bravo on a terrific response.

MoneyGal: I usually think your responses are well thought out but I have to take exception with your response in this thread.

I'd never buy a high-MER fund in general, but I particularly would not buy a fund with DSC (deferred sales charges) loads for a tax-free account, because you would need to pay a penalty to redeem units before the DSC charges elapse, typically 5 years but sometimes as much as 7 years after initial purchase.
If memory serves, MoneyGal, aren't you in the business in some way, shape or form? If so, whether you'd buy a fund that charges for advice is beside the point. The question is: what is the value of an advisor and a reasonable cost there for? Or, should FrugalCanuck buy this fund? But you answer pretty definitively without much information from the poster.

This defeats the purpose of a TFSA, in my view, which is a place to stash savings so they are accessible. If you have to pay a fee to access your own funds...blech.
In your view and for you, perhaps. But maybe not for others or, more importantly, for the original poster. If the TFSA is used as part of the retirement portfolio, either partially or entirely, then buying equities inside the TFSA is fine.

Also, low-MER, no-DSC ETFs which invest in mid-and large-cap Canadian equities are readily available. You don't need to pay these MERs or DSCs in order to meet the same equity profile.
Again, to Scomac's point, an advisor can be valuable to investors who don't otherwise know where to start. And are you telling me that the advisor isn't worth $250? We don't know this advisor but s/he need not do much for $250. I think this anti-commission thing is being taken a bit too far when you can't acknowledge the value of an advisor who is designing strategies (even simple ones), helping the client develop good saving/investing habits and sifting through the product universe enough to let the guy get paid a few hundred bucks. Sheesh!
 

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I met with my Financial advisor a little while ago, he works mostly with Sunlife products.

For my TFSA, he recommended the CI Harbour Fund:


A financial advisor working moslty with Sun Life products wil be one working mostly with high MER products. Insurance companies are noted mostly for making money for themselves, not for investors in their products (except maybe their shareholders).

CI Harbour may be well-rated for its class, but it is a CDN Large-Cap Growth fund - 100 % equity. Is this what your want in your TFSA?
 

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OntFA: I don't believe all this nonsense that an investor should have to pay $250 for advice on picking a mutual fund investment for a TFSA. That is ridiculous.

Frugal Canuck: Why would someone like yourself who is FRUGAL choose an expensive boutique shop like SunLife to buy a TFSA? Why not go to a discount brokerage by any of the big banks. You can phone them (ie TDwaterhouse has a fundsmart phone line with people standing by to help you a pick a fund for free). Of course, you will have to pay the MER each year.
 

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1. If you do require the services of your advisor, then you must pay for this, either directly or indirectly.

2. There is nothing wrong with the fund that has been recommended; it's one of the best actively managed Canadian equity funds.
Great answers!

1. I couldn't agree more, we all expect to get paid for our time & services, that is how we make our living, but in my case for example, though my prior advisor met with me often, he mostly talked about non-financial matters & I realized he knew little, except to put me in expensive funds. I then changed advisor, he was also reasonable with his time, but did zero changes in my portfolio for the time I was with him (2 years), saying all was fine, so while both gave me their time, they got paid trailer fees for years for doing absolutely nothing. I then decided to educate myself and become a DIY investor, I'm still new at it, but learning every day & making more money than I did with professional help.

2. The fund managers are considered among the best and I held such funds too, but be aware of how much the MER's translate on a 3/5/10 year investment, think long term, if you do the calculations, you'll be amazed.

Quote:

Compare mutual funds with MERs of 1.7 percent and 2.5 percent. Assuming that a $10,000 investment grows at 8.41 percent a year, over a period of 10 years the value of the fund with the 2.5 percent MER is $17,582 and the total cost is $3,402.

The value of the fund with a 1.7 percent MER is $19,017 and the costs are more than 28 percent lower at $2,406.

The above is for an investment of $10K, so imagine the cost for $100K and so on and also keep in mind that you pay the fees regardless whether your fund makes money or not.

Read the prospectus very carefully if you decide to go with an advisor. Good luck!
 

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Hey, OntFA, I'm a former advisor. I worked exclusively on fee-for-service; no commissions. I also worked in the back office of a fee-for-service shop as a salaried employee for a while.

I thought Scomac's advice and perspective was good. I don't object to advisors being paid (although I dislike the commission sales model, but whatever). I guess I was just struck by the "frugal" forum name and the $250 bite for an equity purchase.

Also - for what it's worth - I didn't make any recommendations to the OP about what he or she should do. I said I would never buy a high MER fund, and especially for my own TFSA. Both of which are true statements. :D
 

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OntFA: I don't believe all this nonsense that an investor should have to pay $250 for advice on picking a mutual fund investment for a TFSA. That is ridiculous.
Good luck with that. Also, good luck with getting a lawyer to draw up a will for free. And good luck getting your doctor to write you a prescription without charging to OHIP. Or the pharmacist for filling the prescription without charging your or your insurer. While we're at it, why not tell me what you do so I can demand you do it for me gratis. Sounds fair, right?

Hey, OntFA, I'm a former advisor. I worked exclusively on fee-for-service; no commissions. I also worked in the back office of a fee-for-service shop as a salaried employee for a while.
All past tense. No longer an advisor or in the biz?

I guess I was just struck by the "frugal" forum name and the $250 bite for an equity purchase.
As an advisor, then, I thought you'd consider that although this poster came asking for feedback on this bit of advice that there might be more to it than simply executing a trade with no value added to the process. I admit that I sometimes react to what appear, to me, to be knee jerk "your advisor is a bum" response. Maybe yours wasn't that. But it seemed to me that you poo-poo'd it too quickly.

Also - for what it's worth - I didn't make any recommendations to the OP about what he or she should do. I said I would never buy a high MER fund, and especially for my own TFSA. Both of which are true statements. :D
I guess when someone asks a question and another responds, there is some implied advice - at least in my mind - unless there is some more explicit warning otherwise. Because of course, a plumber wouldn't pay another plumber to do work s/he can do for him/her self. Along the same lines, an advisor (or former advisor in your case) doesn't need to pay for advice that you clearly don't need. So what you would do is irrelevant to what an advice-seeking investor should do.

Anyway, MoneyGal, I shouldn't argue with you since there are only so many of us gals on this forum - and in this industry - so maybe my nit picking will clarify some issues for the original poster. If Frugal Canuck reads nothing else, go back to Scomac's initial response because (with all due respect to all responders) he made more sense than the rest of us.
 

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OntFA: Why are you bringing up wills or estate plans? Of course you need to pay someone to do that service. We are talking about a monkey throwing a dart at a board (buying a mutual fund for a TFSA). A mutual fund is a place to park your investments until you learn and have enough money to justify investing in ETF's/stocks/bonds/etc on your own.

Frugal Canuck: Run (don't walk) to a discount brokerage.
 

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S'all good, OntFA. As for your question about whether I am still in "the business" - depends on how you define the business. :p I'm not a licensed advisor, I don't dispense investment advice, I don't work with individual clients, I don't do "financial planning" of any kind for any clients, but I do work in the broadly-defined field of finance and I do hold and maintain a CFP certification. :) I also LOVE smilies.

I think there is benefit to be had from these kinds of exchanges. What you think or what I think is not all there is to the story. I wish more people would discuss these issues - i.e., what you get when you pay for financial advice - more openly. My five-year-old is desperate to add something here, so here it is: i frances (that's her name)
 

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OntFA: Why are you bringing up wills or estate plans? Of course you need to pay someone to do that service.
Because it's a service just like the selection of investment products.

We are talking about a monkey throwing a dart at a board (buying a mutual fund for a TFSA).
Then why don't most Canadians do it themselves? Why didn't FrugalCanuck? Why come to a discussion forum to speak to a bunch of anonymous monkeys (okay I'll speak only for myself)?

A mutual fund is a place to park your investments until you learn and have enough money to justify investing in ETF's/stocks/bonds/etc on your own.
Okay but here's the problem. In the real world, there are almost 200 ETFs trading on the TSX and another 900+ trading in the U.S. Many are specialty funds but a whole lot are broad market, using competing indexes - i.e. Russell, MSCI, S&P, Wilshire, RAFI, WisdomTree, value, growth, small cap, mid cap, large cap, total market, dividend payers, dividend growers, etc. and multiply that by each equity region.

It ain't easy. Truly benefitting from what ETFs have to offer requires ignoring 99% of the 1000+ ETFs available to Canadian investors. That's a tough market to sift through even for seasoned investors.

I'm curious - how do you construct your ETF portfolio?

Frugal Canuck: Run (don't walk) to a discount brokerage.
Good advice - if it was reversed. Sending people to discounters should be done with caution. No more than 5% of investors really do a good job on their own.
 

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"Sending people to discounters should be done with caution. No more than 5% of investors really do a good job on their own."

And what proportion do well under the tutelage of frequently self-interested FAs? I'm not sure what ethics standards you folks are required to adhere to, but I've been privy to enough horror stories just from immediate family and friends experience. For one, not being totally up-front about what proportion of the investor's money ends up in their pocket seems like a big one. Most people have no clue that a full quarter (and often more) of the return on their investment gets eaten away by fees. All for dispensing advice that can't even consistently beat an index fund. It should be criminal. Tax, retirement and estate planning are great--and should be done on a fee for service basis. That way investors are more likely to spot a shark when their FA asks for tens of thousands of dollars in fees to dump their money in an unremarkable fund.
 

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"Sending people to discounters should be done with caution. No more than 5% of investors really do a good job on their own."

And what proportion do well under the tutelage of frequently self-interested FAs?
My 5% figure is not scientific but anecdotal based on 20 years of dealing with client and fellow advisors. The bad portfolios I see from other advisors are not nearly as poor as the ridiculous stuff I've seen from misguided DIYs. And the sharper DIYs I've met have good portfolios but not as good as those designed from good advisors. Again, all in my 20 years of experience.

Advisors are no picnic and there is a wide variety of skill and competence, but that's the case with any occupation/profession - i.e. lawyers, doctors, etc.

I'm not sure what ethics standards you folks are required to adhere to, but I've been privy to enough horror stories just from immediate family and friends experience.
I am bound, first and foremost, by my own ethical standards which I consider to be rather high. Second, as a CFP licensee I am bound by the FPSC code of conduct and standards of practice - i.e. letter of engagement, certain levels of disclosure, defined process, etc. As a licensed salesperson with a MFDA firm, I am regulated by both the OSC and the MFDA. Finally, my activities are further overseen by my dealer, which governs based on its obligations as defined by the MFDA and OSC - but many dealers more strictly interpret those obligations thereby setting a standard that is somewhat above the industry.

This would be similar for most advisors.

For one, not being totally up-front about what proportion of the investor's money ends up in their pocket seems like a big one. Most people have no clue that a full quarter (and often more) of the return on their investment gets eaten away by fees.
You have a point here since most are not up front about what clients are charged and how much the advisor gets. For most of my career (12 years), I've been showing clients those figures, in percentage and dollars. It's an estimate based on trailing year MER figures but it's close enough in my mind. This was not an easy thing to get by my compliance folks - even though I started this before they cared - but we agreed on an adequate disclaimer that basically tells clients that this is my own estimate and is not official or approved by anybody and that it's just provided to give them a better idea of what they pay.

But I agree that most people don't put this in writing. Many advisors do talk about this but it's forgotten by the client within 48 hours. That was my experience, which is why I started putting it in writing.

All for dispensing advice that can't even consistently beat an index fund. It should be criminal.
Even if all you're doing is giving investment advice there is more to it than that, which is why you don't assign much value to it. As an example, I saved - yes saved - at least a dozen investors who became new clients of mine between 2006 and 2007. These clients had been invested 85-100% in equities (funds, ETFs and stocks). Since stocks were doing well and bonds were not, they reasoned that stocks were the way to go.

I worked long and hard to convince these people that they were on the wrong track regardless of where the markets were headed because sooner or later - as happened in past bears - markets get hammered with big losses. So, before even talking about whether I'm picking the best fund or whether the MER is higher than it should be, my advice saved these people from losing significant amounts of money. They still lost, but instead of 50% they lost 20% because I positioned them in fixed income. Now, they're close to their peak values instead of still being down 25%.

So don't assume that we're all a bunch of idiots screaming "cha-ching" every time we come back from a client meeting to celebrate the next commission. Our industry still has many of those but most of us try hard to do right by the client.

Tax, retirement and estate planning are great--and should be done on a fee for service basis. That way investors are more likely to spot a shark when their FA asks for tens of thousands of dollars in fees to dump their money in an unremarkable fund.
I don't think the compensation method helps at spotting a shark. But tens of thousands of dollars in fees would require $500k-$750k portfolio just to approach $10k and millions to hit "tens of thousands" in fees. Not exactly the industry's typical client but these clients also have a bit more complexity and much higher client service demands.
 

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"Sending people to discounters should be done with caution. No more than 5% of investors really do a good job on their own."

And what proportion do well under the tutelage of frequently self-interested FAs?
Here I go defending financial advisors again…

But I suppose someone has to now and again who doesn’t have a vested interest.


For starters, I suspect that only 5% of the population has what it takes to go it alone completely and successfully reach their end goals -- others will try… I’ve been hanging around these forums far too long and seen far too many people out to slay the advisor dragon with just enough information to be dangerous to themselves. Like survivorship bias, once they’re gone, their tales are no longer part of the data set.

And don’t necessarily think of the discount brokerages as society’s savior per se. The banks love this trend and they’re going to promote it out of pure self-interest. It’s far cheaper to run a discount brokerage than it is to offer full-service; the margins are higher and with a couple of clicks of the mouse, they have been pretty much absolved themselves of all liability.

Most people have no clue that a full quarter (and often more) of the return on their investment gets eaten away by fees. All for dispensing advice that can't even consistently beat an index fund. It should be criminal.
How often must this red herring be dragged out of the closet? Discount brokerages aren't free. Index funds aren't free. These are simply less expensive alternatives, but they come with a "cost" -- no advice. The fees paid to a full service account are for the advice and not just for hiring a chimp to throw a dart at the pages of the Financial Post. Servicing the account entails at least a modicum of personalized advice beyond picking an investment. Part of the problem is that clients don’t hold up their end of the bargain by disclosing all of their pertinent information to assist the advisor in fulfilling their roll. It’s hard to do a proper financial plan if the client won’t fill out the budget. Insurance needs analysis? Not interested. Estate planning? I’m too young to worry about it. Wills and PoA? I’ll look after that later. All I want you to do is sell me a fund today to cover my RRSP contribution. They pay for everything and yet make use of nothing and then assume that they’ve been hosed for picking a shitty mutual fund that didn’t beat the index. If that’s the way you view the whole process, then maybe the discount broker is the right choice because the only way you are measuring the value of the advisor-client relationship is by: Did the investment beat the index?

Tax, retirement and estate planning are great--and should be done on a fee for service basis.
In a perfect world you are quite correct. Everyone would pay a fee for service and then get their financial products at a low cost clearing house where no incentives are offered to impact decision making. But, we don’t live in that world and it’s pretty clear that the client base isn’t interested in that model either. By and large, the average retail investing client prefers not to pay for their advice up-front. They like that those fees are hidden and that is why things are the way they are. Sure the commission system is rife with potential for conflict of interest, but by-and-large; the vast majorities of advisors are honourable and have their client’s best interest at heart. Like the Toyota Prius with a faulty accelerator pedal that crashes into a river/police car/retaining wall; we only hear about the sensational and not so sensational bad apples. We don’t hear about the 9999 other ones that go about their daily business just fine. At the end of the day, it’s not the compensation model that is going to determine the success or failure of an advisor: client relationship; it’s going to be the quality of the people involved and the effort that they both put into the relationship. Gee… that sounds a lot like marriage, doesn’t it? ;)
 

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ISTM that one thing we are stepping over is not just the fees paid to the advisor, but the deferred sales charges the investor would owe if he or she cashed out units before the DSC schedule had expired.

To my mind, the question is not just "does an advisor deserve to be compensated for their advice (and some have suggested, for their underlying skills and experience, whether the investor draws on those or not)?"

At one level, this is a moral question with a moral answer. Certainly that seems to be the "pitch" here - "advisors deserve to be compensated." I would never argue against that broad-based framing of the question.

The other part of the question, to my mind is, "would the investor purchase the fund in question if he or she knew that it would 'lock' them into the fund for five years?"

In addition, I think that it is worthwhile to think about and discuss the *level* of compensation. If we agree that advisors need to be compensated - and clearly they do, I don't think anyone would seriously argue otherwise - then perhaps it is useful to talk about and think about whether the compensation structures and levels are appropriate.

It's been suggested that $250 for "picking a fund" is both too high, and appropriate (depending on whether you think it is for "picking a fund," or servicing a relationship). It's also been suggested that Canadians don't like or want a model in which fees are explicit. But what is the "right" amount - and how can we ever know the answer to that question when the fee amounts actually paid are obscured from plain view?
 

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It's been suggested that $250 for "picking a fund" is both too high, and appropriate (depending on whether you think it is for "picking a fund," or servicing a relationship). It's also been suggested that Canadians don't like or want a model in which fees are explicit. But what is the "right" amount - and how can we ever know the answer to that question when the fee amounts actually paid are obscured from plain view?
I seem to recall that Dan Hallett talked about this very issue at length on another forum. As a licenced IC, he would know full well the costs of servicing the typical client and meeting all regulatory and compliance hurdles (which are onerous), paying the help, keeping the lights on, etc. IIRC, a full financial plan had a "cost" of $1500. I don't know many uninitiated folks willing to pay-up for that. The rest of the details are fuzzy now, but I do remember clearly that the higher net-worth clients subsidized those with modest assets which just happens to be the majority.

It costs a lot of money to keep that shingle hanging out; far more than most folks realize. I think that explains why the turnover in people is so high in the financial advice game. Unfortunately the sharks get rewarded when sales is the name of the game.

So what is fair? Well, if you want personalized advice, you're going to have to pay for that at a rate commensurate with other advice professions. For a lot of folks that's going to be too much for the value that it might add and as such they would do just as well with the generic sort of advice you might get from your local bank branch personnel. Whether you like it or not, the commission based model works pretty well for a lot of folks as a value proposition. It falls apart a bit when you get into high net worth territory, depending on the level of service required, but those are the folks that are most likely to pay a fee for service.
 
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