The article “What’s Involved In Moving Investments From A High-fee Advisor To A DIY Setup?” was originally published on MoneySense on May 27, 2020.
Brett is concerned about the fees on his mutual funds and wonders if a fee-for-service advisor can help him and his wife transition to managing their own investments.
Q. I have been concerned about high fees charged on my investments and have been trying to figure out a way to move my funds without getting hit with a huge tax bill. I started with mutual funds and today I have a 60% equity and 40% income balanced portfolio plan. My last statement shows about 5% return over the last 5 years—an okay return but the 2% or more that I pay in fees (there is still not full, complete disclosure, nor and easy to understand information on all the fees charged) make me question whether I am receiving value for the amount charged.
Between my wife and myself, we hold an RRSP, SPRSP, TFSA and LIRA, with a total of about $1 million (less today due to big market drop related to the COVID-19 pandemic). I have been thinking of opening multiple discount brokerage accounts in the same breakdown of account types and transferring all of the registered funds into like accounts and purchasing ETFs with those funds. But the problem I suspect is that once I transfer the registered funds, I will be told I no longer have a large enough investment to qualify for service from our existing advisor, and will have to sell all of the unregistered investments and pay taxes on the sale. (The unregistered accounts are worth about $100,000 for each of us.)
I would also like to find a reputable fee-for-service advisor to help me with this, but am at a loss in determining how to go about finding one.
A. I can understand your concern, Brett. Fee disclosure has been becoming more important to investors and fee compression has been increasing the difference between high-fee and low-fee investment options.
Mutual funds sometimes get a bad rap, though. There are plenty of high-cost actively managed funds with fees well over 2%. But there are low-cost active options with fees under 1 % (though these may not include advice). There are passively managed index mutual funds with fees of 0.3% to 0.5% for do-it-yourself (DIY) investors.
Exchange-traded funds (ETFs) are like mutual funds but traded on a stock exchange. Fees are generally less than 0.25%, and many Canadian and U.S. equity ETFs charge less than 0.1%
Your 5% return over the past five years is tough to assess without more information, Brett. For perspective, the S&P/TSX 60 Index, representing the 60 biggest stocks in Canada, returned 1.97% annualized through March 31, 2020. Through April 30, 2020, it was 3.29%. And for the year ending December 31, 2019, it was 6.73%. That is a pretty big difference over just a few months, depending on the statement date reporting your returns.
If you were invested primarily in Canada, you would have missed out on the fantastic returns south of the border. Consider that the S&P 500 returns in Canadian dollars for the same periods were 8.58%, 11.46%, and 13.55%.