Transfering from financial advisor to self directed

[schmidtjas]

When I was younger and less educated on planning for retirement I was talked into signing up with a financial advisor who works with Raymond James. This was probably 8 years ago. The relationship has been good and all, but I've decided I want to move my assets from the high MER mutual funds that I currently have with this advisor into a self directed account with the CIBC with the goal of utilizing asset allocation and rebalancing of index funds. I chose the CIBC as they are my current bank and I have a good relationship with my account rep there. She also says she isn't paid any kind of commission, I don't have a good handle on how commission works in this industry so all I can do is believe her on that I guess. From what I understand my current advisor gets a nice cut of the MER so of course he's going to push those.

The CIBC account will allow me to make trades etc and avoid high MER funds if I wish. I'm thinking I could probably do something similar with my current advisor, but I'd really rather just bite the bullet and get out on my own. Right now I have a 40K RRSP with this advisor and a 10K Tax Free Savings account. So the balances aren't huge. My savings rate has really gone up in the last two years though.

My question is: how huge of a pain in the butt is it to do this? I haven't spoken to him about it, but I have left the CIBC know what I intend. My rep there says we need to be careful of the fees when I get out of the mutual funds. What kind of fees is she talking about? I'm a little nervous about contacting him on this since we've had a good working relationship so far, and I'm not sure what the best way to cut him loose would be.

 

[FIREd]

You could face redemption fees (back-end load) and account closing fees.

In the US at least, the institution on the receiving end can usually handle most of the transfer and sometimes it is not even necessary to warn the advisor of your intentions. Sometimes, though, they will require that you first liquidate the investments your have with the financial advisor before they can proceed with the transfer.

 

[schmidtjas]

Are these backend fees significant?

If I'm understanding how MERs work, if I'm paying 2% MER and I transfer to <0.5% MER index fund, I'm saving 1.5% per year of my nestegg, am I not?

 

[kumquat]

Since you are in Canada and Canadian regulations apply (although they aren't very different) you may want to poke around this Canadian forum as well.

 

[mickeyd]

I am also ignorant as to how Canadian investments differ from USA investments but this would concern me...

She also says she isn't paid any kind of commission,

If there is truly no commission, there is surely some kind of fee/fees. No bank, USA or Canadian, operates on a "free" basis for customers. They are in banking biz to make $.

 

[FIREd]

Are these backend fees significant?

If I'm understanding how MERs work, if I'm paying 2% MER and I transfer to <0.5% MER index fund, I'm saving 1.5% per year of my nestegg, am I not?

In the US, back-end fees can be significant. Or not. Some funds charge up to 5% of the value of the investment in back-end fees and some charge nothing. It depends on the type of investment you own (some funds charge you a front-end load but no back-end load) and it can depend on how long you have owned the investment (generally, the longer you own an investment, the less you pay in back-end fees).

 

[kumquat]

I've decided I want to move my assets from the high MER mutual funds that I currently have with this advisor into a self directed account with the CIBC with the goal of utilizing asset allocation and rebalancing of index funds. I chose the CIBC as they are my current bank and I have a good relationship with my account rep there.

Are you thinking of opening an account with CIBC Investor's Edge or just buying mutual funds from your local CIBC branch? There is a difference.

The CIBC account will allow me to make trades etc and avoid high MER funds if I wish.

An Investor's Edge account will allow you to buy and sell mutual funds (most but not all), ETFs, stocks and bonds. Buying MFs at the branch will not.

My question is: how huge of a pain in the butt is it to do this? I haven't spoken to him about it, but I have left the CIBC know what I intend. My rep there says we need to be careful of the fees when I get out of the mutual funds. What kind of fees is she talking about?

Many MFs have a back-end load or a charge for selling them. Usually this is reduced depending on how long you've owned them (ie. 5% in first year, 4% in second.... 0% after x years). MF companies like to play games here. If you buy a bit of a fund every year, the back-end load may reset at each purchase. The only way to know what these fees might be is to ask your FA.

I chose the CIBC as they are my current bank and I have a good relationship with my account rep there. She also says she isn't paid any kind of commission, I don't have a good handle on how commission works in this industry so all I can do is believe her on that I guess. From what I understand my current advisor gets a nice cut of the MER so of course he's going to push those.

Depending on whether you are going with CIBC or CIBC Investor's Edge, this relationship may be irrelevant. Investor's Edge is a discount brokerage and is prohibited from offering advice of any kind. If you have an I-E account she won't be discussing its contents with you. If you are buying MFs in the branch, she is salaried and can be objective (to some degree) but probably hasn't as much expertise as a good DIY-er. You get what you pay for.

My guess is that the bank rep is planning to sell you MFs in the branch. That is not necessarily bad and CIBC has some low MER index funds available. If you are planning to buy and sell stocks, bonds or ETFs, this is not what you want.

My question is: how huge of a pain in the butt is it to do this? I haven't spoken to him about it, .........I'm a little nervous about contacting him on this since we've had a good working relationship so far, and I'm not sure what the best way to cut him loose would be.

Just tell him you can't afford the MER.
Then decide what type of account you are moving to. RRSP means you can't just sell them and go your merry way. They have to stay registered so a transfer of some kind (from the old custodian to new) has to be arranged. The new custodian can arrange the transfer and I'd try to get them to eat any transfer charges.



First you have to determine your goals.

• Do you want to own MFs?
• Do you want to own stocks?
• Do you want to own ETFs?
• Do you want bonds?
• Do you want advice?

The answer to these questions determine what account type you want. Then join us DIY-ers who have no one but ourselves to blame for our losses.

 

[schmidtjas]

I'm likely going to open an investor's edge account, but again I have to figure out exactly the limitations. In the end, I'm planning to buy index funds with low MERs (prob one Canadian, one USA, one world index) and fixed income (bond) index funds with a low MER to maintain a specific asset allocation. I have to speak to her more on what's available and what my options are, not sure which option allows me to do what I want. I don't intend to buy specific bonds, stocks, etc. I'm basically looking for the Canadian equivalent of Vanguard (which of course doesn't exist, but from what I understand there are low MER index funds available). I know the TD eSeries is out there, but I have to do more research.

She mentioned that we would need to do a 'transfer in kind' from current custodian to new custodian, since it is an RRSP and I want to keep it registered. From there we would need to determine what the fees would end up being. Worst case is I'd leave the current fees in there until they expire down to the lowest amount and then switch them out to something else I guess? I've owned the funds for years, but I do contribute every week so I guess I'll have to find out how the fees work when I want to move them out and into another registered fund. Hopefully I'm not in a raw deal, but we'll see. I'm not too worried about the fees, from what you're saying I can probably let them expire, then move things out? New contributions would just go to my new index funds etc until I can free the 'trapped' items.

My goal from the bank rep isn't advice, I just need her help in establishing the account and moving everything over. I'd also need her help in understanding how the fees work, but she seems knowledgeable on it as she's already mentioned that we want to be very careful in how we do the transfer so as to avoid unnecessary fees.

 

[FIREd]

Perhaps you can go to Morningstar.ca and research each fund you own. Under the "detail" tab you will find the initial (front load) and deferred (back load) fees for your specific funds.

 

[kumquat]

I'm likely going to open an investor's edge account, but again I have to figure out exactly the limitations. In the end, I'm planning to buy index funds with low MERs (prob one Canadian, one USA, one world index) and fixed income (bond) index funds with a low MER to maintain a specific asset allocation. I have to speak to her more on what's available and what my options are, not sure which option allows me to do what I want. I don't intend to buy specific bonds, stocks, etc. I'm basically looking for the Canadian equivalent of Vanguard (which of course doesn't exist, but from what I understand there are low MER index funds available). I know the TD eSeries is out there, but I have to do more research.

TD eFunds, iShares ETFs and I think CIBC has some low MER index funds as well. iShares will be available (that's where the bulk of my index allocation is), also Claymore.

She mentioned that we would need to do a 'transfer in kind' from current custodian to new custodian, since it is an RRSP and I want to keep it registered. From there we would need to determine what the fees would end up being. Worst case is I'd leave the current fees in there until they expire down to the lowest amount and then switch them out to something else I guess? I've owned the funds for years, but I do contribute every week so I guess I'll have to find out how the fees work when I want to move them out and into another registered fund. Hopefully I'm not in a raw deal, but we'll see. I'm not too worried about the fees, from what you're saying I can probably let them expire, then move things out? New contributions would just go to my new index funds etc until I can free the 'trapped' items.

It might be better to suck up the 5% back-end load now rather than suffer 5 years of 1.5% (or whatever) MER. Ask the questions, run the numbers.
Remember that buying ETFs have a cost. That cost is fixed, not dependant on how much you buy. If $10 per trade, it's nothing on a $100K transaction but 10% on a $100 buy.

My goal from the bank rep isn't advice, I just need her help in establishing the account and moving everything over. I'd also need her help in understanding how the fees work, but she seems knowledgeable on it as she's already mentioned that we want to be very careful in how we do the transfer so as to avoid unnecessary fees.

Sounds like she is providing the needed help. I can't offer any advice on CIBC I-E other than to say they are probably very much like BMO InvestorLine and RBC Direct Investing, both of which I have accounts at (I know, horrid grammar,can anyone help fix it?).

Good luck going forward. Remember, no one cares more about your financial health than you do.

 

[schmidtjas]

I checked morningstar.ca

and for 3 of the 4 funds I am seeing the following under "Load Type":
Choice Front or Back
Deferred Charge on Org Amount
Front End Charge
Low Load Charge
No Sales or Redemption Charge

Not sure what that means? Since I don't remember making a choice I am assuming the advisor would choose front end charge since then he gets paid immediately, right? Looking at the way this is worded makes me think I won't know the whole story until I talk to him.

For the 4th fund I see:
Front End Charge
Low Load Charge
No Sales or Redemption Charge

I mean I've been a long term customer of all of these funds. I believe I've owned them all except the 4th one for going on six or seven years I would guess, so I would hope there aren't any "games" being played.

 

[plex]

Front End Charge = front end load (up front % charge of assets)

Low Load Charge = very subjective description of the front end load (semantics aside, I am guessing this means a 3-5% load, which is of course ridiculous)

No Sales or Redemption Charge = No back end load (meaning, no charge when you get the heck out of the awful fund)