Rambling thoughts from Canada

[Koogie]

How do you keep track of your income and losses. In particular from things like dividends? It seems like there must be a lot of stuff that needs to be provided to the accountant. Obviously this only applies to the unregistered investments.
How many hours a year do you figure you spend on this?

Most of our personal money is in registered accounts, so as you say that isn't a problem for paperwork or for tracking.

The vast majority of our unregistered funds are in the form of retained earnings in our CCPC. I have made that easy on myself/my CA by only holding three things. GICs and two ETFs (VTI and VXUS). It is very easy to calculate the GIC interest and the ETFs only pay out dividends quarterly. Once a year I provide a one page recap to my CA (along with copies of the TD statements). Easy peasy. That part takes maybe a few hours once a year.

Like I say, the unfamiliarity at the beginning is the hardest part to get over. Trust me, I spent many years procrastinating. I opened shop in 2002 and didn't really get my act in gear until the recession. But once you get past that and have it set up, it runs pretty easily.

 

[Koogie]

Does anybody?

I think I had a girlfriend once who did.

I could never understood what she was talking about....

 

[Sunset]

.....
I will say as well that Edward Jones doesn't have the greatest reputation in Canada. Your particular broker might be a swell guy though.. who's to say. However, Jones will be making quite a bit of money off your portfolio.
Let me repeat that. Quite a bit of money.

.....

They have the same reputation here too.
I've had 2 of them come door-to-door just like the lawn service folks, trying to drum up business..

 

[kcowan]

I took over trading after several incidents where her broker was making her broker! She was willing to share everything with me. Then I took over her mother's fixed income account and saved her $16k in fees every year. Pretty soon I had responsibility for everything. So it is a process and best not to rush.

I managed a DIY portion and showed how it consistently beat the Managed Portfolio over three years after fees. The high fees in Canada made this pretty easy. (No Vanguard Funds!)

But if you are reluctant to take responsibility, that is a valid reason. Just make sure you know what the cost is. We found that MIL was paying a fee of $1350/yr that I easily replaced with $25/yr. The FA was just not paying attention to fees. This was not her fees but pass-thru. She apologized and I just said that she needed to pay attention. FAs get lazy if not under scrutiny.

 

[couch]

I had my meeting with the FA. For the fees, as with most things the answer is: its complicated.

On a $585k portfolio I paid $4167 in fees for the last 12 months, which translates to 0.7%.

- $203 of that is for the RESP that isn't going anywhere(does anyone have a good RESP provider that offers more than just mutual funds?).
- $2413 is a transaction fee, I pay 1.5% - 2% depending on the size of the trade for every buy and also for every sell.
- $1310 is from mutual funds(which will be going away in the next month or two)(Its going to cost me about $1400 to sell the mutual funds plus the transaction fees of about $3000 to be rid of them)
- $240 is the fee for being a Edward Jones customer

So:
-Pre-retirement, assuming I save $100k each year, I should expect my annual fees will be about $2000/year regardless of my portfolio size. With my current portfolio this should result in about 0.34% fees, but it will go down as a percentage of my portfolio as my portfolio increases in size.
-Post retirement my fees should be about the same depending on inflation and how much I draw.
-If I decide to buy or sell, I get dinged with 1.5%-2.0% both ways on the transaction.

I am kind of a buy and hold guy, so I don't think this setup is so bad.... but I could be missing something.

 

[Sunset]

Yes, FA's do this all the time, trick you with the math.....
"On a $585k portfolio I paid $4167 in fees for the last 12 months, which translates to 0.7%."

Not really, lets pretend your portfolio made 10% so on $585K that is $58,000 the fees would be $4167, which is 7.18% of your profit they are taking (each year) and 14.3% if you only made 5% next year.

I don't understand why you have 1.5%-2% on every trade ??
TD Canada Trust has a brokerage dept (operates in Canada) charges roughly $9 to trade, big amounts like $50,000 at a time.

 

[6miths]

Or $9 for a million dollars at a time. It is unlikely that your EJ broker is radically different than other EJ or Investors Group brokers. I would imagine that it would be hard to work there if one actually had a great deal of knowledge and cared about their clients' well being. It is also seems unlikely that these are your true fees given that mutual funds in Canada have the most expensive MERs in the world and that EJ is not known for using low cost products. As well, why is it costing you anything to sell the mutual funds and why are things 'going away'. Are these 'load' funds if so there really hasn't been a good reason to buy these for twenty years but EJ and IG are well known for them. Maybe I'm way off base but I would be concerned. It is your money and the less you pay in fees the more you will ultimately have. Compound interest is the eighth wonder of the world - unfortunately it is a knife that cuts both ways and the financial industry is much more aware of its power.

 

[couch]

I don't think I explained myself very well.

Not really, lets pretend your portfolio made 10% so on $585K that is $58,000 the fees would be $4167, which is 7.18% of your profit they are taking (each year) and 14.3% if you only made 5% next year.

If my portfolio made $58,000, I wouldn't pay any fees on that. If I saved it all and invested it with Edward Jones as a lump sum at the end of the year I would pay $870. They are taking 1.5% of my profit.

If I had ETFs, the management fee would be on the total value of the portfolio, so that is what I was comparing it to. In that case it would be about 0.0148%.

And then on top of that there is a $240 flat fee.

I am not saying this is good, but I am saying that is the current situation.

 

[couch]

It is also seems unlikely that these are your true fees given that mutual funds in Canada have the most expensive MERs in the world and that EJ is not known for using low cost products. As well, why is it costing you anything to sell the mutual funds and why are things 'going away'. Are these 'load' funds if so there really hasn't been a good reason to buy these for twenty years but EJ and IG are well known for them.

I've always hated the mutual funds. When we bought them in 2011 or so EJ didn't have a better option. I agree it has cost me a lot of growth. I don't know what it cost me over the years and frankly I don't want to think about it.

That said, it is what it is. Now I need to deal with it. I'm going to sell them which is going to cost me large, but then I will be done with them.

 

[kcowan]

- $203 of that is for the RESP that isn't going anywhere(does anyone have a good RESP provider that offers more than just mutual funds?).
- $2413 is a transaction fee, I pay 1.5% - 2% depending on the size of the trade for every buy and also for every sell...

RESP is just another account type at my discount broker. It is 50% Province of BC bond paying 3.7% and 50% RBC and Clark Equipment. The bond was purchased at IPO and the equities for $10 each. No other costs. 2% transaction fee would mean buying just $500 in stock. At that level of purchase, I would get some eSeries for no fee or another bond at IPO until I had enough money to justify a stock purchase.

My advice is to get away from those gougers and select any discount broker! Commit to learning to save yourself big $$.

 

[6miths]

+1

It's hard to say it politely to be honest. Even TD tries to bury their low cost e-series funds and definitely doesn't promote them. With the amount you have to invest, you shouldn't be paying any extra fees for RESP(s), TFSAs, RRSPs or taxable accounts.

Dan Bortolotti wrote alot about the Canadian scene. Model Portfolios | Canadian Couch Potato He has his FA designation now but I expect that he would be much (much) better than EJ. You might want to try the Canadian Financial Forum http://www.financialwisdomforum.org/forum/viewforum.php?f=29 if you have not already.

 

[couch]

Canadian Couch Potato

CCP is associated with PWL Capital Inc. And they charge "up to 1% of assets under management, with that cost trending down as accounts gets larger".

Would that be better?

I think at this point, if I am going to make the plunge it might be a good idea to get someone to help me. A fee based advisor maybe.

I'm not ignoring all of the responses trashing the advisors but I have to carefully weigh my options and not rush into anything.

 

[couch]

RESP is just another account type at my discount broker.

Now that is interesting. I asked the FA point blank if there are better options for RESPs and he said that RESPs are a loss leader due to the management fees and so there aren't better options.

 

[6miths]

Yes Dan wrote many articles on 'Couch Potato' investing for Moneysense and others but eventually got his papers and went to PWL Canada. Honestly, I have no idea what your fees are but knowing that you are with EJ I would doubt very much that paying 1% and then going with the ETFs that they have in their model portfolios that you would be doing worse. And on the bright side, you would know exactly what your fees are. I would never pay 1% as it is much easier to go to a discount broker and make your own buys. You do have to have the temperament for it though.

I don't know what your EJ adviser is talking about on RESP fees. We have four children with a family RESP and have never paid a cent in fees. 9.99 trades each year to buy XSP. End of story.

 

[Koogie]

Now that is interesting. I asked the FA point blank if there are better options for RESPs and he said that RESPs are a loss leader due to the management fees and so there aren't better options.

Echoing what others have said, that is just a crock.
Makes you wonder what else he is telling you is as well.....

There are better full service brokers than EJ in Canada. You might consider switching to one of them instead if you aren't ready or don't like the DIY route. You won't save much in fees but you'd get better, more honest and transparent service.

 

[kcowan]

He probably has not told you that an RESP is $50k/child like a TFSA. Just contribute enough per year to max out the CESG matching grant.

 

[brett]

If you have a family RESP be sure to double check that the administrator attributes the deposits to each of the children in the plan.

There have been instances where administrators have attributed all of the deposits to one child. In instances where the total deposits are over $2500 you will be missing out on the federal grant for monies in excess of $2500.

 

[kcowan]

and if the child turns 17 stop their share unless you want to overcontribute.

 

[brett]

Our experience is that bank fees, especially on investments are very high. They are often hidden or understated by the bank. Our experience is also that the knowledge level of the bank FA's is very low. They appear to be sales people more than they are advisers.

We like to understand the exact amount of our FA fees etc so that the we can make a cost/benefit decision. The banks make it very difficult to do this so we fired ours.