Transparency

RYANBy Guest Blogger Ryan Lewenza

At Turner Investments we have four core principles that guide how we look after our clients’ and their hard earned savings. First, we put as much emphasis on risk as we do returns, and we do so by employing a balanced and globally diversified investment portfolio.

Second, we only use low-cost ETFs in building portfolios. Third, we believe good communication is the cornerstone of a successful wealth management practice, with this blog, our live weekly conference call, and constant contact with clients as examples of this. Finally, we believe in low and transparent fees for our clients. We charge a flat fee of 1% so clients know exactly what they pay for our services, with no hidden fees or commissions. And this is what I’m going focus on today in this blog post.

The Canadian mutual fund industry has, in this portfolio manager’s opinion, been stacked in favour of the mutual fund companies and the banks that own them, often to the detriment of mutual fund investors. Putting aside the well-documented underperformance issue (Rob Carrick of the Globe and Mail recently examined the performance of the largest Canadian mutual funds and let’s just say it did not provide a ringing endorsement of the industry) my central beef with mutual funds is their high and often opaque fees.

The average equity or balanced mutual fund charges 1.5% to 2.5% annually. What most investors don’t realize is a portion of this annual fee or MER is paid to the financial advisor as compensation for investing their client’s money in these funds. This is called a trailer fee and can range from 0.5% to 1.5% per year.

Another fee investors can pay is a deferred service charge or DSC. These are fees charged by the mutual fund company for investors who sell a mutual fund before a set date, often 5-6 years after the date of purchase. These DSCs are a percentage of the mutual fund investment and work on a sliding scale. For example, you could be charged a DSC of 6% if the fund is sold in year 1 of owning the fund and 5% if sold in year 2.

Of these two fees, the DSCs are much more odious, and we cringe every time we review a prospective client’s portfolio and see their portfolios riddled with this crap. Essentially you have to pay a large sum of money just to get back your own money.

The reason I decided to write about this topic this week is that the Canadian Securities Administrators (CSA), a regulatory body that oversees the Canadian capital markets, recently published new proposals to deal with these outdated fee structures following a multi-year study on the topic. While some progress was made with their proposals, they did not go far enough in my opinion.

Thankfully for Canadian investors, the CSA is proposing to ban all DSC fees going forward. This is long overdue and a great victory for investors as these were a pure cash grab from the mutual fund companies and the advisors who peddled them.

Unfortunately, the CSA stopped short of banning the trailer fees for funds purchased through a financial advisor, which have already been banned in many countries such as the UK and Australia. The CSA did however propose banning trailer fees for mutual funds purchased through a discount broker. This was a no brainer since it’s unfair to the investor to pay a trailer fee to a discount broker when they don’t actually provide financial advice or services for the fee charged.

So for the average investor investing in mutual funds through a financial advisor, sorry but you will have to keep paying the annual trailer fee.

Now to be clear, my beefs with these fees are: 1) they are high compared to lower cost ETFs and 2) they are not clear and transparent to the investor. As previously mentioned we charge clients an annual fee of 1% per year for the services that we provide. This includes managing the portfolios and security selection, tax planning, overseeing the different investment and corporate accounts, financial planning and just being an investment coach and part-time psychiatrist.

Additionally, the ETFs we invest in have a small nominal fee with our current blended portfolio fee of roughly 0.25%, therefore a client’s all-in cost with us is 1.25%. As financial advisors and stewards of capital we provide a critical service to Canadians by investing their savings prudently and we believe a fair fee for this service is 1%. Every month we debit client accounts 1/12th of the 1% fee from their account, and with the 0.25% ETF fees being directly charged through the ETF. It’s very clear and transparent, which is not the case with mutual funds and that’s what I think is paramount for clients. (By the way, our fees are deductible from your taxes for certain accounts. Mutual fund fees are not.)

Ask yourself a simple question. Do you know how much you are paying in mutual fund fees and how much is going to your advisor? Odds are you don’t and that should prompt some important questions and conversations.

Ryan Lewenza, CFA,CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

84 comments ↓

#1 For those about to flop... on 07.07.18 at 2:02 pm

Weekend rewind.

This week in howmuch articles…

M44BC

Visualizing the World’s Biggest Importers in 2017.

https://howmuch.net/articles/largest-importing-countries-2017

This Map Shows the Highest-Paying Companies in Every State.

https://howmuch.net/articles/highest-paying-company-in-every-state

Mapping the Highest-Paid CEO in Every State.

https://howmuch.net/articles/highest-paid-ceo-in-every-state

#2 jas on 07.07.18 at 2:09 pm

Very good points, explained in easy to understand language.

#3 Ken semotiuk on 07.07.18 at 2:27 pm

So that is what Garth would look like if he were a dog!

#4 Not Rocket Science on 07.07.18 at 2:31 pm

“Do you know how much you are paying in mutual fund fees and how much is going to your advisor?”

I pay exactly $4.95 minimum to $9.95 maximum per stock trade with my discount brokerage. I averaged 16% annual returns for the last decade by buying and holding 10-15 company stocks. Not rocket science.

#5 Shawn Allen on 07.07.18 at 2:32 pm

So, Who is Scooping Too Much on Mutual Funds?

“The average equity or balanced mutual fund charges 1.5% to 2.5% annually. What most investors don’t realize is a portion of this annual fee or MER is paid to the financial advisor as compensation for investing their client’s money in these funds. This is called a trailer fee and can range from 0.5% to 1.5% per year.”

***************************************
So, the trailers fees that go to the Advisor average 1.0%. Same as Turner Investments.

The total mutual funds fees average 2.0%. The portion going to the mutual fund companies is 1.0%. That compares to the 0.25% for ETFs.

So, it seems it is the mutual fund companies and not actual financial advisors who are scooping higher fees?

It’s not the financial advisors who are overpaid via trailer fees but the mutual fund companies?

#6 Freedom on 07.07.18 at 2:34 pm

Ask yourself a simple question. Do you know how much you are paying in mutual fund fees and how much is going to your advisor?.

..

Easy… zero and zero…. can drink more beer that way

#7 boots on the ground in ptown on 07.07.18 at 3:06 pm

Are Chinese ghost cities really falling down?

ADVChina
Published on Jul 2, 2018

https://www.youtube.com/watch?v=XopSDJq6w8E

You gotta see this!

#8 Tbone on 07.07.18 at 3:07 pm

I have a portion of my portfolio with the [email protected] .
We keep her because my wife likes her , I personally have little use for her. ( the bank lady, not the wife , I find my wife useful )

I explained to her that capital preservation is most important and I would like to see 5 % return. So I have a bunch of fidelity along with other mutual funds and the mer is in the 2 % range , while I get about a 6 %
return. Most is in 70 / 30 ….bond / equity split which should provide a buffer in a down turn.

If I get what I want , why should I be concerned about how much mer I pay.

I don’t really need any more return than that as I will run out of time well before I run out of money

#9 Think about it on 07.07.18 at 3:22 pm

Is 1% really a flat fee? A $500k portfolio costs $5k in fees. A $1million portfolio costs $10k a year in fees. But is it really double the work to manage $1million versus $500k?
A company like NestWealth charges a true flat fee of $80 per month no how big the portfolio gets. They use ETFs that have MERs around 0.12% which is about half yours.

And you don’t get an advisor, but an algo. Good luck. – Garth

#10 Ryan Lewenza on 07.07.18 at 3:39 pm

Shawn Allen “So, the trailers fees that go to the Advisor average 1.0%. Same as Turner Investments.”

Many advisors charge an annual management fee like us, but then invest their clients money in mutual funds and collect extra trailer fees. So it’s fees on top of fees. As I said, these fees are often opaque, and add up. I’ve been in this business for two decades and trust me, our 1% fee is very reasonable and at the low end of the range. – Ryan L

#11 Dean on 07.07.18 at 3:56 pm

I was stunned reading what percentage of financial advisers were sales people versus a fiduciary. Want to say 95% were sales but correct me if I’m wrong.

#12 Stan Brooks on 07.07.18 at 4:43 pm

It seems for such management service fees should be capped. like having minimum fee and maximum fee.

It is clear that there is some work to establish the strategy based on client preferences and then some minimum management/re-balancing work, but it seems to me 10 k annual cost on 1 million portfolio might be too much.

3.5-4 k sounds right to me.

Let’s not forget that a lot of re-balancing work is done by ETF managers already.

A question to Ryan: How many transactions would it take annually to manage 1 million portfolio invested in 10 ETFs?

Even at 250 $/hour 4 k gives around 16 hours of management work annually.

#13 David on 07.07.18 at 4:48 pm

Thank you Ryan. Good insight. I get the 1% idea. It’s a very reasonable fee and yes, the more money you have the bigger 1% really is but what a surprise, to whatever extent, the larger is the effort to manage it responsibly. I don’t want a robo-system. 1% means you have skin in the game.

#14 NoName on 07.07.18 at 4:51 pm

Take that КГБ !!!

#15 Yanniel on 07.07.18 at 4:54 pm

“And you don’t get an advisor, but an algo. Good luck. – Garth”

You say it like it’s a bad thing. Get ready for the new reality.

As Ryan wrote, growing money is just one of the things an advisor does. But if you have scant funds, an algo is an understandable choice. – Garth

#16 Ryan Lewenza on 07.07.18 at 5:05 pm

Stan Brooks “It seems for such management service fees should be capped. Like having minimum fee and maximum fee. It is clear that there is some work to establish the strategy based on client preferences and then some minimum management/re-balancing work, but it seems to me 10 k annual cost on 1 million portfolio might be too much.”

The 1% fee includes more services than just managing the portfolio and rebalancing. We provide tax planning advice to reduce one’s annual tax bill. We look after the kids education funds to ensure they have the funds to meet rising education costs. We provide advice on large purchases like buying a home or investing in a business. We provide a detailed financial plan to help our clients plan for their future and ensure they have a large nest egg to fund their retirement. A 1% fee or $10,000/year on a $1 million dollar portfolio seems like a good deal to me given all these important financial matters. Basically we’re trying to help our clients avoid making bad financial decisions, keep them on the right path, and protect and build their wealth over time. Stan you’re an avid reader and commenter on this blog so clearly you find value in our insights and advice. We do this plus so much more for our clients so they see the value in paying a 1% for all of this. – Ryan L

#17 espressobob on 07.07.18 at 5:06 pm

The whole idea of a mutual fund is to beat an index. Most fund managers fail miserably and charge exorbitant fees for underperformance in most cases. How would an investor or adviser know in advance to pick a winner? Crap shoot.

DIY investors have a tendency towards sector plays like PMs, energy, inverse plays etc. That usually ends in distress, emotional and realizing looses.

So yeah, a fee based advisor can save some but not all from bad decisions. Makes perfect sense.

Just remember that a bad trade is an opportunity cost that’s tough to recover from.

#18 Stan Brooks on 07.07.18 at 5:11 pm


#13 David on 07.07.18 at 4:48 pm
Thank you Ryan. Good insight. I get the 1% idea. It’s a very reasonable fee and yes, the more money you have the bigger 1% really is but what a surprise, to whatever extent, the larger is the effort to manage it responsibly. I don’t want a robo-system. 1% means you have skin in the game.

It depends on the perspective.

Given that average good companies dividends are 2-3 % annually and 10 years US bonds yield 3 % (Euro sub 1 %) 1 % on top of ETF fees can not be considered light.

So with stock market gaining 7 % annually in capital gains, 2-3 % in dividends, 6-8 % annual increase in cost of living with long term bonds returning 1-3 % and with 1 % fee you may end up with nominal gains but not real gains, considering cost of living increases.

Bottom line – with real returns of 2-3 % management fee of 1 % is a stretch for large portfolios in my mind.

But considering average management fees out there, I agree that 1 % sounds pretty reasonable if it includes tax and planning advice, it is actually amazing considering the alternative of 2.5 % + in mutual funds fees sold by banks sales people, not advisers, they actually sell you their company investment product.

My approach has been to pay top investment adviser once – fixed fee, in order to establish a strategy based on investment goals and risk appetite and then manage the portfolio myself, it has worked pretty well for me.

#19 Alex on 07.07.18 at 5:14 pm

1% is fair but not for a 2M portfolio like mine. Sorry, but I can do it for less than 20K.. My portfolio should be around 5M just from add income in less than a decade.. so that’s 50K every year in extra fees.. no way !

Portfolios over seven figures normally pay less. And why would you trust $2 million to an amateur? – Garth

#20 Jimmy on 07.07.18 at 5:18 pm

Re#9 Excellent point…there is no extra work to manage double or triple the assets. This industry is the most grossly overpaid. Especially given how long it takes to get a license to pimp mutual funds and insurance. Many of these people are grossly overpaid, and they still provide mediocre performance. Better off in buying index funds and going to a fee based planner every few years.

#21 Stan Brooks on 07.07.18 at 5:24 pm

#16 Ryan Lewenza on 07.07.18 at 5:05 pm

Thanks Ryan,

I keep forgetting that Canadians need advise on everything (when they are wiling to listen…), I am so used on planning all of these – housing, education, investments, taxes myself.

From that perspective of course you are correct for the majority of the population 1 % is a pretty good deal.

#22 nobody special on 07.07.18 at 6:03 pm

Why would I trust $2M to an ‘amateur’ by buying and holding a global diverse set of <0.1% fee Vanguard ETFs?

Ask Warren Buffet, or more entertainingly ask Protégé Partners

#23 mark on 07.07.18 at 6:07 pm

Market goes down 10% in 2 weeks

Client “sell, sell, sell, Jim Somebody on CNBC said it was the start of the next depression.”

Adviser “calm down, idiot”

Client “ok, ok, wife said I should think about something else”

3 months later when the market’s recovered and there’s a review meeting.

Client “this 1% looks hefty, remind me what do I pay your fees for?”

#24 MSM-Free Zone on 07.07.18 at 6:16 pm

#8 Tbone on 07.07.18 at 3:07 pm
“….I have a portion of my portfolio with the [email protected] We keep her because my wife likes her…..”
______________________________________

Ditto here. The [email protected] at my Bank of Penguins has always been very accommodating.

“No mutual funds today?”, she rhetorically asks with a knowing smile, almost like her booth and telephone are wire-tapped by the senior [email protected]

“Not today, maybe next time,” I reply toward the hidden microphone in the flower vase.

Good post today, Ryan. Definitely a keeper (and no graphs, who knew?)

P.S. Open and transparent? You guys would make lousy politicians.

#25 Lost.... but not leased on 07.07.18 at 6:23 pm

#7 boots on the ground…

Saw that video yesterday…
One can extrapolate a lot…

One major thing is that China’s RE market is now in recession….and the ripple effects domestically and globally.

#26 Question bob on 07.07.18 at 6:34 pm

Is adding the 0.25% ETF fee standard practice for for-fee financial advisors? I thought the 1% was an all-in rate and the advisor ate any investment fees out of this 1%..

ETF fees are embedded in the funds. They are not added. – Garth

#27 Dan on 07.07.18 at 6:40 pm

Are there no discount brokers in Canada that offer some ETFs with no trade fees?

Why pay any of you?

You come to this site providing financial information, free, seven days a week which you know is furnished by professional financial advisors who work hard for their clients. And you dis us. Show some class. – Garth

#28 Jungle on 07.07.18 at 6:46 pm

The annual Dalbar study shows DIY American investors underperform the s&p500 by a wide margin- 2.89% annually over 20 years!

https://www.marketwatch.com/story/americans-are-still-terrible-at-investing-annual-study-once-again-shows-2017-10-19

50% psychological factors and the rest basically trying to time the market.

From most in my circle who DYI invest, when I question their stock picks and portfolio, most have underperformed and lost opportunity despite knowing the odds are agains them trying to time the market and pick your own stocks.

Psychology can be a huge challenge. One potential investor has saved a lot of cash- but won’t invest with advisor cause they will take “fees”. Meanwhile in the last 3-4 years balanced portfolio is up like 30+%??

#29 Reynolds531 on 07.07.18 at 6:53 pm

So if discount brokers can’t skim trailers off unsuspecting clients anymore, does that incent them to not offer as many funds? And pressure them to increase their transaction commissions?

And to clarify, Turner charges 1%. If they advise you to buy an ETF you may also pay that manager? Or are you using advisor class funds and the mer includes your compensation?

#30 AA on 07.07.18 at 7:10 pm

What about the 13% HST changed in addition to the 1% fee..1.25%+.13% makes 1.38% all in.

#31 I’m stupid on 07.07.18 at 7:23 pm

Hi Ryan

You forgot to mention that your fee is tax deductible while mer fees aren’t.

#32 Stone on 07.07.18 at 7:26 pm

At a 1% fee and a million dollar portfolio on average, how many clients should your advisor be managing in order to provide you appropriate attention (that includes all the other services outside of portfolio management. Actually, portfolio management seems to me to be the least time intensive aspect of the relationship)?

#33 A Yank in BC on 07.07.18 at 7:55 pm

In my experience, a 1% fee is probably very fair and reasonable for all the services that are offered here. Plus.. at some point you get to shake Garth’s hand. Hell.. that’s worth something.

#34 BobC on 07.07.18 at 8:01 pm

The tax advice is worth more then 1% I would think. I’d bet you have saved a lot of people a lot of money. It’s not only what you make but also what you keep that builds wealth.

#35 crowdedelevatorfartz on 07.07.18 at 8:12 pm

@#20 Jimmy
“This industry is the most grossly overpaid. Especially given how long it takes to get a license to pimp …..
…..Many of these people are grossly overpaid, and they still provide mediocre performance.”
+++++

I’m sorry, were you thinking we were talking about the Realtor industry?

#36 Jeff in Victoria on 07.07.18 at 8:13 pm

I had my investments with one of Canada’s biggest mutual fund companies for 25 years as I was younger and didn’t know any better. At the end it seemed like my investments were stalled but the ‘Account Executive’ LOL, (my 5th one as the others kept leaving) was making lots of money. When I finally decided to stop drinking the cool aid and believing their BS, my new fee based advisor contacted them to find out what my ‘buy out’ costs would be. It was several thousand $$ as it seems that they kept ‘advising’ me to move investments around and now I know that triggered another DSC. My new advisor asked what I wanted to do, I was so mad I told him to ‘pay the ransom’ and get my money out of there. After being reinvested, within the first month my new portfolio had increased more than enough to make up for the ‘ransom’. One irony which I found amusing yet satisfying was one investment that was made was actually shares in that same mutual fund company, seems they were very profitable and paid a healthy dividend, easy to see why, thanks to the magic of DSC’s. It has been 8 years and my investments continue to increase at a healthy rate, for me 1% fee based is the way to go, I trust my advisor implicitly, he and his team give me great value, my main regret is that I did not make the switch many years earlier.

#37 1Ton on 07.07.18 at 8:14 pm

To comment # 29

No, the fee is not entirely tax deductible. Only the portion of the fee being used to manage the non-registered accounts, meaning RRSP and TFSA are not eligible.

See here for details: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-221-carrying-charges-interest-expenses.html

CRA is totally onto the shady tactic to charge the management fee to the non-registered account only, allowing for the whole fee to be tax deductible. Not sure when CRA is going to crack down on that, maybe starting with tax year 2018. It was supposed to start in tax year 2017, but they delayed it.

#38 TurnerNation on 07.07.18 at 8:18 pm

Verified footage of Track 6ers rushing to Go:

https://imgur.com/gallery/5rrJWU8

#39 Alex on 07.07.18 at 8:24 pm

Follow up to AAs post: as a fellow advisor, while I love the blog, I don’t love calling your 1% plus 0.25% and all-in cost, ignoring the HST. All-in means all-in. That includes HST, in the same way that buying a car has an “on the road” price which includes all the little nonsense fees plus HST. If you’re being transparent, this should be a no-brainer for you. Otherwise, I totally agree with everything in your post, well said.

#40 VW on 07.07.18 at 8:26 pm

What I find unconscionable is when mutual funds with deferred sales charges are sold to elderly clients. If the client dies, the estate gets charged the DSC. I understand the regulators are cracking-down on that sales practice too.

#41 T.J.BONES on 07.07.18 at 8:39 pm

To Garth ( Sir ) Ryan and Doug!!

Thank You!! For all you do! You helped me exit mutual fund hell. I now can see the light, at the retirement. P.S. 1% Miniscule. For what they do for you(me).Many Thanks To your Team.

#42 Garth !! on 07.07.18 at 9:04 pm

Ya got the kids selling today ?

It’s Saturday , let Ryan play golf

#43 Nat on 07.07.18 at 9:04 pm

Hi Garth, Doug, Ryan and the rest of the Turner team!

After many years of being “stupid” and “stubborn” being with a mutual fund advisor, my husband and I are converts and have joined the Turner Investment team. For several years, my husband a CA working for a mutual fund regulator saw the problems with mutual funds-mainly the fees. In fact, at one point he wanted to do his own investing (I only allow a small amount of his spending for him as he enjoys investing in weed stock and he has been lucky). However, I believe it is important to have a third party invest and manage it for you. We have what we think is a portfolio that has been successful and like financial markets, we expect good times and bad times. The most important thing to keep in mind is the value that is brought to the table and not so much the “free lunches” you may get by finding discount brokers. The goals is good returns with your portfolios with the smartest people managing them.

#44 Roboman for now on 07.07.18 at 9:13 pm

I have been coming to this site for years, and with your free help have managed to somewhat steer my financial ship in the right direction. While I am Roboman for now (also with RE), I’ll be knocking on your door in a few years when the $$ are great enough. I’ll happily pay the 1% at that point, as I’m well and truly benefiting from your experience already. Again, THANKYOU for the free advice, you’ve been amazing! Carry on…..

#45 Alero01 on 07.07.18 at 9:31 pm

Excellent post, Ryan – thank you for laying out your services so clearly. If you’re in a position to do so, can you please confirm whether you’re licensed to handle the affairs of people outside of your province? If not, can you please provide the name(s) of reputable financial advisors in Alberta who offer the same transparency that you’ve demonstrated in today’s post? Thank you in advance.

#46 Willy H on 07.07.18 at 9:44 pm

“We charge clients an annual fee of 1% per year for the services that we provide. This includes managing the portfolios and security selection, tax planning, overseeing the different investment and corporate accounts, financial planning and just being an investment coach and part-time psychiatrist.”
___ ___ ___ ___

Best decision my wife and I have made was to ditch mutual funds, institutional RRSP, and low yield RESP’s for 1% annual fee.

We should have transitioned to this model in our 30’s vs our 40’s! We would likely be $100K -$200K richer today had we seen the light earlier.

>Our portfolio manager’s goals are now aligned with our investments goals!

>The more money our portfolio manager makes for us the more they recieve in annual fees. Win win!

>My wife and I don’t have to spend countless hours each week managing our investments, monitoring markets and rifling through financial statements.

>Part of our annual fees are Tax deductible.

We attempt to direct family and friends down this path but they reel in shock when we tell them that we pay 1% each year of our portfolio for professional management. Meanwhile, they happily dish out 2-3% in half-hidden management fees on mutual funds.

Financial ignorance is truly impoverished bliss!

PS. I have a great deal of respect for all those folks that can handle their own portfolio’s. It takes dedication and special skillset to do this successfully.

#47 conan on 07.07.18 at 10:08 pm

Mutual fund fees are already deducted, meaning they can not be double deducted. The ETF peeps were allowed to deduct their fees to make it a level playing field.

#48 akashic record on 07.07.18 at 10:17 pm

Turner Investment clients get their reports directly from Raymond James. What’s exactly the relationship, what is a Raymond James financial advisor?

RJ acts as custodian for the client accounts we manage independently. – Garth

#49 Al on 07.07.18 at 10:21 pm

Do you guys help people in Ottawa?

Yes, nationally. – Garth

#50 BCWally on 07.07.18 at 10:25 pm

Good post Ryan, and thanks for pointing out the value of having human investment advice and support. Algos have the fatal flaw of not recognizing truth from lies and can be manipulated by false information long enough to lose a lot of money.
I’ll see you guys in the fall in the G.T.A. to hopefully get set up.

#51 conan on 07.07.18 at 10:32 pm

We stopped DSC a long time ago. Instead, we advance commissions assuming the client will stay with us for longer than 3 years. If the client walks, its the broker who gets the charge back.

It works very well.

#52 Arctic Gringo: Qalunaaq on 07.07.18 at 10:44 pm

#49 Al on 07.07.18 at 10:21 pm
Do you guys help people in Ottawa?

Yes, nationally. – Garth
_____________________________

I need to add just one more digit the the left of the decimal point to become Garth’s (quite possibly) first client residing in GST-only Nunavut. I’ll need another decade, though so file the client application at the bottom of the pile.

You would not be the first. – Garth

#53 Jer mo on 07.07.18 at 10:53 pm

I agree with most part of today’s topic. But banning trailer fees to discount brokers is a tad overboard. No discount brokers charges a commission on their mutual fund orders, so firms are supposed to absorb losses on all orders ? If this were to be passed by CSA then discount brokers will stop offering 3rd party mutual funds. Just doing some venting while I have my wine, cheers, from a retired discount broker

#54 conan on 07.07.18 at 11:00 pm

If you own any DSC funds, you are within your contractual rights , to transfer 10 % a year into non dsc funds.

Simple paper work and you get to freak on your broker for maxing commissions.

I digress though. Most people know how much they are putting into their broker’s pocket at transaction time.

We are obliged to tell them how we are paid.

#55 Blake on 07.07.18 at 11:54 pm

We swapped over to Garth about a year and a half ago. I pay the 1% so that my wife will NEVER blame ME if there is ever some type of financial apocalypse.
Managing your own funds can be done, until shit hits the fan. My co worker took a bad hit a few years ago and her assets dropped 15%, her husband sold and they ate the loss. Then locked into GICs for a safe 3.5% for 5 years. They have missed out on likely tens of thousands to a hundred grand…..and see….he manages the portfolio and is well educated.
Wife had her nest egg in mutual funds but the sales rep couldn’t tell her what the fees really were every year. I didn’t want to involve myself.I managed my own nest egg with my Qtrade account.
Eventually we moved it all over and no complaints. I have a sticker on my Motorcycle that now reads 1%ER.

#56 Canadian soldier on 07.08.18 at 12:40 am

My funds are “scant”. I’m a soldier with a DB Pension/PA/sub 100k income. I do weed stocks and vgro. What is the minimum I need to open an account with turner investments and my favourite teacher Mr. Turner?

#57 meslippery on 07.08.18 at 12:54 am

One % seems fair for a year why in the case of real estate
is 5 or 6 % fair for a house that till now sold its self in days?

#58 Fortune500 on 07.08.18 at 2:04 am

As Socrates would say, Know thyself. There is a kind of investor out there who is self motivated and willing to learn, but more importantly, who has balls of steel and a very rare ability to persevere when the world around them is going to hell.

We started investing just before the downturn in 2007/2008. That and a few other incidents over the years have proven to me, that in my individual case, having the advisor there at a 1% flat fee is worth the cost.

Missing that one day, or freaking out on that other one day, can be enough to lose you all of the saving you have made on MERs etc. As long as this is truly something the advsior does for you, along with everything else Ryan has outlined here, it does make a case for SOME OF YOU to consider something other than a Couch Potato investing philosophy.

#59 SoggyShorts on 07.08.18 at 2:12 am

#39 Alex on 07.07.18 at 8:24 pm
Follow up to AAs post: as a fellow advisor, while I love the blog, I don’t love calling your 1% plus 0.25% and all-in cost, ignoring the HST. All-in means all-in. That includes HST, in the same way that buying a car has an “on the road” price which includes all the little nonsense fees plus HST.

*****************************
How does this work for Albertans? Is it HST because the service is from Ontario, or just GST because I’m not?

#60 jerry on 07.08.18 at 7:37 am

A fee based advisor who charges 1% each year is also receiving trailer fees, DSC etc??

No. – Garth

#61 Sean Moore on 07.08.18 at 8:04 am

High fees have been a problem for decades, for sure. When you look at how the industry is structured in Canada it’s not surprising that fees are high,there are so many layers. A retail client, I suppose that’s what the firms call most clients, is often unsure who the advisor is working for and who is being compensated. Example, your own ‘title’, your a Partner with Turner Investments and also VP (the world of finance has more VP’s than any industry on the planet it seems to me) with Raymond James, a US based firm, I’m not exactly sure what Raymond James does but I do know, it seems sort of clear, that there are all of these layers of people with various titles…. People who don’t work fur free that belong to firms, generally more than one, who’s goal is to earn profits for their partners and shareholders. I truly independent adviso should be an individual not associated with any firm, just a knowledgeable guy or gal who charges a flat fee for service either per hour or annually, not a percentage of assets. An interesting question that all clients should ask is, who do you work for. It’s become so complicated due to the layers, I’m sure there would be a long pause when pondering that question.

Good questions. A management fee (of 1%, for example, less for larger portfolios) is all-in. There are no extras, no layers, no overhanging costs for clients. We share our fee with our corporate partner, who in turn provides custodial services, investor protection insurance, regulatory oversight and compliance as well as equity and bond trading desks, proprietary research, analysts etc. All this supports our work looking after clients in a way that gives them the same protections as a bank, but from a firm that has nothing to sell (unlike the banks). BTW, Raymond James is headquartered in Toronto and Vancouver and is a Canadian-registered investment services firm, which attracted me because it is fully independent. I may be a Senior VP of RJ, but receive no compensation for that title. They just think I’m cool. Finally, a fee-based advisor has a fiduciary duty – which means, legally, a client’s interests must always be placed above those of the advisor or his/her corporate partner. An indy, non-aligned guy giving you an advice session once a year for a fee has no such responsibility. – Garth

#62 Stone on 07.08.18 at 8:35 am

#42 Garth !! on 07.07.18 at 9:04 pm
Ya got the kids selling today ?

It’s Saturday , let Ryan play golf

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I think it might be the opposite. He might be restraining the kids back to one post every 2 weeks as they might want to actually post every day of the week. Where would that leave Garth? ;-)

#63 Ryan Lewenza on 07.08.18 at 9:12 am

Reynolds531 “So if discount brokers can’t skim trailers off unsuspecting clients anymore, does that incent them to not offer as many funds? And pressure them to increase their transaction commissions? And to clarify, Turner charges 1%. If they advise you to buy an ETF you may also pay that manager? Or are you using advisor class funds and the mer includes your compensation?”

I don’t see the discount brokers reducing the number of mutual funds offered but I do see them potentially increasing commissions on mutual fund purchased to offset the lost trailer fees. Regarding ETF fees, yes this is an additional yearly charge for them (I referenced our blended fee of .25%) but since they are low cost index funds there is not a portfolio manager actively managing them so the fees are very low. Advisor class funds are related to mutual funds not ETFs. – Ryan L

#64 Ryan Lewenza on 07.08.18 at 9:18 am

I’m stupid “You forgot to mention that your fee is tax deductible while mer fees aren’t.”

We mentioned this near the end of the blog post. The fees charged on the non registered cash account are tax deductible. Another benefit of a fee based account. Additionally, fees for RRSPs come out of those registered accounts but do not count as income – a big benefit. You got a tax break for investing in the RRSP, but fees emerge tax-free, so the feds actually pay for a chunk of those fees for you. Not the case for mutual funds. – Ryan L

#65 Ryan Lewenza on 07.08.18 at 9:24 am

Alero01 “Excellent post, Ryan – thank you for laying out your services so clearly. If you’re in a position to do so, can you please confirm whether you’re licensed to handle the affairs of people outside of your province?”

Thanks for the nice feedback and yes we are licensed to handle accounts outside of Ontario. We are a national practice with clients in every province. – Ryan L

#66 Fish on 07.08.18 at 10:14 am

With the new downpayment for homes,
…trade wars
…Loss of jobs,
…BUDGET, Tax
…Price of living up,

I see alot of pain ahead, not all sunshine

#67 crowdedelevatorfartz on 07.08.18 at 10:19 am

Another excellent blog subject in easy to understand layman’s terms.
The question and answers are equally as good ( my comments being the excluded exception).
Invaluable information Ryan.
Thanks and keep up the good work.

#68 Capt. Serious on 07.08.18 at 10:33 am

Also, mutual funds suffer from:
1. Not being fully invested. (Small cash balances are common.)
2. Style drift.
3. (Sometimes) high turnover, which generates unnecessary capital gains.

It’s a real pain to actually implement your asset allocation plan when faced with these shortcomings.

Next step for ETFs is to get the trading fees closer to 0. Vanguard in the USA has already done stated they will do this on their trading platform starting in August, for all but leveraged ETFs.
https://www.cnbc.com/2018/07/02/vanguard-slashing-costs-on-nearly-all-etfs-even-rival-schwab.html

#69 Freebird on 07.08.18 at 10:52 am

You’re clients are saving 0.03% from your Jan 2017 post.

http://www.greaterfool.ca/2017/01/07/whats-1-worth-to-you/#comment-493482

Post and (most) comments from the above are worth re-reading or scanning. Both have great info. Yes, I know Im a bit of a nerd and may need a life.

#70 NoName on 07.08.18 at 11:04 am

Interesting read

Why Do Children Abuse Robots?

https://www.youtube.com/watch?time_continue=124&v=CuJT9EtdETY

and paper

http://rins.st.ryukoku.ac.jp/~nomura/docs/CRB_HRI2015LBR2.pdf

#71 Debating... on 07.08.18 at 11:09 am

I have been debating for some time now switching Fee advisors – I pay 1.35%+ HST, one of the investment houses of a big bank group, fees are charged quarterly for a little over 1Mill (half is non-Reg, lots of stocks in that group). Not sure about the ETF extra, and I have been clear since the start in 2014 to avoid Mut Funds, nonetheless there are a few there…so not sure about DSCs either.
Lowering the fee is obviously one reason I am considering a switch, but also I find that as the years rollon, there is less frequent phone calls and meetings and the tax-planning, estate planning etc. ideas and advice in general are just not as prominent as I need. When one isn’t having too many chats, the opportunity to discuss strategies doesn’t come up.
If I may ask, how would you go about assessing someone’s current portfolio and actually switching everything over to Turner Inv. How complex would it be to do for the whole Portfolio? (Non-Reg, RSPs, TFSA, Lira). Many thanks for your time and always useful info and advice.

Portfolios over a million should have a lower fee than the standard 1%. As to moving accounts, this is something a new advisor’s staff will do for you, with little effort on your part (fill out some forms) and without cost (we always pay whatever fees another advisor’s firm charges to leave). Good to hear you are questioning if you’re receiving value for the money you are paying. Sounds not to be the case. – Garth

#72 ian ryan on 07.08.18 at 11:23 am

great post, just wondering how much funds do you need before you would take them on as a client. Thanks

There is no set limit. If it makes sense for the client, we’ll act. Having a dog helps. – Garth

#73 Damifino on 07.08.18 at 11:31 am

A few years back a commentor on this blog argued the case that there’s little difference between having fees taken from a client’s gross which are not tax deductable (mutual funds) or taken from the net which are tax deductable (fee-based advisor). This sets aside the fact that mutual fund fees are generally higher.

I got his point, but was never convinced it was that cut and dried. Personally, I’d rather have visibility into the fee process rather than be told “it’s been taken care of”.

#74 SoggyShorts on 07.08.18 at 11:59 am

So can we ask how a Turner 60/40 has done YTD?

#75 Djumbe on 07.08.18 at 12:18 pm

Right on! Telling it like it is! Great post you guys.

#76 Hiding On the Backstreets on 07.08.18 at 12:55 pm

I became a Canadian Couch Potato/Millionaire Teacher advocate long ago. I only invest in low MER ETFs, ditched my mutual funds that were a holdover from before I matured and started paying close attention to my finances. I had DSC fees from a well known “Syndicate” that changed their initials to “IG”.

I still can’t believe people I talk to that don’t want to invest a (very) small effort, to take control of their financial well-being and kick their ripoff mutual funds to the curb, forever.

If anything Ryan, you were too cordial in your assessment of mutual funds/banks. They’re parasites feeding off laziness and ignorance. It’s mind blowing how much is skimmed from investors over a lifetime.

#77 J on 07.08.18 at 2:14 pm

Transparency is long overdue and can go beyond the straight compensation made, but also the perks granted by the financial institutions, ie, selling a certain level of product to gain free trips etc. This goes beyond investments and incorporates all products sold by advisors such as insurance products. Certainly people need to be paid and services supported for work done. There are limits to what is reasonable and if people saw the level of attempts to hide or gouge customers, they would applaud these moves.

Incentives given to advisors by fund companies were correctly banned long ago. – Garth

#78 Tony on 07.08.18 at 2:17 pm

I wonder how that would affect a stock like AGF Management Limited?

#79 APF on 07.08.18 at 2:19 pm

Garth, Do you Do business in Québec? Since everything is more complicated here?

And if so, Do you offer french services? My unilingual french aunt would definitively need this kind of advices.

Mais oui. – Garth

#80 Kick out the jams on 07.08.18 at 2:29 pm

If one wants to switch from their advisor/provider, I assume all mutual funds will need to be sold and thus any applicable gains taxes will need to be paid? This is one thing that has held me back from making a change…

No tax within RRSPs or TFSAs, of course. And remember that capital gains taxes are cheap – 50% of the profit is tax-free and the other half is multiplied by your marginal rate. Nobody in Canada pays more than about 25%, so you keep 75% of the profit. Hardly punitive. – Garth

#81 Radler on 07.08.18 at 2:54 pm

I’m probably going to get roasted on here….

I’ve kept all my retirement funds in my work Sunlife pension account split into RRSP, TFSA, and non-reg. The combined total has surpassed 500k. The group plan offers discounted MERs. Index Funds are ~ 0.35% and equity funds all under 1%, most ~0.6%. From what I know, there are no other fees, unless you choose Sunlife managed funds geared towards targeted risk profile or retirement year.

Over the last 5 years the average return is 10.8%.

Am I headed towards trouble with the way this is set up?

#82 Grouch Douglas on 07.08.18 at 2:56 pm

Hi Garth or Ryan,
If a potential client wishes to try out your services and only wants to have you manage a portion of their overall portfolio to see how it performs, are you okay with this or do you feel in order to help them plan properly they need to entrust Turner investments with the entire portfolio?
Would you be willing to let me know what the fees decrease to if the portfolio is larger than a million? i.e up to 1 million 1%, then 1-2 million the fee is?

Invest what you want, but understand it would be impossible for any advisor to give you holistic service (portfolio management, tax avoidance, retirement strategy, cash flow etc.) without the complete picture. Portfolios above a million normally have fees about 15% less. – Garth

#83 mike from mtl on 07.08.18 at 3:33 pm

No issue with mutuals in theory, ETFs after all are basically more modern version of them. However it’s the ones you normally encounter that suck. DSC, high MER, salespeople hocking funds they profit from, opaque holdings, realised cap gains, too much choice… etc.

There is such thing as passive index mutuals and they too usually have the same low fees as ETFs. Plus an advantage they do have is fractional units (perfect for small amounts) and /generally/ zero transaction costs. Though I have yet to see anyone other than the clued-in self-directed use these. ‘Active’ 1.5-2.0 MER poor performance funds from a rigid list hocked by a sales guy are pretty much the ones encountered.

Personally before I took charge of my portfolio, I did a annualised check of those mutuals which was 100% equity I must add – a terrible 1%.

Given that vast majority of institutional investors are forced to buy a handful of predetermined funds, choose from terrible to bad. Mutuals will have customers for decades yet until this changes – yea right.

#84 Stahom on 07.08.18 at 8:14 pm

After 3 decades of everything from holding mutual funds, an excellent initiation to monthly saving, individual stocks, the gambling years, and the last phase specialized ETFs, the tuition of poor performance and bruised ego has forged a hard core simple balanced ETF strategy (enhanced with the complimentary advise dispensed here). S&P 500 tracker (US$ & Can$), MCSI EAFE international, REIT ETF, emerging markets, corp and other bond in a 60/40 split; quarterly rebalanced.

It’s the 10 year 1% on the $3 mil ($300k) advisor vs 10 year <.25% m/l ($75k) on the combined ETF costs (straight line) that gives me pause. Lots of room to stub one’s toe with $22k/year, provided the ego/greed is checked at the door and the nerves are steeled for the fluctuations.