December 3rd, 2010 
Category: 
Just a couple of days ago I visited my “Personal Banquier” to discuss some investment options. Remember back in May I fired my financial planner for lack of professionalism and got him replaced by this new lady who carries a weird title. All I asked from her was to get back to me when I contact her and to execute my instructions related to my account, nothing more and nothing less.
Since I had contribution room in my RRSP and have some profits to declare for my DIY accounts, I thought I would neutralize the tax by contributing an equivalent amount to a registered retirement savings account. The only RRSP account I have is with my employer, so I thought why not open an account with my bank since it might come in handy again in the future.
In our discussion I asked her which product she would recommend based on my criteria. I am a very boring guy when it comes to RRSP investments, just an index hugger with a balanced profile. This might surprise you since you got used to the fast paced action of my DIY portfolio in the energy sector. But with retirement funds, I just want to set it and forget it, I check my RRSP only when I need the numbers for my monthly net worth calculations.
Try to find the error in the suggestion she came back with, I’ll circle it for you in red:
Yes, it’s the MER not the management fee that counts. I did not ask her about the difference but I did ask which one applied. Now tell me why would I go with my bank’s product if I can buy 3 ETFs and get my wish for much less?
We parted with my advisor smiling and “looking forward to opening my RRSP account”. On my way back to work, I felt sorry for all the hard working men and women out there who are paying those fees because they failed to spot the “error”.
My DIY stock portfolio is overweight in Canadian oil producers for a reason. I believe Oil consumption is on the path of growth for the next decade and I intend to take every advantage possible of it:
Great post Mitch,
But here’s my question. If you asked her what the management expense ratio was on the fund (funds) do you think she’d even know? I’d be surprised if she did.
Mich: Why not open a RRSP DIY? We moved everything into discount brokerage RRSP accounts–except my wife’s company pension, which is with Sun Life, formerly at Industrial Alliance–the least well performing part of our portfolio. One advantage is that it helps you move faster to the $50,000 asset threshold that many brokers require for reduced commissions. Once I had become familiar with trading and had sufficient confidence, we moved everything–our RRSPs were with another broker in a full service account and the trading commissions were killing us. Now I pay $9.99 per trade, as well as $1.25 per option contract: TFSAs, RRSPs, Margin accounts, everything is the same.
Now since my wife’s pension at Sun Life is in a balanced fund, I sometimes wonder if her assets should be moved over to my management. But I think her pension does have a tendency to offset my 110% stock portfolio which is hedged against inflation, by having boring deflation protected assets (e.g., Ontario and Canada gov. bonds).
One major disadvantage for DIY RRSPs is that brokers tend to charge about $100 per annum, unless you have a minimum of $25,000. That amount can be reached quickly with some luck in investing. But it is not a given. So perhaps I’ve answered my own initial question.
Mich, I am completely shocked that you are an index investor for retirement because you spend so much time on your DIY energy plays. That’s pretty cool that you allow yourself to “have fun” and while maintaining a boring/vanilla for retirement!
@Andrew, I don’t think it’s a question she gets asked often. when I asked her if she had anything else with a MER < 1% she replied that none of the bank’s products have anything like this.
@PWD, I think I will be going with a DIY RRSP account with my bank. Buy a couple of ETFs for my 60/40 stocks/bonds allocations and let it go. The problem is I don’t have 25k to fund the RRSP account and I hate getting fleeced with fees here and there.
National Bank will be following the competition in January with the 50k limit. At this point I will still be able to contribute about $15k in RRSP for 2010. With my HELOC portfolio very close to 30k, I’ll fund the rest from the HELOC to hit a total of 50k for both accounts and start another aggressive investment campaign!
@Shawn, never put all your eggs in the same basket:)
I like to have some balance in my investments in order to limit risk since no one knows what’s coming down the line.
Mich – what I don’t understand is why a DIYer is going into a bank and asking for advice (and expecting not to pay for it).
Wear the DIY badge proudly and never speak to another financial advisor again!
As for annual costs – gimme a break – there are plenty of options for diy accounts that don’t charge annual fees.
Questrade for one is a great option. Another place is TD – their e-funds would make up a great low-cost portfolio.
@MoneySmarts, At the bank, I am assigned a “person” who answers to my financial needs. This woman is my personal banquier per her title
When I am looking to pay a lump sum on the mortgage I email her etc.
Sometimes I call up a company and throw a question such as “Why should I invest in your company?”. I sort of did the same thing with her. I already have 2 accounts with Questrade but i wish to proceed with opening one with my bank because with Questrade it takes 3 days for the money to be wired. With my bank, if the TSX drops 300 points in the morning I would be buying my targets in the afternoon at most. You know me by now, big fan of triple digit losses:)
I like this strategic flexibility and some advantages the bank’s platform has over Questrade. This is why I will open a DIY RRSP account with my bank and avoid all their fees since with my HELOC account I will reach their 50k threshold in January and avoid any fees at all while I enjoy 9.99$ per trade.
Trust me, I will only be buying ETFs in my DIY RRSP and nothing else that would profit the bank more than is due in low transaction fees.
While making you feel comfortable and at home and patting you on the back with one hand, the other hand will be reaching for your wallet. It’s just the nature of the game.
What can we do? Write blog posts about it for one, like this one
, and tell all of our family and friends, for another. An educated customer is an armed customer, and we can all make a change if each of us changes things a little bit at a time.
Good post and I enjoyed reading the comments.
I got a chuckle outta this line: “I am a very boring guy when it comes to RRSP investments, just an index hugger with a balanced profile.”
Heck ya this surprised me since I have a hard time keeping up with your DIY energy plays!
Kidding aside, I do see where you’re coming from; there is piece of mind (for me) that comes with part of our savings in a “set it and forget it” strategy. That’s why I/we mostly invest in indexing products in our RRSPs.
Have a great weekend,
Mark from My Own Advisor
Incorporating an active approach with a passive one seems like the best of both worlds. But I’m with those who wonder how you ended up paying those MERs with your knowledge of investing?
Thanks for a great heads-up for average investors: watch those fees!
@IIW, Andrew Hallam is doing a good job debunking the industry!
@FC,Since my RRSP money will not be due until 10-30 years later, there’s no point in stressing about them. Peace of mind is what I am buying with indexed products. I have enough on my hands with my 3 actively managed accounts
@BJ,My RRSP account is with my employer where the fees are under 1%. So I did not pay these fees at all, I am simply showing an example of what the bank had to offer for an investment product that could be replicated at a much lower cost. I will be sticking to a DIY RRSP account where a couple of ETFs will do the job.
[...] This post was mentioned on Twitter by 2 Cents, Mich. Mich said: How Banks are Fleecing You with a Smile http://t.co/eHjWZan via @BeatingTheIndex [...]
I know it’s worth a laugh but it is upsetting. My daughter works as a graphic artist (I know – you’d never know by my blog) and they started out with a 401k with Morgan Stanley with an arrogant clown as an advisor making recommendations and lopping off egregious fees. Thankfully they went with a self directed IRA and now she is in low fee etfs, broadly diversified etc. It makes a huge difference for her since she is 27 years old and (because she is recently married) getting ready to ramp up her contribution – if she follows my advice, that is.
I understand the economies of scale of the situation and that it is costly for 401k providers to do all the functions necessary in a small company but still.
I hear the financial advisers that works in the banks are all rejects and they seems to be more of a salesman than anything. Hope I didn’t offend anyone. When I first started out I made a mistake of talking to my bank’s financial adviser and he sold me a bunch of crappy front load mutual funds. After I learn more about investing I said adios and have been DIY ever since.
@DIY, Your daughter is very lucky to have you as a dad with a rich experience in the industry. I would not worry about your daughter’s financial future providing she follows your guidance. Tell me, do girls still look up to their dad even after they’re married? I am enjoying my hero status with my twin 4 year olds right now and I hope it lasts a long time!
@retireby40, becoming a DIY investor is one of the best moves you took. The problem with the industry is putting their personnel under pressure to sell the institution’s products specifically because of the high fees! High fees = high profits!
Mich,
I agree that banks probably do as much or more damage as full service brokers when it comes to picking unsuspecting customer’s pockets, perhaps because it’s so unexpected. Some years ago, our family caught Bank of America’s “trust” department churning my mother-in-law’s account.
@101, I am glad one can avoid the fleecing industry with all the options that are out there. Glad you caught them years ago, never too late!
I also got fleeced by an advisor on my first mutual fund and have been a DIY investor ever since. I feel bad for people who don’t catch on to this obvious scam. They have gotten better at diguising the MERs, than back in the old days of front-end loads.
[...] The Index explains How Banks Are Fleecing You With A Smile. This is a topic that I totally agree with. I have written many posts on how banks are not your [...]
[...] Beat The Index shows How Banks are Fleecing You with a Smile. [...]
[...] How Banks are Fleecing You with a Smile (Beating The Index) [...]
Banks are notorious rip-offs when it comes to their investment services. Avoid them like the plague.
@Bret, scam is the right word that identifies this sneakiness. glad you’re a proud DIYer!
@Biz, someone has to pay for all the bonuses
lol- that is an excellent story, Mich.
I was one of those poor fools back then- no more, no more!
What a terrible error- 2.3% yeesh, I guess she has to make money somehow. I just wish they were more upfront about it all, you know. It’s not informed consent otherwise…
But I guess informed consent has no role financial advisor-investor relations. lol…
@YT, well you know, someone’s gotta fund the bonuses and dividend hikes. Hence, the outrageous fees
[...] How Banks Are Fleecing You with a Smile is an article that reminds us to watch out for investment fees. If you invest with a financial [...]
[...] that you now are no longer dependant even on your side income! To truly qualify as passive income, it should be cost-efficient and consume no more than a couple hours of your time per [...]