Can Questrade really save you 30%?

The new Questrade campaign asks whether mutual funds are costing investors 30% of their retirement. It’s a fair question, but it doesn’t tell the full story

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Questrade’s latest marketing campaign is turning a lot of heads, not for their design, but for the blunt questions they’re asking. “Are mutual funds costing you 30% of your retirement?” screams one of the ads. “Why do Canadians pay the highest mutual fund fees in the world?” shouts another.

My first impression: It’s a good campaign. I’m all for asking tough questions and indeed I can’t think of anyone who wouldn’t want 30% more money when they reach retirement. This campaign is obviously timed to make fees ‘top of mind’ as consumers receive their new expanded disclosures that are part of the so-called CRM II (the second phase of the Client Relationship Model put forward by Canadian securities regulators). Those will reach investors for the first time in mid-January. I applaud the attempt to get people to start being more genuinely inquisitive about how and how much they are paying.

The Good

Questrade’s ad is just one of the early shots fired in what is sure to be a gunfight between advisors and discount brokerages either justifying or criticizing the fees charged to investors. The Questrade ad has all of the traits of the classic Clint Eastwood movie: The Good, The Bad and the Ugly. I’ve already mentioned that I think the ad campaign is effective. There’s only so much anyone can do in 30 seconds to prod investors to think about such things like fees and what they’re getting for them.

The Bad

Now for the bad. The bad part is the implicit culpability of the advisor. That is only somewhat accurate. The ads give investors the idea that the sole problem is the advisor’s cost. That’s more than a little disingenuous. It is far more likely in this case that the greater cost (and associated performance drag) rests with the product that the fictional client is invested in.

While less catchy, the question Questrade should ask is this: “How much would you save if I transferred my account in kind (i.e. as is; without changing the underlying investments) to Questrade?” The likely answer is zero (although you’d likely have to pay a transfer fee to do so). The savings could only be realized if the clients went on to switch to cheaper products.

The Ugly

Now for the ugly part. Questrade offers zero advice. Making the switch from an advisor to the discount brokerage, in the absence of any other changes as implied by the ads would not only leave clients paying the exact same amount, they would also be paying it while getting no advice whatsoever. Questrade, like all discount brokerages, offers simple order execution and nothing more. In short, the ad’s basic proposition is same cost; less guidance and service.

To be both clear and fair, my expectation is that most people who ultimately switch to Questrade could save money in two ways. They would likely use cheaper products for portfolio construction and they will forego both the costs and benefits of advice. That’s not at all clear in the ad campaign, though. As is so often the case, stakeholders in the industry are taking shots at advice and advisors when the much larger problem is high product cost.

Reasonably priced advice is usually worth it. Expensively priced products usually aren’t. Unfortunately, that distinction is far from clear in what is an otherwise useful ad campaign.

John J De Goey, CFP, CIM, FELLOW OF FPSC is a portfolio manager at iA Securities (iAS) and the author of The Professional Financial Advisor IV. The views expressed are not necessarily shared by iAS. 

Twitter-New @JohnDeGoey_iAS


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8 comments on “Can Questrade really save you 30%?

  1. I left Questrade because their customer service was the sh**s.

    Reply

  2. I’m a Questrade client, so while I’m biased to some extent, I do have some knowledge of Questrade’s products; knowledge which seems to be lacking to some extent in the article above.

    I believe one of the big issues concerning advisors, including bank representatives, was the provision of advice to purchase specific products that have inflated MERs, including “kickbacks” to the advisors, that do not provide return commensurate to the product’s cost. If that is the case, then why would I compare carrying the exact same mutual fund between institutions when the whole point of the issue is that the product with the inflated MER leading to reduced return on investment is the “fault” of the advisor? That point aside, the author of this article fails to point out that Questrade rebates to their clients any trailer fee that is embedded in a mutual fund MER, so, in many cases, Questrade would actually still be cheaper (until trailer fees are banned).

    What Questrade is actually advertising is a managed portfolio solution. I don’t know much about it, but it is more than self-directed as the author suggests is the only option available to its clients.

    I am quite happy with my current approach, which is similar to what the author states as a good way to save money using Questrade. I purchase ETFs in both CAD and USD (commission free, but small ECN charges) and have an effective MER of 0.14%.

    Reply

  3. If I recall correctly, the ads are specifically for Questrade IQ, their managed investing/robo-advisor platform. While this is still not robust investment advice, I do think it better addresses your concerns about product choice and product cost better than pushing them into complete DIY.

    Reply

  4. I used to use Questrade, they’re not great for long-term investors or those who want their portfolio on “auto-pilot” or managed by a professional fund manager. Their IQ portfolios are essentially ETFs that trade on the open market, and while they’re made of relatively stable underlying financial instruments, they do experience fluctuations from time-to-time. From my experience, these ETFs are not rebalanced as frequently as actively managed mutual funds. Thus, for long term RRSPs I recommend sticking to the traditional Mutual Funds managed by a full-time portfolio manager, the fees are higher, but you get constant monitoring.

    With that being said, I’m an active trader as well, and up until recently, I found Questrade to be decent. Their trading platform is OK for moderate investors, with a decent selection of technical indicators. However, it’s buggy, and new versions are released way too far apart with little to no bug fixes in between. On top of that, their Options commissions are way too high when compared to other brokerages like Interactive Brokers. The deal breaker for me with Questrade is their lack of integration with advanced trading platforms like NinjaTrader, MetaStock, or TC2000. This means that if you use a market scanner with Questrade, you will essentially be paying for market data twice.

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    • Wow, I do not believe that a rebalancing of mutual funds is good for the client. It sets up the client to end up paying capital gains at the end of the year, and usually, with the fund not showing that amount of gain. The best one for me, was a Trimark fund that charged me $5000 in capital gains in one year when the mutual fund lost money. So much for the expert rebalancing.
      I switched from all mutual funds to all ETFs. Happy to say that the ETFs have beat the mutual funds every year since.
      I also question the idea of a mutual fund salesman knowing more about the market and how to trade, than the individual with basic knowledge of the market. If your fund salesman is making changes every year, he is probably not the person you want.
      Also, there are articles on the internet that show that rebalancing to a certain standard does not make a great amount of difference over time.
      In the end, Ive never felt so `taken` as I have when i was purchasing mutual funds.

      Reply

  5. Hi
    If the advisor is doing his job, the client should not have high cost products with trailing fees hidden.

    Reply

  6. Interesting article. I’m currently with Questrade IQ portfolio with relative good results. Previously, over several years, I had poor results with TD Waterhouse Mutual Funds advisor. I’m still want to find out how I can find a trusted financial advisor who can provide me the right advise for my investments.

    Reply

  7. I thought what Questrade is offering is like a robo-advisor with their portfolio iq assessment?

    Reply

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