Almost a decade after investing in expensive mutual funds, these longtime MoneySense readers want to shift to a Couch Potato approach and move their six-figure portfolio to a discount brokerage. But they feel hampered by onerous deferred sales charges (DSCs) as well as capital gains taxes in their non-registered accounts. Their investment firm allows them to sell up to 12% of each fund annually without penalty, but they wonder whether it makes sense to simply liquidate the whole portfolio now in order to benefit from the much lower management fees they would pay for ETFs in their new portfolio.
Rob and Christine work for a youth-and-social-service agency and have no debt of any kind. After selling two rental properties and winding down their printing company, they realized their biggest yearly expense was fees on their investments.
“It’s hard to receive financial advice from an ‘adviser’ we feel is more of a box checker,” says a frustrated Rob. “When they lock us into DSCs, they receive up to 4.2% in commissions and we receive a mere 0.1% reduction in fees. Win-win? I think not.”
MoneySense showed their portfolio to Justin Bender, portfolio manager for PWL Capital in Toronto. He calculates they have been paying 2.58% in fees (more than $15,000 annually) and are getting little in the way of service.
Exiting the original crop of mutual funds would have meant redemption charges of $19,315. However, they withdrew the maximum 12% in 2013 and another 3% early in 2014. PWL’s analysis shows they will break even by May 2015: that’s when the savings from the lower ETF management fees will exceed the cost of the redemptions.
Total MER of the revamped all-Vanguard ETF portfolio (tickers shown in Fix) is a stingy 0.20%: under 10% of what the couple’s previous funds charged to cover similar asset classes. Using proper asset location, Bender put the 40% position in fixed income (and cash) in the RRSPs and TFSAs; the 55% in equity ETFs goes into taxable accounts, along with a 5% weighting in a real estate ETF.
Do you want a portfolio makeover from MoneySense? If so, send an email describing your situation to [email protected]