BMO targets retirees with all-in-one wealth management

BMO targets retirees with all-in-one wealth management service

Is it too good to be true?

(Betsie Van Der Meer/Getty Images)

(Betsie Van Der Meer/Getty Images)

BMO Private Banking has introduced a new all-in-one wealth management service specifically for high net-worth seniors across Canada, catering to what they call an “unmet need.”

BMO Continuity bundles several offerings including investment management, private banking, tax preparation, estate planning and a host of “lifestyle services,” all for a fee ranging from 0.8%-2.1% of assets under management, depending on the size and complexity of one’s estate.

Essentially, Continuity promises a range of services for the price of an average Canadian equity mutual fund.

So, what’s the catch? A number of additional fees can creep up on truly hands-off clients.

“Every client’s situation is different and they all have different needs whether they are financial or non-financial in nature—some may come at an additional cost,” said Gord Graves, vice president of trust and estate services at BMO Private Banking.

BMO for instance can arrange for someone to shovel your driveway in the winter, or have your laundry done if you weren’t up to it—but this doesn’t mean the firm would cover the cost.

Included in the bundled fee is professional portfolio management, an investment counsellor, annual portfolio consultations and any additional consultations required throughout the year as well as customized financial reporting.

The fee structure is tiered, starting at 2.1% on the first $500,000 invested with fees declining as assets increase. In other words, a Continuity account costs $10,500 per year, at least. If your Continuity account was worth $1 million, the rate would be 1.85%, meaning you would pay $18,500.

Portfolio size           Investment Management Account (Diversified) Portfolio Size Investment Management
First $500,000 2.10%
Next $1,500,000 1.60%
Next $1,000,000 1.05%
Over $3,000,000  0.80%

And that’s in addition to any brokerage commissions, embedded MERs or sub-advisor fees you may encounter and of course, GST/HST.

Financial planner Noel D’Souza provided a couple of scenarios that could apply to a client signing up for Continuity. A typical 65-year-old retiree with $1 million would have an asset allocation of 40% in Canadian and global equity, 40% in Canadian and global fixed income and 20% in cash. Based on average MERs, a traditional advisor could suggest a portfolio that ends up charging a total of 1.43%, or $14,300 a year on top of the Continuity fee of $18,500.

A portfolio comprised of lower cost mutual funds without added commissions or trailer fees could charge 0.79%, or an additional $7,900 a year for our fictional millionaire.

Susan Stefura of Bespoke Financial Consulting says that discretionary firms like BMO Private Banking tend to invest more in pooled funds, which typically have lower MER fees than the standard mutual fund, meaning this stipulation may not cost you too much. But evidently, that all relies on your asset allocation; depending on what you want from the program, there’s a possibility it could add up to be more than you bargained for.

Keep in mind that while the service may be advertised as “the first of its kind,” that’s not exactly true. Several banks have private client sectors that offer many of the same services as BMO Continuity. The National Bank Private Wealth 1859, for instance, along with portfolio management supplies concierge services and medical care assistance, much like BMO’s lifestyle offerings. The difference is that BMO is speaking to the 5.3 million Canadians aged 65 and older specifically.

The target demographic for the program is individuals worth $1 million or more who are approaching or are already in retirement. You need a minimum of $500,000 of investable assets to open a Continuity account.

Stefura says that the fees advertised in the Continuity schedule are competitive and rival what other firms would charge for these individual services. The trust arms of most banks would charge around $10,000 for estate management alone, so to get that service plus these others in a bundle is of great value, she says.

However, consider a portfolio of $5 million. The BMO service would cost a client $68,930 a year. Portfolio manager Justin Bender says that for a portfolio that size, a more reasonable management and planning fee would be 0.5% with H.S.T., or $28,250 per year. “That leaves $40,680 per year that the client keeps in their pocket, and would be able to spend on additional services that are customized to their unique situation,” he says.

Personal finance expert Rubina Ahmed-Haq says that Continuity would only be of value if you need all of the services listed. For many Canadians, it may be more cost effective to pick individual services as they need them, rather than paying for an all-inclusive package.

According to Ahmed-Haq, Continuity may be most appealing to older Canadian women. Women tend to live longer than men and could suddenly find themselves with large amounts of assets to manage and no idea how to do it.

Overall, she says to remain wary.

“If you have $5 million in assets to invest, you have a lot of choices. Any bank provides this kind of service. BMO is just packaging it nicely so people feel more attracted to it.”