Q: My plan is to retire in less than a year. All my assets are in RRSPs: about $200,000 in a fully managed account with a major brokerage and $100,000 at a different brokerage where I pay transaction fees only.
With the managed portfolio, I have stocks, bond funds, balanced funds, and ETFs. I find the returns quite mediocre (about 7% over the last seven years), and I am paying 1.94%, which is over $300 a month.
Should I not just open a self-managed account and put all my assets in a balanced mutual fund or ETF with low fees? I consider myself somewhat knowledgeable about investing, and I do plan on educating myself even more once retired.
–Tina in Calgary
A: Thanks for the question, Tina. Let’s begin by considering costs. In my opinion, no investor should be paying 1.94%, and certainly, that is too high with a $200,000 portfolio. If you decide you need an advisor to help manage your portfolio, you should be able to find one whose fees are lower—no more than 1.25%, including the cost of any underlying funds.
We should also consider whether your returns have been “mediocre.” A fair comparison would require more details about your investments, but for the seven years ending in August 2018, an index benchmark made up of 40% bonds and 60% equities (split equally between Canadian, U.S. and international) returned about 8.9% annualized. If your portfolio has a similar asset mix and it returned 7%, then your advisor added no value in terms of investment returns: you trailed that benchmark by an amount almost identical to your fee. If your portfolio was more aggressive than that, it may have lagged by even more. For a conservative portfolio, however, that 7% return would have been very good.
Finally, ask yourself what value are you receiving from your advisor. Does he or she provide useful planning services, such as retirement projections, tax planning, estate planning and so on? If you decide to go the DIY route, you will be giving up all of these services as well as the investment management.
Now that you have this framework, you can think about whether it makes sense to manage your own portfolio, to stay with your current advisor, or to find a new one.
You might be a good candidate for DIY investing given that all of your assets are in RRSPs and your plan is to simply use a single balanced mutual fund or ETF. It’s fairly simple to manage one fund, especially in a tax-sheltered account, since you don’t have to worry about T-slips, calculating gains and losses, and other bookkeeping chores that are required in non-registered accounts. Once you convert your RRSP to a RRIF (which needs to be done by the end of the year you turn 71), you’ll need to arrange the minimum withdrawals, but this can be automated.
That said, retirement is a time when planning services are most valuable. Have you run the numbers to see how much you need to withdraw from your RRSP/RRIF to maintain your current lifestyle, and do you know whether this will be sustainable? Even if you manage your portfolio yourself, it might be worth using a fee-only financial planner to help with these projections, which are not always straightforward.
Good luck, Tina, and enjoy your retirement.
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