# How to benchmark an investment adviser and other matters



## jman123 (Jan 28, 2015)

Greetings,

I am thinking of moving some of my money (80% of my RRSP holdings) from a big bank adviser to an independent one who will charge me annually 1% of my portfolio. Most of my funds now are in mutual funds with a current MER of 2-2.5%. He states that he will find better funds with lower MERs, etc... 

I have also about 10% of my RRSP holdings in RBC Direct Investing and I have 3 funds there (ZAG,XAW and VCN) which follow the Couch Potato portfolio. I have approximately 68% in equity and 32% in fixed income in this account. The other 10% of my nest egg is in TFSA's , some in cash and some in Tangerine Balanced fund which I control.

Personally, I would like to be a DIY for all my monies but the boss (i.e my wife) has nixed that. I have even suggested with going with a Money Coach but this person cannot actual make individual fund or stock suggestions and the boss is not interested. 

Anyways, this new adviser wants me to tell him what rate of return I would like and would build a portfolio to try to attain that. 

I am 64 years old, working part-time , maybe retire next year, no other income besides QPP and my wife being 62 years old works but doesn't make that much.
I have no need for any income from my investments right now , maybe next year if I decide to retire completely otherwise I can live with my part-time job income along with my wife's.

I am thinking of telling him I would like 7% (net 6% after his 1% cut) and to invest 65% equity and 35% fixed income with a low to moderate risk. Is that realistic? 

I would like to compare how I do compared with what he does. Would me re-balancing my RBC Direct Investing to 65% equity 35% fixed income be a fair way to measure his performance? 

I will like your opinions on your experiences with a fee-based adviser and how to benchmark or judge their performance.

My total nest eqq is approximately $1 million.

Thank you.


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## like_to_retire (Oct 9, 2016)

jman123 said:


> I am thinking of telling him I would like 7% (net 6% after his 1% cut) and to invest 65% equity and 35% fixed income with a low to moderate risk. Is that realistic?


I don't think so, not without a lot of risk.

65% equity (6.5% realistic return, made up of 3% capital gain and 3.5% dividend) combined with 35% fixed income (2.5% realistic return) is a total return of 5.1%.

Makes me weak to think you're giving someone 1% to do something you're obviously capable of doing yourself already. Maybe take a portion of those funds and test your mettle for a few years.

ltr


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## jman123 (Jan 28, 2015)

Thanks. I am trying doing it with the Couch Potato Portfolio (about $80K) and it has worked well for me so far (started early this year).

I guess there is so much in the media about getting your own financial adviser (especially if you have a fair bit in your nest egg) plus I've made a few mistakes in the past (but I'm older and wiser now ) . This guy is supposed to handle everything (tax aspects, insurance, wills, etc...). 

He claims that with his team of researchers that he can beat ETF's


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## like_to_retire (Oct 9, 2016)

jman123 said:


> Thanks. I am trying doing it with the Couch Potato Portfolio (about $80K) and it has worked well for me so far (started early this year).
> 
> I guess there is so much in the media about getting your own financial adviser (especially if you have a fair bit in your nest egg) plus I've made a few mistakes in the past (but I'm older and wiser now ) . This guy is supposed to handle everything (tax aspects, insurance, wills, etc...).
> 
> He claims that with his team of researchers that he can beat ETF's


Yeah, the Couch Potato is a great way to go, and quite easy to manage too. The fees on ETF's are reasonable now and you don't have to overcome that 1% deficit that the adviser wants to take from you. They of course have a self interest in telling you how difficult it is to invest yourself, but you're doing it already, so that nuts been cracked.

ltr


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## GreatLaker (Mar 23, 2014)

If you want financial advice and planning find a fee only planner that you pay directly for services rendered. That can give a basis for how much you need to save and when you can retire considering rates of return and tax optimization which is hard for a lot of people.

I would never pay someone 1% of my assets every year forever to make investment decisions for me. As l_t_r said why pay someone to do what you can easily do yourself. 

The Arithmetic of Active Management


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## AltaRed (Jun 8, 2009)

If the OP has no choice but to retain an advisor...because the other 50% of the relationship demands it, then simply request the current advisor to meet the appropriate benchmark performance after costs, i.e. the 1% and get it in writing. That would be your ETF equivalent asset allocation and consist of the appropriate percentages of XIC, XAW and XBB on a Total Return basis. 

Alternatively, you could strive for MAW104 performance by going directly to Mawer itself (they qualifiy as a financial advisor) and get MAW performance from them


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## kcowan (Jul 1, 2010)

1% will get you an initial consultation and asset allocation with a choice of funds. If you insist on ETFs, good luck with that. At most, you will get annual rebalancing of mutual funds (which they share the fees).


> This guy is supposed to handle everything (tax aspects, insurance, wills, etc...).


I would get some of his satisfied clients as references. Ask for a list of 20 and you select which 5 to call. That way he can't call them ahead to prime the pump. BTW everyone says they are happy. You want to know their actual annual returns for 1 and 5 years based on their splits.

Others have suggested good alternatives but you must be confident to DIY.


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## OnlyMyOpinion (Sep 1, 2013)

But we know there is no adviser in existence who will provide or be held to a guaranteed rate of return. Can't be done and shouldn't be expected. 

I don't want to get the OP in trouble, but I suggest discussing with the boss how much you will be forking over to this adviser. For example a $500k account is $417/mo each and every month. What % of the bosses monthly income does it represent? Is that really what they want to be working for (to pay the adviser)? And remember that on top of this you will have etf fees at the very least. It sounds however like the adviser is talking about more mutual funds? Sounds investors group-ish to me.

I say this because firstly it is obvious that the OP has the ability and success to invest themselves, and secondly because the OP is switching from bank to adviser fee+fund fee with no reduction in costs. What is driving this change - have the bank funds done poorly or is it the adviser's promise that they can do better?

I know this isn't addressing the OP's question around benchmarking


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## jman123 (Jan 28, 2015)

Yes, my better half is aware of the costs but figures that the 2-2.5% MER we could be saving would offset the 1% charge. 

The adviser gave an example in his last presentation. I have the FID1519 fund and he suggests that that could be converted to the F-series. See below.

Name of Fund Fund Code MER Advisor Fee All-in Fee
Fidelity Monthly Income T-5 FID1519 2.29% 0% 2.29%
Fidelity Monthly Income F FID669 0.92% 1.00% 1.92%

So we should be 0.37% ahead, right?

Matter of fact he suggested going to the F-series for all/most of my Fidelity funds. 

What is driving this change is my unhappiness with the big bank adviser. No calls, doesn't do as I want after many nagging attempts, etc... plus he doesn't understand taxes and I may need that knowledge soon if I retire completely next year. 

This guy will even do my taxes for me. Not a big whoop since I doing it myself but never in "retirement mode". 

To me it's a lot of money to set up a portfolio and have probably semi-annual meetings but this 1% deal is not a lifetime commitment since I can probably leave at any time.

I just want to make sure if his knowledge is worth that 1% and after a year see how he does against an equivalent Couch Potato portfolio with the same balance of equity and fixed income.

If I go with a 65-35% or 60-40% split with him I would like to match his funds with mine. Of course, his choice of equities and FI might be not have the same risk as mine so if he comes out ahead then it could be his are more "riskier" or vice-versa. 

Preferably, I would like to find a local adviser who would charge me directly for services provided (2 meetings a year with re-balancing) , handle the purchasing and selling of funds, knows the tax implications, etc... then have to pay the 1% but I just can't find someone like that. It's either commission based or 1% or higher total portfolio fee. 

We assume that this guy wants my portfolio to grow since he gets 1% but how involved he will be that's another story. Maybe he will be all gung-ho for the first year and then just coast, who knows?

So, since he has asked me several times what percentage return I want and I don't think going beyond a 70-30% split with low to moderate risk what would you suggest? 

If I say 6% (net), for example, and he says OK and he doesn't perform that after a year then .... what?


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## AltaRed (Jun 8, 2009)

jman123 said:


> So, since he has asked me several times what percentage return I want and I don't think going beyond a 70-30% split with low to moderate risk what would you suggest?
> 
> If I say 6% (net), for example, and he says OK and he doesn't perform that after a year then .... what?


This is a trick (trap) question because no matter what you say, and he underperforms, it will be because you didn't take enough risk or you were asking for too much. IOW, he will never be at fault and the worst that will happen (to him) is that you become unhappy and leave him. No advisor will guarantee perrformance either. The best I can suggest is that you want your adviser to meet benchmark performance from broad based ETFs. Norm's asset mixer (from the Stingy Investor) can provide those benchmarks (just have to net off ETF MERs).


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## OnlyMyOpinion (Sep 1, 2013)

Fair enough, you want to leave your current adviser and try the new one. And perhaps swap your current commission-based fund for the fee-based F-version where you'd save a bit. No trailer fees on the existing I assume?
I'd be concerned though that the new adviser may not be content putting you into one monthly income fund. Do you know anything about their investing style/biases? Do you have any existing client referrals or opinions?

If you were to simply switch advisers and continue with FID669 F-series monthly income fund (http://quote.morningstar.ca/quicktakes/fund/f_ca.aspx?t=F0CAN06Z2M&region=can&culture=en-CA), you could try emulating its weightings with an etf portfolio to benchmark to. It is currently comprised of 49% FI, 24% Cdn Eq, 8% US Eq, 1% Int Eq, 13% cash, etc. Not sure how actively it changes, and made more complicated if your adviser puts you in multiple products.

I'd be inclined to just compare any adviser portfolio investment performance with your existing DIY etf portfolio. Isn't that is really what you are trying to compare to?

According to Moringstar the commission-based fund has returned 5.29% annualized over 10yrs, while the F-series produced 6.72% (before any adviser fee I assume). Not too too bad for a high cost fund and adviser you never hear from.
Better than TDB622 monthly income fund that I'm familiar with. It returned 5.06% over 10yrs (1.47% mer, self-administered, twice the Cdn Eq exposure).The difference in performance may reflect TD's lower weighting in bonds over and exposure to Cdn resources.
And not far off of MAW104 which shows 7.04%.


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## janus10 (Nov 7, 2013)

What about the well known, well travelled Rob O. advisor?

Apparently all he does is listen and works for you 24/7. He doesn't try to schmooze you at corporate shindigs and won't ask you how your wife, Harriett, oh sorry Beth, is doing.

Possible compromise to keep wife happy and more $ in your pocket?


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## jman123 (Jan 28, 2015)

janus10 said:


> What about the well known, well travelled Rob O. advisor?
> 
> Apparently all he does is listen and works for you 24/7. He doesn't try to schmooze you at corporate shindigs and won't ask you how your wife, Harriett, oh sorry Beth, is doing.
> 
> Possible compromise to keep wife happy and more $ in your pocket?


Don't know who this Rob O. is. Fill me in.

Have to check out this Stingy Investor web-site as well.

FYI , I found this guy since he sometimes hosts a radio show in Montreal (CJAD radio station) about financial matters. Seems knowledgable

I believe this is not an Investors Group type operation. I believe he deals with Fidelity and other large mutual fund companies. He plans to just move my monies "in-kind" to this "Peak Independence" firm. Then he will look at each fund I have , determine the DSC charges and see if we should keep or sell. 

He checks out Ok with AMF (Quebec's financial watchdog at https://lautorite.qc.ca/en/general-public/ ) 

Another possibility is just giving him my spouses account and I handle mine and if he does better than me after a year then eventually hand him mine. That would reduce my cost with him by half.


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## Jimmy (May 19, 2017)

jman123 said:


> Don't know who this Rob O. is. Fill me in.
> 
> Have to check out this Stingy Investor web-site as well.
> 
> ...


He was being humorous but referring to the _Robo_ advisors out there. They only charge .5-.7% including ETF MERs for just basic couch potato type advice. But IMO you can diy and save their fees.
Here is a link to who he was referring to 

http://www.moneysense.ca/save/investing/etfs/which-robo-advisor-is-right-for-you/


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## OptsyEagle (Nov 29, 2009)

jman123 said:


> Name of Fund Fund Code  MER Advisor Fee All-in Fee
> Fidelity Monthly Income T-5 FID1519 2.29% 0% 2.29%
> Fidelity Monthly Income F FID669 0.92% 1.00% 1.92%
> 
> So we should be 0.37% ahead, right?


Not quite. The 1% fee he will be charging you is subject to HST, as was the MER in the other fund. So in the above example you will only be 0.24% ahead, when the 0.13% HST is paid on the fee based plan. Plus, you owned a DSC fund and I have to assume the DSC fees are gone or you would not be contemplating this move. Fidelity offers a savings of 0.20% for non-DSC funds so in effect you could move to the equivalent fund and save 0.20% without the fee based program. So your savings is now down to 0.04%.

The rest of the savings is probably non-existent since it really can only come from a quirk in the accounting of Management expense ratios. Keep in mind that an MER is not a dollar amount but a calculation of total fees over some asset level. It's a ratio and designed to only give you an estimate, not an exact number. The difference of 0.04% is most likely coming from a difference in fund flows and asset levels and not anything that will remain. Just a quirk in accounting. 

So in effect, your savings from the above change is 0%. I imagine your advisor knew this or does not even understand the investment products he is selling, so beware.

Let me explain, how this works. The fund you were in charges a management fee, pays for fund expenses and then charges an additional 1% that they pay to your advisor. On top of this they are required to also charge the fund HST that of course goes to our governments. Everyone gets paid. All the F-class does is separate out the 1% going to your advisor. This saves the fund 1.13% off the MER (1% plus HST), but then your advisor charges you directly 1.13% to your account. The only time this would make sense, since it does not provide any savings to you, is if it was a cash account (not an RRSP), where you could deduct this fee on your taxes, but in your case it does not apply.

Your advisor has conducted a simple shell game on you and although he probably thought it would provide for an easy sale and would not cost you anymore money, and one you would probably never figure out, the fact that you are paying him to teach you these things and he is actually using it against you would be a red flag in my book. 

Good luck in whatever you


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## like_to_retire (Oct 9, 2016)

Yeah, good post as always, OptsyEagle. You're right, a shell game certainly comes to mind. At the very least I would recommend (as did GreatLaker) to use a fee only planner that is paid directly and doesn't have an interest in the products. A plan could be drawn up for a fee and the OP could follow it and see what transpires. It kills me that the OP already is running his own Couch Potato, so he knows what is involved in a low cost approach. A 1% fee is not really low cost.



jman123 said:


> Anyways, this new adviser wants me to tell him what rate of return I would like and would build a portfolio to try to attain that.


To me, this is just a huge red flag. Wouldn't it be better for the adviser to establish your tolerance to risk and reactions to market volatility, and then make a recommendation of the type of portfolio components that would work best with that situation? Instead, like a carnival barker, he asks for whatever rate of return you would like, and he'll magically make it happen. Crazy talk.

So if these holdings are in the million dollar range, then the 1% fee, plus tax, is between $800-$900 monthly, forever. Think what you and your wife could do with that kind of money every month on top of the returns from your portfolio, instead of someone else taking that money from you for something you have established you can do yourself. Just think, $850 a month for 10 years is $102,000. That's a lot of money. If you had invested in the Couch Potato for those 10 years, would your adviser have been ahead after extracting $102,000?



jman123 said:


> This guy is supposed to handle everything (tax aspects, insurance, wills....


This adds very little value. 

Taxes? - it's so easy today to buy Turbo Tax and do your own taxes unless you have some complex situation that you haven't told us about. If you're really fussed about it, have an accountant do your taxes for one year and then use that as a guide for future years with Turbo Tax.

Insurance? - come on, buy your own insurance. Everyone does it.

Wills? Go to a lawyer and get a will drawn up - it's inexpensive.

ltr


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## jman123 (Jan 28, 2015)

like_to_retire said:


> Yeah, good post as always, OptsyEagle. You're right, a shell game certainly comes to mind. At the very least I would recommend (as did GreatLaker) to use a fee only planner that is paid directly and doesn't have an interest in the products. A plan could be drawn up for a fee and the OP could follow it and see what transpires. It kills me that the OP already is running his own Couch Potato, so he knows what is involved in a low cost approach. A 1% fee is not really low cost.
> ltr


I'm not sure I can follow the analysis of the fee's involved in the Fidelity example. 

May I ask how to go about finding a fee only planner? Anyone I have gone to is either commission-based or wants a cut of my portfolio. Everyone needs to make a living.

If I go with this 1 per center I could give him either mine or my wife's (about $400K each), invest the other half in a Couch Potato portfolio and then see how he does in comparison with say a 65-35% 70-30% split.


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## OptsyEagle (Nov 29, 2009)

jman123 said:


> I'm not sure I can follow the analysis of the fee's involved in the Fidelity example.


It can be simplified by understanding that your advisor's proposal is simply to change you from a regular mutual fund to an F-class fund. Both are the identical fund but the regular fund charges 1% plus HST to the fund to pay your advisor and the F-class does not, BUT your advisor charges you 1% plus HST to your account directly. When all the fees are paid by you is all the same. There is no difference. The proposal does not provide any reason to make the change.

The other point I made is that if you decide to stay with your current fund FID1519 then you should ask your current advisor to switch you to the equivalent fund that is not part of a DSC class of fund. The fund code is FID1219. It is the identical fund with an MER of only 2.06%. Basically it will save you 0.20% per year. This is of course if your DSC fee schedule has gone to zero (you owned it for more then 6 years). If you don't understand this last part let us know before you ask for a switch.

On an aside. Your current advisor was obligated by new regulatory rules to have made that change already, since it was the lower cost alternative that you were eligible for. Yesterday, if you were watching BNN you would have seen a settlement that Manulife made with the OSC. They were caught NOT doing what I just said your advisor was not doing. Putting you into the lower cost alternative that was available. Under a new "know your product" regulatory rule, your advisor is obligated to do this on your behalf. Don't get mad at Manulife. None of the dealers were doing it and they are all writing cheques for tens of millions of dollars today to pay back their clients for this omission.

Anyway, that last paragraph was an aside. Don't wait for your advisor to do what you now know about and can do yourself.


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## OptsyEagle (Nov 29, 2009)

For anyone who was not watching BNN yesterday and does not know what I am talking about with my 2nd last paragraph above, here is the news release.

http://www.cbc.ca/news/business/manulife-osc-settlement-1.4199597

Although some of the fees may be for other product lines, I suspect clients being in a higher cost fund compared to a lower cost alternative was the primary culprit in this case, as it was for the other dealers being fined.

My personal opinion, is that the OSC should be whacking the mutual fund companies, NOT the investment dealers since it is a much more tougher job to determine when a lower cost alternative fund is available, by the dealer then it is by the mutual fund company that is actually offering it. I think that the OSC just likes whacking investment advisors (as do we all) and they are more then a little annoyed at how much money an investment advisor can make by having almost no working knowledge of investment products, but an ability to gain clients trust with their smoozing and sales skills, that seems to be able to make them a fortune in fee income. They are probably trying to force the advisor to understand what they are selling a little bit more and for that I can't argue with them.


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## jman123 (Jan 28, 2015)

I have thought of what was discussed and have proposed to my other 50% that we try the new guy with 1/2 of what we have with my current adviser. So the old and the new adviser have each basically the same to work with (about $400K each) and I can handle the remaining $200K. 

Maybe I'm being a bit naive in hoping that maybe I will get better service for them if they are competing for all my business or maybe not. 

I'm sort of leaning to try to have everything at a 70-30% split but I'm not sure if that is wise at this stage of my/our lives. I've read somewhere it all depends in how well you can take a percentage decline and still sleep at night. I guess everyone's risk level is different but I am curious of how other's are splitting their money between equity and FI 

Isn't is supposed to be equity % = 100 -age but I guess that was when interest rates were higher?


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## getliquid (Mar 2, 2014)

cant you just buy a balanced fund and be done with it? Mawer 104? one slip a year is definitely better than 10


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