# Looked at my parent's mutual fund portfolio



## james4beach (Nov 15, 2012)

I was helping a parent re-balance and optimize their RSP mutual fund account (inside RBC mutual funds). A difficult process for me as I can't imagine why they would be in all those mutual funds with so many better alternatives... but of course for most people there's psychology and habits behind their investment activities. They deal with some "advisor" (who puts pressure on them), they don't want to go through the hassle of opening new accounts, they are "comfortable" with the bank relationship and they are resistant to any change or upheaval. So I understand all that and try to work with that context. There's some attachment to brand, etc.

Standard marketing stuff and another reason I always avoid advisors/salespeople myself... so many psychological games as they try to push the funds they want to sell.

Looking at the RBC mutual funds, there were some easy optimizations to make and I thought I would share them here, since obviously the RBC mutual funds are huge and many people use them.

First problem: duplication. Several funds are simply sub-sets of another. For example I'm going to have them remove RBC European Equity Fund because it's already covered by RBC International Equity Fund. We're also going to remove RBC North American Growth Fund (2.08% MER) which is just the Canadian Index Fund + U.S. Index Fund (0.72% MER). So that's an immediate 1.36% MER reduction, with absolutely no change in exposure!

Second problem: the portfolio solutions/balanced funds/etc. RBC markets these as all-in-one-solutions but they're totally unnecessary if you're already holding a bunch of other funds. For example the "RBC Select Balanced Portfolio" (1.93% MER) is a joke because we already hold the bond fund and stock indexes that make up this thing. Another 1% MER reduction with absolutely no change in exposure.

At least I've got them down to 10 mutual funds. Still so much duplication, but I don't want to overwhelm them with too much optimization at once. It would be neat if there was a web site where you could simply plug in the long list of mutual funds, and it would spit out what the whole portfolio boils down to:
50% bond index
30% Canadian stock index
20% US stock index

And then the investor could realize they could reduce a mess of 10 high-MER funds down to 3 index funds. Maybe that's my indexing bias... does such a web site exist?


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## Sherlock (Apr 18, 2010)

Hmmm I've never heard of such a website, I think that's a good idea for a website that might bring the owner some income... I'd try to create it myself if I knew how to make money off it.


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## MoneyGal (Apr 24, 2009)

AFAIK the easiest way for a retail investor to do this is to review the fund allocations on Morningstar and create your own Excel spreadsheet. 

(As a side note this may provide an additional incentive towards ETFs or index funds, if that's what you're going for, as you will be able to explain "style drift" to them as you create the spreadsheet.)

Advisors have back-end tools which allow them to do this but I'm not aware of any free retail tools which do this any more easily than the Morningstar process I just described.


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## james4beach (Nov 15, 2012)

If it really doesn't exist, maybe I will create one. I have the finance background and have some experience creating web sites... how would it bring me income, though? I guess iShares, BMO & friends advertising on the site?


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## MoneyGal (Apr 24, 2009)

How would you handle the requirement to constantly update the data? 

Here's the main non-retail service, BTW: http://www.morningstar.ca/globalhome/products/Paltrak.asp


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## Four Pillars (Apr 5, 2009)

If you are going to do this - do it for American funds. Prying ad money from Canadian financial institutions is like getting blood from a stone.

It won't be exact anyway - MFs don't publish their exact allocations.


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## Squash500 (May 16, 2009)

Hi James...kind of off topic--LOL. Maybe you can show your parents.... John Lawrence Reynolds book the Naked Investor. Right now I'm reading Chapter 5 of the 2006 edition entitled...It shouldn't be Complex...it should be open. In this chapter ...a 68 year woman comes to this mutual fund advisor with $440000 in total assets spanning non-registered ...RRSP etc. 

To make a very long story short...this advisor purchases 43 different mutual funds for this client...LMAO. All I can say is that I'm so glad ETFS were invented. Maybe you can convince your parents to get rid of all their RBC mutual funds and invest in index based ETFS instead. What scares me is that only 6% of investors use ETFS.


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## My Own Advisor (Sep 24, 2012)

43 funds??????

Nuts.

The advisor should be put in jail.


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## Spudd (Oct 11, 2011)

The easiest (not necessarily the most lucrative) way to make money off websites is to throw up a few Google ads. Google "adsense" and you'll find all the information you need to get started.


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## Squash500 (May 16, 2009)

My Own Advisor said:


> 43 funds??????
> 
> Nuts.
> 
> The advisor should be put in jail.


 He should be in jail. All the 43 mutual funds he purchased for this client....of course all of them were DSC's. 22 of them were priced in US dollars....this is at the time (between April 2000 and March 2003). This was right at the time when the US dollar was sliding against the canadian dollar. Her portfolio dropped by 60% in less than three years.

This advisor was a major radio personality who had a CFP designation and was vice-president and regional manager of a national investment firm.


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## james4beach (Nov 15, 2012)

Thanks for the replies, everyone. I think (with a web site idea like that) it's infeasible to keep updating it against the huge list of mutual funds out there. The only way it could work is if the investor fills in the details themselves of what the fund contains... but if an investor can do that, they can probably figure it all out themselves!



Squash500 said:


> Maybe you can convince your parents to get rid of all their RBC mutual funds and invest in index based ETFS instead. What scares me is that only 6% of investors use ETFS.


Their funds at RBC aren't actually too bad... the weighted average MER for the portfolio is 1.3% and that's going to drop even lower once we get their money out of redundant funds into the Canadian index.

Luckily, I did save another family member from Investors Group. The money was taken out of IG mutual funds and I set up an ETF portfolio at a discount brokerage. We brought the portfolio MER from over 2.5% down to 0.37%. The IG advisor tried so hard to hold onto that money! To think... the new portfolio already has a 11% total return boost in the years after IG, just due to fee savings.


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## RBull (Jan 20, 2013)

Interesting coincidence with the 2 companies you mention. I have 2 close relatives in a very similar situation, but I'm going to stay out of it unless the opportunity presents itself.


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## james4beach (Nov 15, 2012)

Interesting coincidence. I am also tempted to stay out of it, because I don't want to get blamed next time the markets go haywire. And boy would my face be red if it turns out that iShares is being reckless with say their securities lending program, and ends up losing investor money with counterparty losses due to securities lending. This could happen by the way... then again it could happen with any mutual fund company.

I like plain vanilla ETFs (provided they are not exotic, or funds-of-funds) but my only lingering doubt relates to their securities lending practices. What could be interesting however is that Vanguard has much more conservative securities lending practices. This could be a game changer in Canada. They apparently don't do securities lending in fixed income (which is much different than iShares, who lends out huge amounts of their bond portfolios). It also looks like their lending amounts are much lower than what's typical for iShares and BMO ETFs.

http://www.moneysense.ca/2012/12/10/qa-with-vanguard-canada/

I was impressed by this...


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## Squash500 (May 16, 2009)

james4beach said:


> Thanks for the replies, everyone. I think (with a web site idea like that) it's infeasible to keep updating it against the huge list of mutual funds out there. The only way it could work is if the investor fills in the details themselves of what the fund contains... but if an investor can do that, they can probably figure it all out themselves!
> 
> 
> 
> ...


That's good James....I know that Investors group charges the highest MER's out of all the mutual fund companies. I haven't bought mutual funds in many years but doesn't RBC have Class D funds which charge lower MER's as long as you have $10000 in each fund?


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## Squash500 (May 16, 2009)

James here's a link to the RBC Class D funds. I'm not sure if this will be helpful to you or not?

https://www.rbcdirectinvesting.com/seriesd/available_funds.html


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## My Own Advisor (Sep 24, 2012)

My parents continue to invest in some TD mutual funds, higher price MERs, but some products have had a good run over the last 10 years. 

I keep telling them I can help them get into some lower cost products, but they don't want to change.

Such is life...


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## james4beach (Nov 15, 2012)

That's interesting, thanks. Looks like this is exclusively for the RBC discount brokerage... as my parent is under the RBC Asset Management umbrella (advisors, etc) I doubt they could make use of this, but I'll ask anyway.


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## supperfly17 (Apr 18, 2012)

MoneyGal said:


> How would you handle the requirement to constantly update the data?
> 
> Here's the main non-retail service, BTW: http://www.morningstar.ca/globalhome/products/Paltrak.asp


On a side note this really made me laugh on the webiste. What are we in 1998?

"System requirements
. Pentium III PC or compatible
. 120 MB of free hard-disk space
. 64 MB of RAM (256 MB recommended)
. VGA Monitor
. Windows 2000, XP and Vista
. Acrobat reader v6.0 and higher
. CDROM drive
. Internet connection recommended
"


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## RBull (Jan 20, 2013)

No. Going through the advisor won't allow access to D funds.



james4beach said:


> That's interesting, thanks. Looks like this is exclusively for the RBC discount brokerage... as my parent is under the RBC Asset Management umbrella (advisors, etc) I doubt they could make use of this, but I'll ask anyway.


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## kcowan (Jul 1, 2010)

My Own Advisor said:


> 43 funds??????
> 
> Nuts.
> 
> The advisor should be put in jail.


Not at all. The advisor is getting them into the flavour of the day because of marketing spiffs to make himself more money. Salesmen love this type of client. Easy money.

I think you could do them a favour by creating a spreadsheet of when these funds are DSC free and systematically move them into a simpler mix. Depending on their level of confidence with you, these could be ETFs or DSC-free funds at RBC. Small baby steps until they gain confidence. Maybe just move into fixed income and Canadian equity ETFs (or funds) 50/50 since so many of their funds are USD.

MIL had some bad holdings in her fixed income portfolio. I took that approach, explaining each move as we went. The only thing she missed was the free plant at Christmas (I bought her a large Grand Marnier instead). She also liked the $8000/yr extra in her portfolio.


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## chantl01 (Mar 17, 2011)

I went through this process myself a couple years ago after educating myself on DIY investing techniques. I took my high-MER portfolio to a for-fee advisor who analyzed all the different mutual funds I was in (he tsk tsk'd over the portfolio) to find out what my asset allocation was at the time. It was of course hugely duplicated all over the place. Then he proposed a new asset allocation and provided some examples of ETFs that would provide those asset allocations. I paid him for the effort, set up a TD Waterhouse account and purchased a combination of ETFs and TD e-series MFs for my regular contributions. About once a year I balance back to my recommended asset allocation. My investment advisor of course had all sorts of doom and gloom warnings about predicted 'flat markets' and the need to remain invested with the best active fund managers to take advantage of their wisdom during the period. Hah! Flat markets over the past couple years? My portfolio is doing better now than it ever did with a a professional investment advisor. 

Once I'd done all that, I took a look at my mother's Royal Bank mutual funds and created a low-MER proper asset allocation mix of funds, and sent her back to her advisor to sell the high-MER and inappropriate funds from her account and buy into a simple four fund mix with low MERs, which I look at and recommend balancing once a year. She too is very happy with the simplified portfolio and much reduced costs associated with it.


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## My Own Advisor (Sep 24, 2012)

Nice work


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## Four Pillars (Apr 5, 2009)

chantl01 said:


> I took my high-MER portfolio to a for-fee advisor who analyzed all the different mutual funds I was in (he tsk tsk'd over the portfolio) to find out what my asset allocation was at the time. It was of course hugely duplicated all over the place. Then he proposed a new asset allocation and provided some examples of ETFs that would provide those asset allocations. I paid him for the effort, set up a TD Waterhouse account and purchased a combination of ETFs and TD e-series MFs for my regular contributions.


How much did he charge for that?


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## leeder (Jan 28, 2012)

Some people prefer dealing with a financial advisor. Over the weekend, I helped a good friend of mine rework his RRSP mutual funds portfolio with TD Canada Trust. I told him about the e-Series, but he said he wasn't very tech and financial savvy enough and would prefer going through an agent. Originally, about 51% of his portfolio was in the TD Comfort Balanced Growth product (consists of about 30% Canadian, 30% Global, 40% bonds; MER: 2.02%) and the remaining was in TD Monthly Income (50% Canadian, 40% bonds, 10% preferred shares. I had to almost fight tooth and nail with the financial advisor to help my friend sell all the units in the TD Comfort Balanced Growth and invest in TD US Index and TD International Index. My friend wouldn't change the TD Monthly Income to pure Canadian index and Canadian bonds, so I didn't argue with him on that too much.

I may have made the wrong choice though with his international index though. I invested in the currency neutral one (that had a MER of 1.01%) instead of the regular international index (that had a higher MER of 1.38%, but invests directly into the holdings). In any case, I think it's better than what he had previously.

So now, my friend has:
50% of his portfolio in TD Monthly Income (MER: 1.48%)
25% of his portfolio in TD US Index (MER: 0.54%)
25% of his portfolio in TD International Index-Currency Neutral (MER: 1.01%)


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## james4beach (Nov 15, 2012)

leeder said:


> Originally, about 51% of his portfolio was in the TD Comfort Balanced Growth product (consists of about 30% Canadian, 30% Global, 40% bonds; MER: 2.02%)


I love all these cute names the fund companies come up with. "Comfort Balanced Growth" has all kinds of appealing words in it ... you can be *comfortable *with it, it's *balanced *(ooh sounds nice and healthy, like the yogurt that balances my tummy) and it's also got *GROWTH *which is exactly what I want from stocks even though I'm too timid to open a pure stock index position.

lol what a joke... no matter how long the name is, every fund is virtually identical to: X% one stock index, Y% another stock index, Z% a bond index. Usually some mix of TSX index + general bond index.


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## leeder (Jan 28, 2012)

james4beach said:


> I love all these cute names the fund companies come up with. "Comfort Balanced Growth" has all kinds of appealing words in it ... you can be *comfortable *with it, it's *balanced *(ooh sounds nice and healthy, like the yogurt that balances my tummy) and it's also got *GROWTH *which is exactly what I want from stocks even though I'm too timid to open a pure stock index position.


I know, eh.... it's even better when they named one fund "Comfort Aggressive Growth". Comfortably aggressive......


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## james4beach (Nov 15, 2012)

lol. They should just get it over with and name one: Comfort Balanced Aggressive Aristocrats High Yield Dividend Growth Monthly Income
"gosh... this one has everything I need!"


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## leeder (Jan 28, 2012)

james4beach said:


> lol. They should just get it over with and name one: Comfort balanced aggressive aristocrats high yield dividend growth monthly income
> "gosh... This one has everything i need!"


mer: 99.9%


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## james4beach (Nov 15, 2012)

Update on an old thread. My parents have now completely abandoned RBC (Royal Mutual Funds) and Investors Group. Hooray!

By my estimate, they are now saving at least $15,000 a year -- yes fifteen thousand dollars -- in excess fees. To get assistance with their new setup, they are paying a very competent fee-only advisor a few hundred dollars a year for advice and planning.

I still think mutual funds are a great fit for most investors but there are many cheaper ways to do this than to work with "advisors" at the big firms who only work in their own best interest. The big discount brokerages have access to many D series mutual funds (for self directed investors) and there are some excellent mutual funds with MERs around 1%, good boring funds with long track records. See https://www.canadianmoneyforum.com/showthread.php/134588-Good-balanced-funds-(one-size-fits-all)


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## AltaRed (Jun 8, 2009)

I grudgingly accept that certain D series mutual funds, especially index funds, and/or the likes of the 1% MER Mawer, Beutal Goodman et al, can be good choices for a lot of investors. If for nothing else than mutual funds are easier to sell/buy (physically and psychologically) than ETFs in the stock market. For many, it also seems a lot easier to buy/sell in dollar amounts than it is in units. The mere thought of making a trade in the stock market terrifies a large segment of investors. We DIY investor types forget what it was like to make that first stock trade in the markets.


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## Pluto (Sep 12, 2013)

$15,000 per year for hand holding. LOL. 
I have a relative who believes his advisor is working for free cause he couldn't see anywhere on his statements where the advisor was getting paid. So I looked up one of his mutual funds and it clearly stated the selling advisor got 5% off the top, plus 2.5% ongoing mer. Still he didn't believe me and he was quite happy with his advisor selling funds and buying new ones on an annual basis. So I gave up. 

Since then, reportedly the govenment has required advisors to be more explicit about how much is being charged to the client. Don't know how that has worked out for people with advisors.

I recall Templeton charged 8.5% right off the top, but I could forgive him as it was not hidden, and he really delivered on performance.


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## kcowan (Jul 1, 2010)

James
Congratulations on hanging in. For at least one year, you should evaluate their net performance to see how they really make out. Because their advisors would say they earn their MER in extra performance.


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