# CIBC Managed Portfolio



## 44Driver (Dec 14, 2010)

A friend of mine has been sold on CIBC's Managed Portfolios, specifically the Income Portfolio. I have a few questions and concerns:

1. It appears that this is simply a fund that invests in other funds. With a 2% ish MER, what exactly are they "managing?"

2. At the end of the day, are investors not paying 2 levels of management? It seems all the CIBC funds that this portfolio owns will charge their own MER's, then the "Managed Portfolio" takes another 2% on top of that as it manages the CIBC funds it owns. Is it fair to assume about a 4% MER in total?

3. My friend feels that this very high MER buys them the benefit of 2 levels of expertise and management - making it an even better investment since so much "management" is going on - what can I tell them to dissuade them from this fallacy?


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## kcowan (Jul 1, 2010)

Usually funds offer a lower MER to other funds because they do not have the customer to manage. So it is unlikely 4% MER. The 2% quoted might include the fee for the other fund. The best thing to do is to calculate what they will be paying (e.g. at 2%, a $10000 will cost $200 in advisor fees.) and then focus on whether they are getting $200 in value.


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## OhGreatGuru (May 24, 2009)

The CIBC prospectus is remarkably obscure on how they calculate their MER. But if it is similar to the portfolio funds offered by RBC & TD, the MER includes the MERs of the underlying funds. But IMHO a weighted average of 2% is still on the high side for an income-oriented fund. CIBC's own monthy Income fund has an MER of only 1.42 for example.

These are "wrap" funds, or "funds of funds". The convenience is that it is one-stop shopping for the consumer who lacks the knowledge or inclination to manage his own portfolio. The "management" is that they create a portfolio of funds to meet certain investment objectives, and adjust the asset allocations periodically to suit their analyses of market fluctuations. In a way it's no different from a balanced fund, except they are trading in other mutual funds, not bonds & stocks directly.


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## Lephturn (Aug 31, 2009)

OhGreatGuru said:


> The CIBC prospectus is remarkably obscure on how they calculate their MER. But if it is similar to the portfolio funds offered by RBC & TD, the MER includes the MERs of the underlying funds. But IMHO a weighted average of 2% is still on the high side for an income-oriented fund. CIBC's own monthy Income fund has an MER of only 1.42 for example.
> 
> These are "wrap" funds, or "funds of funds". The convenience is that it is one-stop shopping for the consumer who lacks the knowledge or inclination to manage his own portfolio. The "management" is that they create a portfolio of funds to meet certain investment objectives, and adjust the asset allocations periodically to suit their analyses of market fluctuations. In a way it's no different from a balanced fund, except they are trading in other mutual funds, not bonds & stocks directly.


To be fair, there is one benefit to the portfolio funds - regular re-balancing. These funds normally will automatically re-balance on a quarterly basis to keep you in the fixed/equity mix stated in the portfolio as well as the various regional or sector weights. There IS value in that - I choose to manage it myself but to be honest for most people out there who don't have the time or inclination, it may well be worth the extra expense to get that automatic quarterly re-balancing. For most people, a far worse option would be to pay MERs that are almost as high and then not re-balance them.

I would still suggest a fee-for-service financial planner who can build a plan and manage a portfolio of ETFs on your behalf including the re-balancing. It may not in the end be much cheaper but it will be a far superior solution IMO.


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## the-royal-mail (Dec 11, 2009)

This is scary to me and shows the power of influence by the banks. Education is power and your friend is obviously not educated, so she is being sucked into the easy-peasy solution. Not good.

It doesn't sound like she is interested in hearing your concerns and advice either.

No one can force the will of another person. You might have to let her make her own mistakes here. Might cause an argument otherwise.

I took control of my investments a few months ago and it really bugs me that my lack of investing knowledge/interest caused me to lose 10 years of the kinds of gains I've enjoyed these past few months. I acknowledge it was my own fault but the bank didn't help things by setting me up in high MER funds with a few years of poor performance. I do agree that it would be a real shame to see that sort of thing repeated here, but what can you do?


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## kcowan (Jul 1, 2010)

the-royal-mail said:


> I took control of my investments a few months ago and it really bugs me that my lack of investing knowledge/interest caused me to lose 10 years of the kinds of gains I've enjoyed these past few months. I acknowledge it was my own fault but the bank didn't help things by setting me up in high MER funds with a few years of poor performance. I do agree that it would be a real shame to see that sort of thing repeated here, but what can you do?


I think that most of us suffered from high fees before "getting religion". But that seems to be a part of the learning curve. The best you can do is try to accelerate the learning curve.


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## Dana (Nov 17, 2009)

44Driver said:


> A friend of mine has been sold on CIBC's Managed Portfolios, specifically the Income Portfolio.


I use to work for CIBC. I assume you are referring to their pooled funds, not the funds available to retail investors through the branch network? The pooled product is usually offered through "imperial service" or an "Investment Advisor" or whatever terminology they are using nowadays.

These pooled products are _uber_ profitable for the bank because they are completely proprietary from the portfolio managers at the very top right down to the distribution network at the bottom. You are right, that there are MERs on multiple levels. The justification that the bank will give you is that it makes the money managers more motivated and accountable because if they don't perform, they have to take a % of a smaller amount. They also like to talk up the benefits of the automatic rebalancing. 

They steer their mid-networth clients (i.e. $100k-250k of investable assets) toward these investment vehicles because statistically, these clients are less likely to make withdrawals - which they will also say is a benefit because the money managers don't have a "cash drag" to deal with and can invest more of the money...

When I worked there, there was a *HUGE* push to sell these products because of their profit margin. There was major incentive pay and bonuses tied to increasing the funds under management of these funds. It was, IMO a big conflict of interest and I am still (in case you can't tell) bitter about the banks approach to these products and the pressure to put clients in them. 

Any client that was not 'self-serve' or 'order-only' had to be given the sales pitch. 

My bottom-line opinion is that I wouldn't recommend these products.


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## larry81 (Nov 22, 2010)

Dana said:


> When I worked there, there was a *HUGE* push to sell these products because of their profit margin. There was major incentive pay and bonuses tied to increasing the funds under management of these funds. It was, IMO a big conflict of interest and I am still (in case you can't tell) bitter about the banks approach to these products and the pressure to put clients in them.
> 
> Any client that was not 'self-serve' or 'order-only' had to be given the sales pitch.
> 
> My bottom-line opinion is that I wouldn't recommend these products.


I would like to know more about your experience at CIBC. I had similar experience as a client of them.


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## Dana (Nov 17, 2009)

larry81 said:


> I would like to know more about your experience at CIBC. I had similar experience as a client of them.


Anyone relying on a Financial Advisor employed by a bank should realize that the FA works for the bank, not the client. At the end of the day they have "targets" to meet and are ultimately working for the shareholders. 

I was a very well accreddited FA (CFP, CSC, CIM, FCSI, PFP) but regardless of how good you are on paper, the bank reduces you to being a sales person while publicly promoting your accreditations as a guarantee of impariality, objectivity and holistic advice. How can advice be any of these things when you are only given a small suite of proprietary products and services to work with and a narrow framework of subjects you can advise on? 

They financially reward FAs for placing clients in profitable products (managed products, VR mortgages, etc) and provide no incentive for placing the client in the "right" product. It is inherently a conflict of interest. 

My accreditation dictates that I act in the best interest of the client, but the bank constantly reminds you that you are there to increase profitability and shareholder value. They justify this by putting a lot of money into promoting the most profitable products internally to the staff that recommend them. A lot of brainwashing goes on - which the banks will vehemently deny.


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## 44Driver (Dec 14, 2010)

I've always managed my own investments and also take the sales pitch of a bank's "advisor" with a grain of salt. 

I have no idea how to help her pick a good advisor (never thought I needed one), what kind of firm he/she should work at, what their system should be or how their fee structure ought to work. My family member is in the 200 to 300k range. She's not only uneducated in this world, she's almost a deficit of knowledge as she's full of misconceptions and urban myths and left to her own devices would self destruct. She needs trustworthy, quality management, fair and un-biased, and she will have virtually zero participation or follow up on the FA's work. 

I really hate the idea of a salesman (*cough* advisor) who simply accepts deposits and simply forwards the investment to some centralized management or computer generated "based on your profile, you should invest in X" crap.

One name that was repeatedly mentioned was Raymond James. She apparently heard of that firm from some acquaintance and is convinced that it's a great. I have never even heard of them.


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## Sherlock (Apr 18, 2010)

Dana said:


> Any client that was not 'self-serve' or 'order-only' had to be given the sales pitch.


What do those two terms mean?


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## Dana (Nov 17, 2009)

Sherlock said:


> What do those two terms mean?


Clients who meet the net worth requirements to qualify for fianancial planning services but who prefer to manage their investments themselves usually through the discount brokerage division of the bank. These clients do not seek advice or engage the bank to act on their behalf, but because they have signficant assets with the bank they are given the special attention of an FA in order to retain the business.


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## Lephturn (Aug 31, 2009)

I would highly recommend finding a "fee for service" or fee-only adviser. Somebody you pay for their time to create a financial plan and an investment plan for you. You pay for their time and expertise directly - not through fees on the investments they sell. That way their advice is not biased toward particular products. In most cases the financial planner works for a bank or another company like Investor's Group and they get paid commissions on the investments - which comes out of the 2% or more MER of the funds - regardless of performance. They can only sell and will only recommend their own products.

With the kind of money you are talking about - say 300K - the 2% MER or Management Expense Ratio (egg management fee!) is $ 6,000 / year. You can pay a fee-only planner to create a financial plan and an investment plan and I think you'll save money. I am assuming a good planner will recommend either individual stocks and bonds instead of funds, or very low MER index funds for the investments.


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## warp (Sep 4, 2010)

Any time you see the word "managed" and "portfolio" in the same sentence, be sure that you will pay for the management part no matter how well or badly the portfolio part does.

Just about anyone would be better off to just use a "couch potato" investment strategy using onaly 4-6 ETF's, if investing more actively scares you.

What most "Financial Advisors" do best is turning your assets into his/her assets.

Tread carefully!


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