# Is my RESP at RBC being drained by high MER?



## happy_guy (Mar 26, 2016)

I am pulling my hair for having been so naive and complacent about the growth in my RESP I opened 2 years ago at RBC. I opened that account for my daughter without much research. It is not a self-directed account. A manager controls it, who is always mysterious. Never communicated with her in last 2 years.

I have recently come to know there is such a thing as MER which is a "legitimate" way for a bank to take away a portion of the growth from an investment account.

RBC has a MyAdvisor feature that is supposed to help confused investors decide how to invest money. I would like to take this change but I need to know the right questions to ask.

Please suggest how to approach RBC to go past the fog and look into where/how my money is being handled.

Here are some questions I have in mind. Please let me know if these questions are worth asking and what answers should satisfy me.

1. Is it too late to close this NOT self-directed, mutual fund driven, RESP?
2. As it stands currently, group RESP with lots of investors involved, can I ask RBC to have a 50-50 split on cash and mutual fund so that 50% of my money is not invested anywhere but remains untouched in the account? For such cash, I would be happy to only receive the 20% grants given by the Government.
3. To simplify everything, can I decide to remove all my money from the mutual fund investment and have only plain cash in RESP? Would it upset that mysterious manager?

Kindly suggest any other questions so that I can find out whether there is something going on behind my back.

There will be 13 more years to go. I would like to find out better now than never.


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## twa2w (Mar 5, 2016)

I assume you opened this RESP at a branch and the money is invested in a mutual fund. It may help to know what investment you hold.
To answer your question. 
1) there may be tax/penalty implications to close the RESP, but you can certainly trasfer the RESP to another provider.
2&3 )yes, you can sell all or a portion of your current investment within the RESP and hold it in cash or other similiar investment within the RESP. Don't worry, no one will be upset.

I suggest you do some reading to learn more about investing and RESP in general.
The MER is simply the costs to run the mutual fund. It pays the fund managers salary and expenses, and yes, some profit for the fund manager. Your return that shows on your statement is after this expense.
A mutual fund, in simplest terms, is a pool of money from different investors with a manager hired to manage the pot of money. In theory you get professional management, access to more diversification of investments than you could do on your own, etc.
In reality, there are now cheaper ways to invest with no more risk.

You will have to decide how much risk you are prepared to take, how active you want to be in managing this money and how much more money is going to be invested.


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## OnlyMyOpinion (Sep 1, 2013)

First, you have an RESP for your daughter, and as you note you have benefited from the Government contribution. So you are ahead of the game and I wouldn't beat yourself up too much.

Depending what it is invested in, RBC products can provide a tolerable after-MER return. 
What mutul fund(s) is it currently invested in and how it has performed over say the last year or three? You should have year-end or quarterly statements that tell you this.

Until that info is considered, I don't think you (or anyone here) can suggest investing in something else, someplace else.


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## james4beach (Nov 15, 2012)

Yeah, don't beat yourself up too much. The performance drag from MERs is only tragic when it persists for 10 or 20 years, because then (the exponential) effect really builds up. One or two years of high fees is not that bad.

I agree that you should find out exactly what mutual funds you're invested in. RBC has some decent mutual funds. To start with, look at your monthly or quarterly statements. They should spell out exactly which mutual fund is held in the account. Then look at morningstar data for that mutual fund. What is the MER? More importantly, how does it compare versus its benchmark? The performance figures on Morningstar are always stated after fees.

RBC funds themselves can be fine. Our family left RBC because of their people -- salespeople and "advisors" -- but the actual funds are not bad.

Hopefully someone around here who has experience with RBC can tell you how best to navigate their people. I got tired of dealing with them, personally.


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## happy_guy (Mar 26, 2016)

Thanks to all for your posts. I should have mentioned that the mutual fund is: RBC Target 2030 Education Fund

Here is the link to its performance:
http://funds.rbcgam.com/investment-solutions/rbc-funds/index.html

Browsed over that link and came to know MER is 1.93%

From posting my thread to reading all your posts, in-between I did some reading online to learn more about investing and RESP.

Is it true that MER is supposed to go down every year and is it true that the Fund Manager ensures that, as the RESP approaches its maturity, the investment be moved from being equity driven to cash driven?


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## dubmac (Jan 9, 2011)

happy_guy said:


> There will be 13 more years to go. I would like to find out better now than never.


I put ours in Mawer Balanced MAW104. MER is just under 1%. Problem is, not many financial consultants/banks offer access to the fund because they do not provide an kick-back in the way of fees etc. You can, however, open an account directly with MAWER. Worked out well. Our son will have enough.


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## none (Jan 15, 2013)

My kid is 100% TD e-series. MER is around 0.4 and requires 10 minutes of work a year.

The difference in MER from 1.95 to 0.4 is worth around $8000 over 18 years.


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## twa2w (Mar 5, 2016)

none said:


> My kid is 100% TD e-series. MER is around 0.4 and requires 10 minutes of work a year.
> 
> The difference in MER from 1.95 to 0.4 is worth around $8000 over 18 years.


Well the difference in how the MER affects the final result will depend on the amount of dollars invested and timing of the contributions as well as performance of the funds. We dont know how much the OP has invested. 
The fund the OP is in gradually reduces the equity risk as it nears its maturity date and the MER reduces as the equity/FI changes.
If you are in equity index funds and the market takes a big dip the year you child goes to school, it can erase any gains the lower MER may have saved you.


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## none (Jan 15, 2013)

Actually you're wrong. It's totally independent of returns but actually the MER spread. This is, of course assuming that both products have equal returns and what I'm doing and his fund are more less equivalent as I obviously risk adjust it based on cash out date.

Also following the generic RESP schedule of $3000 a year for 18 year. I omitted the 14.4 year (7200max ) gov contribution b/c that's superfluous detail to what we are discussing here.


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## twa2w (Mar 5, 2016)

none said:


> Actually you're wrong. It's totally independent of returns but actually the MER spread. This is, of course assuming that both products have equal returns and what I'm doing and his fund are more less equivalent as I obviously risk adjust it based on cash out..


So I gather you are just doing you calculation on the fee spread. True that over the period in question the fee difference will be approx what you claim assuming they are both index funds following the same market except for minor variations in tracking error.
Fees are charged on the daily closing balance so no two non index funds track each other exactly. Even if both funds end the year at10% gross return, the net return can be different than the spread in mers. So yes performance and timing of returns can make a difference between funds.
Unfortunately no one can accurately tell in advance who will outperform and when. So to your point and to the OP, you are generally better to take the lower fee fund if chosing between two funds that follow the same index and style.


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## james4beach (Nov 15, 2012)

happy_guy said:


> Thanks to all for your posts. I should have mentioned that the mutual fund is: RBC Target 2030 Education Fund


Here's the Morningstar page for this fund
http://quote.morningstar.ca/quicktakes/fund/f_ca.aspx?t=F00000OJV7&region=can&culture=en-CA



> Is it true that MER is supposed to go down every year


I don't see any evidence of this, no.



> and is it true that the Fund Manager ensures that, as the RESP approaches its maturity, the investment be moved from being equity driven to cash driven?


Yes it's true that as the RESP approaches 2030 the fund will become less equity driven and more cash/bonds. It will become less risky and less volatile as you approach 2030 which is a really good feature.

The fund is a pretty a pretty well globally diversified "balanced fund" type of fund. I'll spare you the details but I can compare this to an ultra-efficient investment alternative with the same underlying investments. Calculating 3 year performance of the ultra-efficient portfolio = 6.5%. And the Morningstar page for the mutual fund you mentioned shows 3 year return of 5.3%.

So compared to the ultra efficient benchmark your mutual fund is showing about 1.2% less annual return. That's the down side and by my calculation it's not quite as bad as the 1.93% fee. The up side is that the fund is actually pretty well diversified, and it's designed to shift its contents over time to reduce risk as you approach 2030. Those are big up sides. The difficult question is whether those benefits are worth the approximate 1% annual performance drag.

*Question 1: can you find an equivalent (global balanced fund) but better, investment at RBC?*

No. Among RBC's options for this kind of investment, you're already in a pretty good one. If you're staying at RBC, then I wouldn't touch a thing, just leave it as is - the investment is good by RBC standards.

*Question 2: can you find an equivalent type of investment elsewhere?*

Maybe, but no guarantees. Arguably, Mawer Balanced Fund is equivalent to your current investment. The main reason you'd expect better performance is that the similar Mawer fund has 0.94% MER compared to the RBC fund's 1.93%. That suggests that the Mawer one will have about 1% per year better performance.

However, what you would lose by switching, is that the RBC fund automatically becomes less risky and less volatile as it nears 2030. This is a nice feature. You could accomplish a similar effect with some manual work at Mawer (you would slowly shift money into a Bond Fund and Money Market Fund over the years).

*Question 3: so what's your best option?*

This depends on two things: (a) whether you're willing to transfer this out of RBC into a new mutual fund company and (b) whether you're willing to learn how to change asset allocations yourself to replicate that "2030 maturity" feature.

If the answer to (a) and (b) are YES, then you might look at the Mawer Balanced as dubmac wrote. It's probably a better, and equivalent investment, except that you will have to manually shift money between mutual funds over time to do the same thing your 2030 target fund does.

That part isn't a lot of work, and it's something you can definitely learn how to do. The potential benefit of moving from RBC to Mawer for this is maybe 1% performance benefit per year, but remember, that's not a guarantee. For the sake of argument let's pretend that you'd be 0.5% per year better off going with Mawer. Over 13 years the benefit in overall return = 1.005^13 = 1.067 or about 7% higher end result.

Is that 7% higher ending balance worth the switch? Only you can decide that. You'd have to consider how much you trust Mawer vs RBC, quality of service from Mawer vs RBC, the effort of doing the RESP transfer, and whether you can learn to adjust the asset allocations to accomplish that 2030 target thing.


_Notes and disclosures: my family has some significant investments in Mawer Balanced Fund. They only have physical offices in Calgary and Toronto so if you're in another city, you can't visit them in person. This matters to some people._


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## james4beach (Nov 15, 2012)

happy_guy said:


> 2. As it stands currently, group RESP with lots of investors involved, can I ask RBC to have a 50-50 split on cash and mutual fund so that 50% of my money is not invested anywhere but remains untouched in the account? For such cash, I would be happy to only receive the 20% grants given by the Government.


Regarding this comment about 50-50 split, could you clarify why you're interested in doing this? Is it because you don't want as much investment risk as RBC Target 2030 Education Fund, or is it to avoid the MER (annual fees) of the fund?


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## twa2w (Mar 5, 2016)

The mer on the target fund does change as the asset mix changes. This mutual fund is a fund of funds. RBC does not charge any additional MER over and above the MER of the underlying funds. So as the higher MER equity funds are replaced by lower MER fixed income and money market funds, the MER of the fund will reduce accordingly.
As to performance of fund
2012. 4.6%
2013 17.3%
2014. 9.3%
2015. 4.6%
2016. 6.1%
Not great but better than cash or a gic.


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## james4beach (Nov 15, 2012)

If that's true, that the higher MER is only due to the equity-heavy funds and they will be reducing over time (i.e. MER goes down) then ... I'm inclined to say, this is a pretty good investment and just leave it as is.

It might not be worth changing it at all. If you were to go to one of the alternatives like Mawer, I can imagine perhaps 0.5% to 1.0% annual benefit due on MER, but that benefit shrinks as the MER on the RBC one comes down. I was already estimating an expected benefit of 0.5% per year but if the RBC MER is coming down over time, you're _now down below 0.5% per year benefit_.

Overall, the RBC Target 2030 Education Fund is pretty good. It really is a globally diversified balanced fund *and* it's going to reduce your equity exposure automatically.

happy_guy: I don't think you made a mistake at all. This is not bad, all considered.


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## happy_guy (Mar 26, 2016)

james4beach said:


> Regarding this comment about 50-50 split, could you clarify why you're interested in doing this? Is it because you don't want as much investment risk as RBC Target 2030 Education Fund, or is it to avoid the MER (annual fees) of the fund?


Thanks james4beach for a comprehensive analysis. I will stick to RBC.

And, yes, you got it right. I am willing to split it 50-50 for exactly those 2 reasons: lowering mutual fund investment risk and lower MER.

Speaking of lower the investment risk, is there another way of doing it? Like, changing the investment mode? Are there 3 basic modes of investment? Aggressive, Balanced, Conservative? My quarterly reports show that my investment is all toward "Balanced Funds".


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## happy_guy (Mar 26, 2016)

twa2w said:


> The mer on the target fund does change as the asset mix changes. This mutual fund is a fund of funds. RBC does not charge any additional MER over and above the MER of the underlying funds. So as the higher MER equity funds are replaced by lower MER fixed income and money market funds, the MER of the fund will reduce accordingly.
> As to performance of fund
> 2012. 4.6%
> 2013 17.3%
> ...


Thanks twa2w for having taken the pain of going over all those years' data on Target 2030.


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## Belka (Apr 14, 2017)

Which series of the 2030 Fund do you have? The Series D has the lowest MER.


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## twa2w (Mar 5, 2016)

Series d is available only through rbcdirect Investing. Easy enough for an RBC client to open an RBCDI RESP and transfer.
The only drawback is that in some provinces you may not recieve the provincial grants. The federal grants of course are in place.


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## happy_guy (Mar 26, 2016)

Belka said:


> Which series of the 2030 Fund do you have? The Series D has the lowest MER.


If it is D series, which is for Direct Investing as twa2w pointed out, then don't I have to manage its performance by myself without a Fund Manager?


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## happy_guy (Mar 26, 2016)

twa2w said:


> Series d is available only through rbcdirect Investing. Easy enough for an RBC client to open an RBCDI RESP and transfer.
> The only drawback is that in some provinces you may not recieve the provincial grants. The federal grants of course are in place.


Provincial grants? Isn't there only one grant, which is Federal and which is 20% of my contributions?


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## Belka (Apr 14, 2017)

happy_guy said:


> If it is D series, which is for Direct Investing as twa2w pointed out, then don't I have to manage its performance by myself without a Fund Manager?


You buy the D series fund through RBC Direct Investing. There are no trading fees for buying or selling, which is handy for investing smaller amounts. The D series is still the same mutual fund with the appointed fund manager. There is a lower MER since you are buying it via Direct Investing and there are no intermediaries.


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## twa2w (Mar 5, 2016)

happy_guy said:


> Provincial grants? Isn't there only one grant, which is Federal and which is 20% of my contributions?


Depends on what province you are in, Alberta, BC and Ontario have all at one time or another had various additional grants for RESP. There may be others I am not aware of. Most banks register for these programs but some brokerages did not due to the small number of accounts they held and the hassle for how little money it was.


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## twa2w (Mar 5, 2016)

Belka said:


> You buy the D series fund through RBC Direct Investing. There are no trading fees for buying or selling, which is handy for investing smaller amounts. The D series is still the same mutual fund with the appointed fund manager. There is a lower MER since you are buying it via Direct Investing and there are no intermediaries.


Just to add a little to Belk's reply, is that if you go into a branch, a salesperson will assist you in selecting or selling a fund. With Direct Investing, they can buy or sell a fund for you but they will not give you advice.
In your case(OP), you would go to the branch and ask them to open an RESP with Direct Investing. You also ask them to sign transfer papers to move your RBC bank RESP to your new direct Investing RESP. Ask them to move it in kind. That means you will keep the same investment. Direct Investing will automaticly roll it into the D series.
In the future when you want to make a contribution, you can call RBCDI, or go online, and transfer money from your RBC bank account to your Direct Investing account. You may have to phone or go into the RBCDI account the next day to invest the money.( and later to invest the grant once rec'd) 
If you want to sell the mutual fund, you can do it online or by phone. You can then buy a different fund or stock, or etf, or bond or gic etc if you wish. But no advice from the rep. Some transactions may incur a small commission( stocks, etfs)

Edit to add... At the branch you are limited to RBC funds. At RBCDI you have more choice and can buy other funds as well as stocks, bonds etc.

Hope this and Belka's answer helps.


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## happy_guy (Mar 26, 2016)

Perfect!


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