# Investment advice for an elderly person



## SamR (Oct 9, 2021)

First time poster... Seeking advice for a loved one in her early 80s recently widowed. She (and deceased husband) has been invested with RBC for several years. Roughly a few hundred thousand is invested with them (less than 1/2 mill). The fees are 1% to the advisor then I assume there are MERs attached to the investment products. I will be finding out more about exactly where the money is invested but I am assuming it's dividend stocks, bonds, and the like. To be honest, I am not investor savvy and I simply hold TD e-series funds and practice passive investing. Simple and long-term strategy I suppose. She has asked me to dig around for some advice. I am wondering if there are retirement income ETFs or similar products that she could invest in. Laddered GICs are always safe but the rate of return is pathetic these days.

Any simple suggestions that could give her a 3% to 4% without the costly advisor fees?

I came across this.. thoughts? Vanguard Canada

Thank you so much. Looking forward to some basic direction for further research...

Sam


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## AltaRed (Jun 8, 2009)

Until we know more about portfolio makeup, what is registered and what is not, and which RBC entity the accounts are with, e.g. RBC Dominion Securities? or?, we can't offer much for an orderly (if necessary) transition. That all said, my first reaction would be this widow could be perfectly suited for the Vanguard VRIF ETF you linked but one needs a DIY brokerage account , e.g. RBC Direct Investing, for that.

She could also be well suited for RBC InvestEase robo-advisor with a 0.5% AUM that puts her into a suitable asset allocation of iShare ETFs (total MER less than 0.7% including the 0.5% AUM).

I use RBC as the financial platform simply for ease of transition and comfort of familiarity. There is no point chasing other institutions.

The intent would not be just to get a 3-4% yield but to potentially also draw on invested capital to provide her with more cash flow. The VPW Withdrawal Table gives a perspective of portfolio withdrawals that are possible. It has similarities with RRIF withdrawal factors but is more granular (asset allocation based) than the plain vanilla RRIF withdrawal table.

Added later: A lot of this depends on cash flow components. What else is there...such as CPP, DB pension survivor benefits, OAS? All of these are factors in determining how little, or how much, the portfolio needs to generate. Portfolio choice/selection is the very last part of the overall analysis. Example: If all her primary cash flow needs are met in some form by annuity income, she can take more equity risk. If she is in need of portfolio cash flow, then it is a much trickier selection requiring on the one hand, capital protection but also income. FWIW, the Vanguard VRIF ETF is designed to pretty much guarantee a 4% sustainable payout indefinitely per Vanguard's backtesting analysis BUT that is not necessarily the right answer for this widow.


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## sags (May 15, 2010)

Unless an elderly person requires continual cash infusion, my inclination would be to put capital preservation at the top of the list.

Someone in their 80s would not have enough time to recover from a major market correction, which some say is long overdue.

Short term GICs might be the best option to preserve capital. There is a time of life when equities of any kind don't fit the investor profile.


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## SamR (Oct 9, 2021)

Thank you to the above responses. ALTARed you bring up some good questions/points to which I don't have all the answers. I am pretty certain she's invested with RBC Dominion Securities. How much is registered, I am not sure. I don't know the exact fees that she pays, but I may have stated 1% in my OP. Now are there other fees (MERs?) that are applied to the funds (depending on what they are?) My guess is yes, and so she may be paying in excess of 1% per year. I want to ask this advisor what the total fee(s) is. I hope that a clear answer is provided. 

You state, *"my first reaction would be this widow could be perfectly suited for the Vanguard VRIF ETF you linked.."* 
- are you suggesting that all (or most) of her investment could be placed in this ETF? 

This is the first time seeing the VPW table. Thanks for linking that. I will give it some thought. 

*"CPP, DB pension survivor benefits, OAS?" *She will retain her CPP and OAS but lose his OAS and retain 60% of his CPP (this is what we were told by a person in a similar position). We will confirm this this week when we meet with the funeral home. The funeral has passed but they offer a post-funeral consultation to go over what she will be entitled to, which is included in their fees. They did not receive a DB pension as they were self-employed. 

You seem to suggest that the Vanguard VRIF ETF might be a viable option. I will look into it further. I wonder if that plus some laddered GICs would be worth looking into. Is there a general rule of thumb as to how much should be placed in equities (probably no more than 20% for), fixed income, cash, etc?

I am helping her with a budget this week as well. She (and he) weren't good at tracking a budget. Never too late, I suppose. This will help in determining the answer to some of the topics covered above. 

I will have more answers by mid-week. I look forward to continuing this conversation if others are so obliged! 

Thank you!


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## AltaRed (Jun 8, 2009)

Thank you for additional information . With no DB pension, the most annuity income the widow will likely have then is full CPP + OAS. That likely wasn't enough to live on so they were living off their portfolio as well, either just the investment income, but more likely some of the invested capital as well (which is what 4% SWR or VPW is all about anyway).

RBC DS has a standard "% of AUM" fee schedule that shouldn't be hard to discover. There is no way that advisor will talk to you with out the widow's presence though. Whether there are other MERs will depend on what the investments are in BUT the MERs should be minimal (F class mutual funds which can still have a management fee of 2% or more, or the low MERs of ETFs). You can only ascertain that by knowing what is in the portfolio.

I mention VRIF because it is 50/50 equity/fixed income and is designed as a retirement income vehicle to deliver 4% yield in a sustainable way (Vanguard themselves expect to only have a Return of Capital component 1-2 years out of 10 and I believe that). She could basically get 4% out of that holding indefinitely. But she will need a DIY brokerage account or pay an advisor anyway to manage that on her behalf. VRIF may be too much equity (50%) for her and if so, then a combination of VRIF and a GIC ladder could be a better choice, albeit at a lower return and investment income yield. Someone will have to still manage that portfolio for her.

There are rules of thumb for equity/fixed income asset allocations. Rules of thumb for amount of equity could be 100-age, or 110-age.... the latter having more traction in recent decades because having some equity will always be important to participate in the market to some degree. Some folk think a balanced portfolio (60/40 equity/fixed) is appropriate for all ages. FWIW, my mother was still 15% equity at age 96 when she died. Equity allocation can always be a bit higher when there is a lot of annuity income available that may cover all the basic expenses.

The point about asking how much is registered vs non-registered is because the non-registered will have unrealized capital gains. Any overhaul of the non-registered portion will trigger cap gains taxes.


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## agent99 (Sep 11, 2013)

I am in same age group! Not quite ready yet, but I have looked at what RBC have to offer. For the portfolio size, the options are RBC Direct investing (their DIY on-line brokerage), RBC Dominion Securities (their full service brokerage that likely charges a % of portfolio value), Invest-Ease that is aimed at smaller portfolios (under 1/2 million?) and offers a mix of ETFs that varies according to investor's objectives. Fee is lower. Through their PH&N subsidiary, they likely also offer portfolio management. Many options to investigate an choose from. RBC probably as a good a choice as any. BMO and others have similar offerings.

My advice, would be to contact RBC and get their advice on which of their programs would be most suitable. If there is a PH&N office in your area, maybe contact them directly.

I wouldn't get too hung up on fees because their offerings will likely outperform most DIY options you may choose. I wouldn't hang her hat on one or two ETFs that you learned about on the internet 

I don't know if you mentioned whether or not the funds were unregistered or partly in a RRIF or TFSA. That is important and would be useful to know.

If you go with one of the age based formulas Alta quoted for % fixed income, the funds almost certainly will not generate the desired income. Again, get advice from RBC/PH&N based on her needs. They should hopefully be able to do better than a DIY GIC ladder for fixed income.

ADDED: Don't assume she will get 60% of deceased's CPP just because someone else did. When applying for CPP, there was, I think, an option to share CPP with spouse that may have reduced the pension. They may or may not have chosen that. They also may or may not have chosen to have tax deducted on payments. There are other factors that can seriously affect the amount of CPP survivor will receive:

These links explain:
Survivor's Pension - Canada.ca








Understanding the CPP survivor's pension - Retire Happy


Here's how CPP benefits are calculated when someone is eligible for both a CPP retirement pension and a CPP survivor benefit.




retirehappy.ca






https://www.cbc.ca/news/business/cpp-survivor-benefit-shock-1.5170879


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## SamR (Oct 9, 2021)

Thank you.. I will consider these updated posts and reply accordingly once I have more info... btw, I will most definitely be present when the advisor is contacted. I am her son and have power of attorney.


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## AltaRed (Jun 8, 2009)

Reflecting on the various posts, including what Agent99 just wrote above, and my very first response, product selection is really the last leg to be selected in the financial plan. I believe the first thing to understand is what the widow needs the portfolio to deliver by first calculating the budge and then seeing how far annuity income meets that plan. It is only when one knows the shortfall (including an allowance for income taxes) can one determine what the portfolio needs to deliver to close the gap with the appropriate equity/fixed income asset allocation (age based rule, etc).

I agree with Agent99 that an advisor can often make up for at least a portion of their fee, but that is often more applicable to larger and less senior portfolios (younger clients) who can tolerate inclusion of alternative investments such as private equity, gold, prefs, etc. in them. Alternative investments are not the place to be for an early 80s plus widow with a portfolio <$0.5M. Thus, regardless of who manages the portfolio, there are still only X numbers of market investments and products to pick from, i.e. a deck of cards still has only 52 cards. The only difference is how to play them. If the existing advisor cannot earn his/her AUM fee, then it is time to consider RBC Investease at 0.5% (<0.7% including ETF MERs) as a viable alternative. KISS principle.

Added later: As already mentioned, the first few things for us to understand in order to provide more suggestions are: 1) percentage of portfolio in each of RRIF, TFSA and non-registered accounts, and the types of assets, e.g. individual securities, ETFs and/or mutual funds, 2) portfolio performance vs performance benchmarks such that after fees the advisor is paying his/her way. The appropriate benchmark can be obtained from Asset Mixer for 1, 3, 5, 10 year periods if one wishes. One can use 3-5 allocations of components from the list for the time period being tested to see how well the portfolio has performed against the performance benchmarks. It may be the advisor is doing a fine job and nothing more needs to be considered.


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## mattw (May 14, 2013)

sags said:


> Unless an elderly person requires continual cash infusion, my inclination would be to put capital preservation at the top of the list.
> 
> Someone in their 80s would not have enough time to recover from a major market correction, which some say is long overdue.
> 
> Short term GICs might be the best option to preserve capital. There is a time of life when equities of any kind don't fit the investor profile.


This is not necessarily true. If the client is still generating positive cash flow and can plan around potential retirement care costs then equities shouldn't matter.
At that point the money is more invested for the estate/beneficiaries so discussions with them would make sense.


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## AltaRed (Jun 8, 2009)

Assuming annuity income and the portfolio is large enough to do so. 

In this particular case, annuity income is limited to CPP and OAS (either at maximum or less so) plus whatever <$0.5M portfolio can deliver. Circa $24k of CPP+OAS and 4% of $500k is $44k which requires either some equity returns or a good depletion of invested capital. That is a relatively modest lifestyle. One of the reasons I initially posted in support of VRIF but I digressed by jumping ahead to possible outcomes. 

Knowing budgetary cash flow need from the portfolio is the starting point.


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## agent99 (Sep 11, 2013)

One thing I sometimes do, is look at what would happen if we put our savings into virtually 100% safe fixed income and plan to draw our portfolio down for the rest of our life. A base case for comparison with other options.

Current case (You are welcome to check this pensioner's assumptions and math!)

The widow is in her early 80s. Lets say she has a 15 yr horizon. She has something less than 1/2 a million. Lets assume $375,000. Lets also assume that both inflation and interest on savings will be 2%. So we can work in current dollars. $375,000/15=$25,000 per year. 

She will have CPP and OAS on top of that and it too will be indexed. From what I can gather, this will be $635/mo OAS plus $1204/mo CPP (If the deceased received the maximum) Total 635+1204 x12= $22,068. (GIS would not apply because even without investment income, this is above the GIS limit (~$19k) )

Total indexed income would be ($25k + $22.068k) = $47,068pa before taxes. Maybe ~$40k after taxes? Not great, but not that bad? But does it meet widows' requirements?

This would be risk free if the savings were invested in GICs. But you can't get 2% at big banks and other major institutions. Rates also vary depending whether registered or not. 2% also assumes 5yr GICs with the funds locked in. A ladder would be needed so that funds would be available annually. 

I am sure something could be worked out to provide an on-going risk free income while gradually drawing the savings down to zero over 15 years. After that point OAS/CPP may be sufficient.

This would be the base case. An advisor could add some risk and increase the withdrawal rate. A yield that will exceed the inflation rate - after taxes will help a little. But an extra 0.5% won't change the available annual income much. (+$1875pa) Higher yields come with risk of losses in capital. Probably should be minimized at this stage given small amount of retirement capital.

I sometimes do this type of analysis for ourselves. Convert everything to cash and draw our savings down!


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## SamR (Oct 9, 2021)

She does have $500 of other income - a private loan to family that she will receive until she passes. They did this with a 5% interests tacked on - interest only loans. As well, she has brought in a tenant at $1,500. I don't know how long this person will remain there but definitely for the foreseeable future.

I got a hold of her statements from RBC DS. As I stated at the beginning, I am by no means an authority on investing (as is probably evident by this point!). I am in the process of trying to distil the info. At a quick glance, they are various corporate bonds, ETFs and the like... I will be back tomorrow to add comments and questions!


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## SamR (Oct 9, 2021)

So here is an asset summary of her investment account as of Sept 30 as it is listed in the RBC DS print out she just received:

Cash 1.54%
Fixed income 0%
Preferred shares 0%
Common shares 77.61%
Mutual funds 0%
Foreign securities 20.85%
Managed assets 0%
Other 0%

I will be contacting the portfolio manager (hopefully today) to find out what his fees are. What should I ask him other than what his management fee is?

Here is the list of assets:


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## AltaRed (Jun 8, 2009)

This is a classic portfolio from a full service advisor. It does not surprise me but it disappoints me there are more than 10-15 holdings in an account of that size. This is the way full time advisors make clients believe they are doing something sophisticated to earn their keep.

There is no reason to mix individual common share holdings with ETFs, nor is there any need to have a number of 'boutique' ETFs that sound cool but are financially engineered products with high(er) MERs. Several of those ETFs likely have MERs more than 0.1-0.2%. There is also no reason to have more than about 3 ETFs in this portfolio, or at the very most, about 5-7 ETFs that Vanguard would have in their VBAL ETF or Blackrock would have in their iShares XBAL ETF. What is in this portfolio is a dog's breakfast.

Additionally, the asset allocation as depicted by DS is not correct either because they mis-classify the bond ETFs as common shares when they actually fixed income. The advisor needs to provide his client with a correct asset allocation re-classifying the bond ETFs as fixed income.

What you can ask the portfolio manager is what "% of AUM" is being charged, but that should be on the monthly statement anyway, or at least once per quarter. There should be no need to ask. Lastly, ask the portfolio manager what the total MER is (dollars) that is being paid each month by the total of the ETFs in the portfolio. While a DIY investor would also have MERs on ETFs they would select for themselves, the true cost in this portfolio is the portfolio manager's fee PLUS the MERs of the underlying ETFs.

Lastly, there needs to be as assessment of actual portfolio performance measured against the right performance benchmark (which I indicated earlier in post #8 using the Asset Mixer... or something as simple as Vanguard VBAL or VGRO performance of the past 3 years depending on equity/fixed income mix is closer to 60/40 or 80/20. If the actual portfolio net of management fee is beating the performance benchmark, then the dog's breakfast portfolio can be excused. If the portfolio is underperforming the benchmark, then the advisor needs to advise what he/she is going to do to simplify and streamline and cut costs to get it to the performance benchmark.

Added later: This is the sort of thing I have been helping friends and family with for over 10 years and so it hits a raw nerve with me, and hence my 'assertive'? tone in this post. I have torqued out more than one advisor and fired more than one advisor for playing these games. That all said, if most of this portfolio is in a non-registered account, unrealized capital gains may make this difficult to overhaul without incurring too much tax, and if this portfolio is actually meeting performance benchmarks, it may be best to leave well enough alone. Remember it is not the advisor's management fee itself that matters as much as how the portfolio is performing for the client net of fees.


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## SamR (Oct 9, 2021)

Interesting and thank you very much for the candid response. Would love to hear from others as well. 

I cannot find the % of AUM anywhere on nether statements, btw. I will ask him all the questions you've raised. I'll probably come back here for more info and I'll likely have a few more questions along the way. I have no idea how much is in registered accounts but I believe that my dad did request that he max out his TFSA somewhere along the line. Not sure what came of that so I will need to ask specifically what portion is registered (I guess?).

Thanks again.


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## SamR (Oct 9, 2021)

And to address your last statement: "it is not the advisor's management fee itself that matters as much as how the portfolio is performing for the client net of fees." 

Her YTD income is less than $8000 (I assume after all fees?) - she needs more than that! I calculate that less than 3% over the course of 12 months based on what she has invested..


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## AltaRed (Jun 8, 2009)

You said in post #13


> So here is an asset summary of her investment account as of Sept 30 as it is listed in the RBC DS print out she just received:


 What kind of 'investment account' or in plural 'investment accounts'? The summary presumably has to identify what is in each of TFSA, RRIF, non-registered and there has to be separate monthly (or quarterly) account statements for each type of account.

Presumably, the monthly or quarterly account statements have to provide something regarding advisor fees, whether a "% of AUM" arrangement, or whether classic commission based, e.g. charging a commission for each trade. At one time, all full service accounts were commission based but most of the industry has converted to "% of AUM". That has to be indicated somewhere, and at least once at the end of each year either on the December statements or a separate statement.

As to your post #16, I am not talking about just YTD income when I mention investment performance. I am talking about the "Total Return" of each account, which is investment income plus portfolio capital growth on an annual basis. For 2021 YTD to Oct 14th, for a balanced 60/40 equity/fixed income portfolio, it should be in the order of 7% as measured by VBAL as an example, Vanguard Balanced ETF Portfolio, TSX, ETF, performance | Morningstar (investment income + capital growth).

Regulations require that portfolio managers calculate and disclose both annual and multi-year returns for each account at the end of each year. It is those Total Return numbers that get compared with the appropriate benchmarks to see how well the advisor is managing the accounts.


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## SamR (Oct 9, 2021)

I will look into this and get back to you... thanks again!


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## SamR (Oct 9, 2021)

Another question, ALTARED - you state_ "Several of those ETFs likely have MERs more than 0.1-0.2%."

 - so each time something is bought and sold in this account, are fees applied? I have no idea if fees are being applied if and when the portfolio manager (or whoever is working behind the scenes) buy and sells a product within this envelope. _


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## SamR (Oct 9, 2021)

ALTARED, you state "there needs to be as assessment of actual portfolio performance measured against the right performance benchmark (which I indicated earlier in post #8 using the Asset Mixer... or something as simple as Vanguard VBAL or VGRO performance of the past 3 years depending on equity/fixed income mix is closer to 60/40 or 80/20. If the actual portfolio net of management fee is beating the performance benchmark, then the dog's breakfast portfolio can be excused."

-so if I obtain three years of statements, and calculate the performance of the entire portfolio, then measure it against something like VBAL, I should be able to see how it performs.. but are his fees being subtracted from the Income summary? What do I refer to when trying to calculate this? The income summary? In that summary I see Dividends, Interest, Other, then a total. And there is a column for the current month and YTD. So if the year to date is say, $8000 or so, do I take that figure and divide into the overall investment total? So $8,000/500,000 - a 1.6% return?

Just a little confused as to how one arrives at figuring out how to calculate the performance of the portfolio.


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## SamR (Oct 9, 2021)

And assuming that they maxed out on TFSA contributions in this account, does my dad's TFSA portion simply disappear and only her contribution portion remains? I will need to ask him specifically what is in a registered account, I suppose... This seems to be getting a bit complex and confusing for an amateur like me! I think we would need too talk to a tax expert on this matter. As you stated above, she should be concerned with tax implications as we review this portfolio and consider alternative investments for her.


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## AltaRed (Jun 8, 2009)

SamR said:


> Another question, ALTARED - you state_ "Several of those ETFs likely have MERs more than 0.1-0.2%."
> 
> - so each time something is bought and sold in this account, are fees applied? I have no idea if fees are being applied if and when the portfolio manager (or whoever is working behind the scenes) buy and sells a product within this envelope. _


Within a portfolio of stocks, bonds, ETFs, etc, the financial advisor (portfolio manager) buys and sells the holdings within this account. The advisor is compensated in one of two ways: 1) either by 'commission' to buy and sell a holding such as an ETF, or 2) on an account basis called "% of AUM". You have not yet disclosed to us which compensation arrangement this widow has with RBC DS for her account (or accounts plural if that is the case).

The ETF product itself such as VBAL also has an MER of its own (management fee plus trading costs + administration costs) that Vanguard charges (in this case 0.25%) to manage the VBAL product. That 0.25% MER is taken off the returns of VBAL before the returns of VBAL are reported/posted to owners of VBAL. So that MER is an indirect cost to the customer that is not reported on Cost Summaries to clients at the end of each year.

The costs the customer sees, as reported on account statements each month, or quarter, or year (annual is required) are strictly the costs paid by you to the broker, e.g. RBC DS, and are a direct burden to account performance (investment income, etc, etc.).


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## AltaRed (Jun 8, 2009)

SamR said:


> ALTARED, you state "there needs to be as assessment of actual portfolio performance measured against the right performance benchmark (which I indicated earlier in post #8 using the Asset Mixer... or something as simple as Vanguard VBAL or VGRO performance of the past 3 years depending on equity/fixed income mix is closer to 60/40 or 80/20. If the actual portfolio net of management fee is beating the performance benchmark, then the dog's breakfast portfolio can be excused."
> 
> -so if I obtain three years of statements, and calculate the performance of the entire portfolio, then measure it against something like VBAL, I should be able to see how it performs.. but are his fees being subtracted from the Income summary? What do I refer to when trying to calculate this? The income summary? In that summary I see Dividends, Interest, Other, then a total. And there is a column for the current month and YTD. So if the year to date is say, $8000 or so, do I take that figure and divide into the overall investment total? So $8,000/500,000 - a 1.6% return?
> 
> Just a little confused as to how one arrives at figuring out how to calculate the performance of the portfolio.


 There should be no need to calculate anything. Each account should be, by regulatory requirement, disclosing the 'return performance' of the account at the end of each year, either in what is called 'money weighted' terms or 'time weighted' return basis. For now, it doesn't matter which way it is done. Performance return of an account includes the "investment income" plus capital appreciation of the account over the year. Your calculation in your post is only using investment income of $8k and yes that will need to be net of the advisor's fees.

If there were no contributions or withdrawals from the account in any given year, return performance would be easy to calculate in that it would be account value change over the course of one calendar year. Example: An account worth $200k at the end of 2019 and then worth $220k at the end of 2020 would have a 20% return. That return could be made up of $8k of investment income like dividends and $12k of capital appreciation of the holdings.

It is more complicated when there are either contributions or withdrawals to an account during the year. Spreadsheets using the XIRR are necessary to calculate the performance return of the account and few people can do that. That is why the regulator requires brokerages to calculate that for its clients at the end of each calendar year.

Lastly, until you actually know the asset allocation of the account(s) between equity and fixed income, you cannot test the actual performance of the accounts against any performance benchmark. The performance benchmark used, e.g. 60/40 equity/fixed income or 80/20 equity/fixed income, needs to approximate the equity/fixed income asset allocation of the actual accounts. The asset allocation you provided in post #13 is bogus because bond ETFs are fixed income, not common shares. The financial advisor should have been providing his/her client with the actual asset allocation for the aggregate of the accounts on an annual basis. In my view, there are only 4 primary categories that should be used in asset allocation comparisons. Equity (consists of common equity on a global basis such as Canada, US, International PLUS preferred shares), Fixed income (consists of bonds, GICs, debentures, Tbills), Cash (straight cash) and Other, where Other is often a catch all for things like Gold. Sometimes Preferred shares are included in Other because they are a bit unique from either Equity or Fixed Income. 

The listings in post #13 are something used by a brokerage and are not relevant to the client for performance measurement purposes. As a minimum, the financial advisor has to calculate the proper asset allocation for the widow. It is part of the KYC (Know Your Client) regulatory requirement for risk profile.

Until you know what the asset allocation is for this widow, you can't pick the appropriate performance benchmark, whether it be VEQT (100/0) VGRO (80/20), VBAL (60/40), VRIF (50/50), VCNS (40/60) or VCIP (20/80) or similar using the Asset Mixer tool I provided a link tool in an earlier post if you wish to be more precise in a benchmark.

For the record, the early discussion in this thread was debate around what the right Asset Allocation should be for a widow in her early '80s. My view is it should NOT be more than 50/50 equity/fixed income given the annuity income (CPP/OAS) and portfolio size (<$500k) of this widow, and some are saying it could/should be as low as 0/100 with no equity whatsoever to take away market risk. I am not of the view the widow can afford to take 0% equity because the portfolio could be depleted to zero in 15 years IF her budgetary pull from her brokerage accounts needs to be more than about $25k per year....and thus the reason we have been asking what her budgetary need from this portfolio is. 

To summarize, the key information you (and we) need to know before you can make any meaningful recommendations on any portfolio change is:
1. Her budgetary need (draw) from the portfolio
2. The actual current asset allocation of her portfolio (this is the financial advisor's job to provide that)
3. The actual performance of this portfolio over at least the past 3 years (there are regulatory requirements for this to be provided to the client for at least the past 3-5 years at the end of each year). This should already be known from end of year client statements.
4. Using the information from 2), pick the appropriate performance benchmark and then compare actual portfolio performance 3) against this benchmark.

It may well be the portfolio is meeting performance benchmarks but the portfolio itself is a dog's breakfast as I alluded too earlier. I have no idea why the portfolio contains some of the holdings it does. It looks like the portfolio manager went to a buffet and put a little of everything on the plate. It should be cleaned up with more focus on 'income oriented' holdings to generate higher investment income than the current portfolio does, and it should do so either with a few very low MER ETFs and/or high(er) yield dividend stocks. For a widow in her early '80s, this portfolio should be generating a good 3-5% cash yield (dividends, distributions, interest, etc.) net of fees to her, i.e likely more than the $8k you have been quoting to the end of Sept.

Without knowing more, my hunch is this portfolio is too aggressive for an early '80s widow. It should be no more than 60/40 balanced (as in VBAL), or preferably lower such as 50/50 (VRIF) or even VCNS (40/60). The traditional/historical view for equity/fixed income allocation is the "100-age" or the newer "110-age" factor for equity percentage. That puts equity in the range of 20-30% for this widow in the traditional sense. That all said, fixed income has become a non-performer with low interest rates and it would be, in my opinion, a mistake to put too much more into long term bond ETFs which will underperform for some time until the interest rate yield curve moves up more. So equity percentage likely should be a bit higher...but not by much.

There is not much more that can be said here, and whether to stay with this financial advisor or not, until the 4 unkowns I listed above are known.


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## SamR (Oct 9, 2021)

AltaRed said:


> 1. Her budgetary need (draw) from the portfolio
> 2. The actual current asset allocation of her portfolio (this is the financial advisor's job to provide that)
> 3. The actual performance of this portfolio over at least the past 3 years (there are regulatory requirements for this to be provided to the client for at least the past 3-5 years at the end of each year). This should already be known from end of year client statements.
> 4. Using the information from 2), pick the appropriate performance benchmark and then compare actual portfolio performance 3) against this benchmark.


1. at minimum, she needs to draw about $900 from the portfolio (recently this has fallen short - only $500+ in the last reported month but as high as $1050 in the spring)
2. I will find this out shortly - hopefully this week
3. see #2
4. once #2 and #3 are confirmed

Thank you for your assistance. I will provide this information as soon as I receive it.


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## AltaRed (Jun 8, 2009)

As an FYI, a good advisor would manage the portfolio to provide what the widow has articulated is her need, i.e. if she needs $900-1000/month, then the advisor generates that cash flow out of the account... through investment income alone, or by also crystallizing some capital gains (selling something) to make up the difference. For someone in their early 80s, drawing on invested capital should be part of the process. That is how various withdrawal strategies work, e.g. 4%SWR or the VPW table, etc. I am guessing some of this may not have ever been articulated to the advisor, and not needed due to the extra CPP and OAS that had been received by the now deceased spouse.

At the end of the day, we won't know if the advisor is doing a good job or not for fees earned until we know answers to #2, 3 and 4.


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## SamR (Oct 9, 2021)

telephone meeting scheduled for tomorrow morning... Will prepare questions - I think I'll post them here to run them by y'all and make sure I don't miss anything. 

Cheers


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## SamR (Oct 9, 2021)

Met last week... confirmed that 100% of the investment is unregistered. Not much can be done as others have pointed out that the tax implications of switching would make this moot... I did inform him that she should max out her TFSA so they should move the maximum if her TFSA allowance. I don't know if that would trigger tax implications? Either way, probably worth it. I also instructed him to rebalance the portfolio at no higher than 50% in equities. At this time it is closer to 56%. Perhaps 45% would be better given her advanced age?

Thank you for the tips. I feel that given her age and the complications involved with changing her investments altogether, that it would not be worth the trouble. 

Cheers


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## AltaRed (Jun 8, 2009)

I am having trouble with an apparent contradiction. You have mentioned on occasion about TFSAs and yet you now say 100% of the investments are non-registered. Which is it?

ISTM there should be a few other instructions beyond limitations at 50% equity, namely: 
1) elimination of any 'fund' products that have a management fee exceeding 0.5% as an example and/or perhaps 1% at the extreme.
2) consolidation over time into far fewer holdings, e.g. eliminate one at a time as holdings need to be sold to fund cash flow needs
3) consolidation over time into holdings with higher yield so as to minimize need to sell holdings to meet cash flow needs.
4) what have been the portfolio CAGR returns annually and multi-year basis, e.g. 1, 3, 5 year basis, and how do they stack up against the relevant benchmark for the asset allocation? The advisor is not doing his/her job if they cannot more, or less, meet the performance benchmark after fees. Ultimately a small gap between actual and benchmark won't mean much with perhaps only a 10 year 'remaining life' target and I would not get torn up about that.

Have you and the widow established how much cash flow needs to be withdrawn from the portfolio on, for example, a quarterly basis to meet her budgetary needs? The advisor should be able to articulate a general plan on how that is to be done.


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## SamR (Oct 9, 2021)

She apparently had zero contribution in the TFSA. I thought she did bit the advisor informed me otherwise. I am not sire why to be honest. 

I will address the other points with her/him. I agree - it can't be just simply a matter of reducing the equity portion of the portfolio.


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## AltaRed (Jun 8, 2009)

The advisor has been rather incompetent not looking at the bigger picture, i.e. ensuring the use of the TFSA vehicle and making sure it is topped up to maximum contributions all the time. There is no free lunch better than the TFSA.

Any reduction in the equity asset allocation of the portfolio will require the sale of equity holdings. That will trigger cap gains and/or capital losses as the case may be. That should be spread out over a year or two to minimize excessive income taxes and/or to avoid getting into another tax bracket and/or to to avoid OAS clawback. That is what a good advisor earning 1% of AUM would do. If equity holdings are doing to need to be sold to get to 50% equity allocation, then my previous points also apply. IOW, do it right to get this widow into a proper asset allocation that provides more cash flow.


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## Spudd (Oct 11, 2011)

The more I deal with my mom's full service advisor, the more I realize they're really not earning their keep. My mom also didn't have any TFSA when I took over. So I told them to open one immediately. They did. Then this year, I wasn't paying full attention to her stuff, assuming the advisor had it in hand. In October I was perusing her monthly statements and realized she had never made her TFSA contribution this year. I emailed the advisor and they said "Oh, you need to tell us to do that, we can't do it without your authorization." Thanks. For this I pay you like 30k/year?


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## Beaver101 (Nov 14, 2011)

^


> ... For this I pay you like 30k/year?


 ... wow, looks like someone needs to fired, if not roasted first. 

Has the "advisor" done a financial plan for your mom even? [Don't be surprised he/she says "I'm just an "advisor (of what?)", not an "adviser or a financial planner"". What a f-joke collecting $30K a year puffing hot air to unsuspecting customers.]


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## AltaRed (Jun 8, 2009)

Spudd said:


> I emailed the advisor and they said "Oh, you need to tell us to do that, we can't do it without your authorization." Thanks. For this I pay you like 30k/year?


The sad part is the advisor should be automatically asking/prompting the client at the beginning of each year about TFSA contributions. And I agree with others that a financial plan should be part of every full service advisor's client package, along with how the portfolio will be managed to meet the plan.


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## londoncalling (Sep 17, 2011)

This is sad but not uncommon. It's a shame that people can be taken advantage of in this manner by "advisors" with little to no repercussion. As the general public are busy posting dances on Tic Toc and argue sharing their opinions about whatever on Bookface, this gets little to no attention. Along with terminating I would report this advisor. My guess is they did the bare minimum and had documents signed to cover their butt. It seems the business model for most things these days is to chase new customers that are unhappy with their current provider than to keep current clients serviced. not just finance but almost everywhere.


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## AltaRed (Jun 8, 2009)

In this particular case, it is probably not in the interests of a recent widow in her early 80s to change advisors. But it is worth taking the advisor to task about: 1) not having raised the issue of a TFSA, 2) having a dog's breakfast in portfolio holdings, 3) being so high in equities, 4) not having an articulated decumulation plan or apparently not even asking what cash flow needs are from the portfolio, or 5) providing some performance benchmarking.

In all fairness though, we don't know and maybe the OP and widow don't know either, just what conversations the now deceased spouse had previously with this advisor. Clearly there is need for more income now that the spouse has deceased and the advisor should already know that, or at least be asking the widow about that. That all said, a portfolio <$500k doesn't garner much attention from a full service advisor.


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## SamR (Oct 9, 2021)

We met with him yesterday and I brought up the concerns/questions/comments raised here. He acknowledged a different approach is required. As such, she will stay with him and see how it unfolds - as others have pointed out, switching at this point will trigger unfavourable tax implications. We did instruct him to set up a TFSA and in January he will move the maximum allowance (I believe approximately $80K?). We discussed what could be purchased and placed in the TFSA and I like the idea of one of Vanguard or I-Shares AA ETFs - perhaps VCNS or XCNS? Would it be advisable to move the entire TFSA allowance into something like this? Perhaps something more or less risky?


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## AltaRed (Jun 8, 2009)

Good to hear the FA accepts a different approach. Too many of them have fragile egos and get overly defensive being challenged. Seems like one can have a reasonable dialogue with this FA. 

For a widow in her '80s, a one step solution like one of Asset Allocation ETFs seems to be a good solution in her TFSA. It will be the last financial account she will want to tap.... depleting her non-registered investments first*. I suspect VCNS or XCNS would be a good choice to let ride for the next several years before needing to tap into it. 

I could even recommend XBAL or VBAL if her time frame for needing to tap into it is 10 years away, and particularly with rising bond yields at the moment. One could be in XBAL for the next 1-2 years until the bond yield curve settles down, and then swap into XCNS thereafter for lower volatility. Remember a swap between the two can be made at any 'opportune' time without any tax consequences in a TFSA. This is something to be discussed with the FA but truly, nothing wrong with XCNS to be more conservative.

*I say depleting the non-registered accounts first because if and when she does deplete the non-registered accounts someday, potentially at age 90+, her taxable income will then drop to only her CPP and OAS. She could then qualify for a GIS supplement to top up her annuity payments (withdrawals from TFSAs are tax free). There are ways to keep her taxable income low enough to optomize taxes and that is what an FA is paid to do as part of their "% of AUM'. Manage an orderly depletion plan!


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## SamR (Oct 9, 2021)

Does something like XCNS have a quarterly distribution? It would be most ideal if she could draw an income from it. I was thinking along the lines of what VRIF offers....

Thanks again for the amazing info.


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## SamR (Oct 9, 2021)

What about VRIF?


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## AltaRed (Jun 8, 2009)

SamR said:


> What about VRIF?


Depends on how she wants to position the TFSA. Should it be positioned for more growth rather tnan monthly 4% distributions? UNLESS she actually wants to pull the monthly 4% distributions out of the TFSA and not get much in the way of capital appreciation over time.

Part of the decision tree is how does one want to position the TFSA as I said in post #37. The FA needs to present a few different options on the financial (withdrawal) plan. 1) Deplete the non-registered first and grow the TFSA disproportionately, or 2) withdraw VRIF distributions monthly and supplement cash flow needs from the non-reg account (investment income plus capital depletion?

Either will work depending on when/how she might qualify for GIS once the non-reg account is essentially depleted.


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## SamR (Oct 9, 2021)

Just came across info on monthly passive income ETFs that offer up some decent yield - for instance ZWC is paying around 7% monthly. Other like iShares (XEI), Vanguard have ETFs with 3 to 4% yields.

Some solid holdings...TFSA eligible. What are your thoughts on these?


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## AltaRed (Jun 8, 2009)

Beware ETFs that have high yield. They are engineered to provide income at the expense of capital growth and may even have a significant Return of Capital component to them to meet distributions. Do some due diligence by seeing what types of income is in their annual distribution (and especially ROC component). Also look at annual performance numbers via Morningstar, e.g. for ZWC this ETF has performed poorly relative to Morningstar's Canadian Dividend and Equity index. The bottom fell out of ZWC during the Mar 2020 crisis and has not participated in the market surge upside since then. It lags with its covered call strategy. XEI has done better (near index returns) but has more volatility jumping around from top quarter to bottom quarter performance. This could cause a lot of angst.

High yield ETFs with a significant ROC component may be good for an elderly widow since she is in decumulation phase in the portfolio and portfolio growth is not the primary objective. These ETFs are not for those in accumulation mode because portfolio builders need growth to build their portfolios.

If your question is being asked of the elderly widow scenario, you need to be discussing with her FA whether one or more of the high yield ETFs make sense for her. They may well be suitable for the TFSA space you and the FA are trying to fill but which ones (ZWC and XEI are very different) are best suited for those needs. My personal view is ZWC volatility specifically is not suitable.


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## SamR (Oct 9, 2021)

AltaRed said:


> VRIF may be too much equity (50%) for her and if so, then a combination of VRIF and a GIC ladder could be a better choice, albeit at a lower return and investment income yield. Someone will have to still manage that portfolio for her.


Hey again, Folks:

About a year has passed since I last posted and not much happened over that 12 month period as she wanted things to settle down and didn't want to deal with the investments until she had some time to herself after his passing. Markets since I last posted have taken a major nosedive and she's lost some of her capital in the process. But GICs have suddenly become quite a bit more attractive and I think she is ready to make a move. She trusts me to help her manage this and I have been explaining to her that we could open an online brokerage account (such as Questrade or perhaps RBC's version of such). I am thinking about AltaRed's suggestion last year of a combination of a laddered GIC (or maybe a 1 and 2 year GIC?) along with the VRIF. I guess the GICs could be placed in her TFSA since that takes the biggest hit in terms of taxation. The balance could be placed in VRIF or similar... Or perhaps an even more conservative ETF?

Thoughts? Thanks!


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