Continue reading »]]> Ok, so the title is my own, but that’s the gist of the following articles.  Note the dates…this has been going on for a long time:

Jun 2003:

Some of the largest fund sponsors, most notably Investors Group, are among the most expensive.

Funds with higher MERs tend to have lower star ratings and have had worse performance results than those with lower MERs, and vice versa.

http://www.morningstar.ca/globalhome/Industry/News.asp?Articleid=ArticleID6620031641

May 2007:

Canada’s average asset-weighted expense ratio for equity funds was 2.56%, the highest of any country studied.

http://www.morningstar.ca/globalhome/Industry/News.asp?Articleid=ArticleID57200710121

November 2009:

Earth to Investors Group unitholders: You can get practically the same stocks with an MER of just 0.5% through the iShares CDNdn Index Fund (XDdV/TSX).

http://www2.canada.com/victoriatimescolonist/news/business/story.html?id=1de8b905-d81e-4f4c-a772-f9d296e736ff

 

This last quote (from the last article mentioned above) really sums it up:

“Canadians have only themselves to blame. We aren’t price  sensitive.We either don’t know what we’re paying or we don’t care.”

Continue reading »]]> Do you love your brother-in-law enough to buy him a house?

Family.  Can’t choose ‘em, can’t kill ‘em.  We make a lot of choices for our families, but the one we’ll focus on today is whether or not to hire your brother-in-law as your financial advisor.

I just spent the weekend with some great friends, and over a few beers on the patio in the sunshine the conversation drifted to what I would do if I left my current job/career.  I said that ever since I started helping my parents invest their inheritance, I’d thought more and more about financial planning.  They mentioned the fact that I might learn more about it from their brother-in-law, of whom I have a passing acquaintance, and who manages their portfolio.

A quick note about this couple.  They are very highly educated, a clutch of degrees between them, one of whom is a manager of a department with a million dollar budget, the other is a respected worker in the health-care field.  No shortage of brains. Really…some of the smartest people I know, living comfortably on a combined income well into the 6 figures.  However, when I asked them how much they were paying in fees, they had no idea.  The quarterly statements from IG doesn’t really spell out the MER in a percentage, and it certainly would not show a dollar amount, for every penny they get is a penny taken from you.

Their brother-in-law works for Investor’s Group.  Of course, I know the name, but I had never looked into their offerings.  We got home and I started doing some calculations.  After a quick look around their website, it seems the average MER is 2.5%.  Not promising.

My first thought was my parents, who have about $200,000 invested.  I know (because I set it up) that their low-cost ETFs and mutual funds have a weighted MER of 0.37%.  That’s $740/year.  If they were paying 2.5%, it shoots up to $5000/year, or over $400/month.  What advice could they possibly be getting for $400/month?  That’s a car payment!  That’s half a mortgage payment!  That doesn’t guarantee their investment against loss.

Now we’re getting close to buying your brother-in-law his house.

Let’s say you will invest $1000/mo for 30 years.  To make the math easier, let’s say that my friends are paying 2% points in fees more than they have to.

$1000 x 30 years X 6% annual growth =     $1,004,515.01

$1000 x 30 years X 4% annual growth =     $  694,049.30

Difference                $ 310,465.71

There’s your house.  Of course you’ll be paying more later in life as your portfolio grows, and less earlier, but for a moment imagine the $310K turned into a monthly fee…over $800/mo.

So how much do you love your brother-in-law?    If you’re not comfortable investing on your own, what about a fee-only planner?  Of course my first choice is learning about it on your own (read a book, FFS), but even if you paid a guy with a mahogany desk $5000/year, you’d still spend less than half the $310K.

But I would feel disloyal if I left him.  Yeah, I’m sure you would.  What about your other siblings?  Are you going to buy them a house, too?  I think the reasons people stay with mutual fund salesmen is a combination of laziness, fear, pain-in-the-ass paperwork, with a sprinkling of things like deferred sales charges that make it painful.  Breaking up is hard to do.  You’re right that in your first year, with a tender $12,000 in the account, you’ll only pay $300.  Sounds pretty harmless, that little MER.  Jump forward to year 30, and you pay $17,500.  “WTF?”, you may very well ask.  Rightly so.  Think of it this way:  For every year you stay with your over-priced brother-in-law, he rewards you buy taking more and more of your money.  In year thirty, you’re paying him almost $1500/mo.  You could probably hire an 18-year-old French au pair for that.