I recently lost a client because a friend of the client’s directed them to a big bank who asserted they were only making about a 5% annual return and that their fees were too high. It turns out their Registered Retirement Savings Plan (RRSP), which held the bulk of their assets, had in fact returned about 7%-8% annually in the last five years. So is it worth giving up a steady return like this, in a defensive portfolio, for the unproven prospect of a slightly higher return, the possibility of lower fees, and the virtual certainty of increased risk?
In this case, I felt the return on the client’s portfolio had been pretty good when taking into account a number of related factors. First, the portfolio was allocated 30% to 40% to fixed income to protect the client in down markets. Second, the portfolio is the client’s retirement fund, and not something I would expose to increased risk or gamble with.
While returns and are important, they are not the whole story, and there are many other (sometimes more important) factors to consider when thinking about changing advisors based only on those narrow parameters.
* Is your planner/advisor independent?A bank is not, and chances are very good that you will end up with a large allocation to that bank’s investments. Try going into a TD branch and asking for an RBC dividend fund. You will be told that TD has many dividend funds that are just as good if not better than the RBC offering. TD employees push TD product, and RBC employee’s push RBC product. They don’t work for their clients, they work for the bank.That is a very important point to remember.
* Do you have a long-term relationship with your advisor? If you are making a change, do it in your 20s through to your 50s. Don’t do it when you are close to retirement. Let’s say for example you switch advisors at age 65 after dealing with a person you trusted for 20 years because you though you’d get a bit more return. You make the change, and then five years later let’s say you develop early onset Alzheimer’s or lose some mental capacity. Will the new advisor simply let your portfolio sink into a state of benign neglect, or worse? After all, they don’t know you very well, they may not want to deal with the complications of family members with powers of attorney, and they may prefer more active clients who generate larger fees for the bank.
We don’t ever think this kind of situation will happen to us, but it does happen to some people. Stick with a trusted advisor and work with him/her rather than moving to someone new.
* What is the advisor’s level of service?Many advisors help elderly clients with bill payments and I recently dropped off some books for an elderly client in a retirement home. Will a bank employee do that? Almost certainly not. But this type of personal connection is all a part of some advisors’ practices. Do I get paid for this type of activity? No. It is part of a service to thank clients who have been with me and stuck with me through good and bad markets.
* Do you get the institutional brush-off?I often meet with clients for 90 minutes chatting about my kids, their kids/grandchildren, or recent trips. Some independent advisors are not “on the clock.” But try having a 90-120 minute meeting with a banker. He or she must get down to business, because they have another client scheduled in 30 or 60 minutes. They mustkeep production figures up, or their boss will call them in for a “meeting” about flagging production numbers.
* What other services are offered?Some planners look after tax planning, estate planning, and make sure powers of attorneys and wills are in place. Will a bank do this? Maybe if your asset level is high enough. Maybe not, but those are very important matters.
My point is that while returns and MERs are important, there are other factors that have greater significance, especially as you age. Making a change for the potential of making bit more money is a risky endeavour. How long will it take to build the same level of trust you already have? There are stories every day about financial advisors taking advantage of clients and ongoing legal actions across the country due to these issues. Is that the kind of stress you want when you are retiring and looking to reduce stress? Financial stress and stress in general can be a killer.
Think about what other services your planner/advisor offers, and then decide whether it truly is worth making such a big change. If you have worked hard and saved a decent sum, the stakes are high. Don’t become another case on a securities commission docket, trying to recover thousands of dollars in losses because you wanted a few more dollars of return, without considering the risks that might entail.
Courtesy Fundata Canada Inc. © 2018.Bruce Loeppkyis based in Surrey, B.C. and is registered with Portfolio Strategies Corporation as a mutual funds person. This article is not intended as personalized advice.