As a Certified Financial Planner, I am shocked at how much of a doormat the financial services industry is in Canada. We've learned nothing from watching the slow-moving trainwreck within the Oil and Gas industry which waited too long and did too little to protect itself and now, here we are, next in line.
Questrade is doing Canadians a disservice when it wrongly advertises that just switching from working with an advisor to one of their platforms will make you 30% richer in retirement. It seems that all you need is a Scotiabank debit card and a Questrade account to be all set and richer than you'd ever imagined - 30% richer.
It's flawed
The flaw is the amateur comparison that all investments yield the same result, so pick the one with the lowest fee and you'll come out ahead - 30% ahead at Questrade. This is wrong on so many levels. There are good and bad mutual funds as much as there are good and bad ETFs, stocks, bonds or chocolates. How do you choose the ones with the most upside growth potential? Experience. Understanding the global and local macroeconomic environment, PE ratios, sharp ratios, standard deviation, management, geopolitical movements, the psychology of the markets, being greedy when others are fearful and fearful when others are greedy, buying low and selling high.
Let's compare the actual numbers
I took these numbers from Questrade's managed portfolios. Click here for the page. They only have 5-year rates of return. These numbers are GROSS of any fees. The fine print in the footer of their webpage says the fee is .97%.
Income Portfolio - 4.24% (after fee 3.27)
Balanced Portfolio - 4.92% (after fee 3.95)
Growth Portfolio - 6.24% (after fee 5.27)
Aggressive Portfolio - 7.37% (after fee 6.4)
I decided to pull some similar portfolios from Sunlife Mutual Funds. Click here for the page. These are real rates of return, not simulated. Here's what I found for comparables. Please note that these returns are NET of fees, which is how the Mutual Fund industry is mandated to report them, by-the-way. I found similar returns from numerous mutual companies (Fidelity and MacKenzie and Manulife) Keep in mind, I don't sell mutual funds.
SunLife Granite Moderate Portfolio - 5.9%
SunLife Granite Balanced Portfolio - 6.6%
SunLife Granite Balanced/Growth Portfolio - 7.2%
SunLife Granite Growth Portfolio - 7.8%
Where is the 30% that Questrade is advertising so many are losing? How can a client of Questrade become 30% richer by retirement? It just doesn't add up and the numbers do not lie. Questrade, on the other hand, is guilty of misleading and dishonest representation. What is more shocking to me is that Questrade is an IIROC member firm. I can't grasp how IIROC can condone this kind of false and misleading advertising. The Canadian consumer is the biggest loser as they are more confused than ever and rather than invest, they will hide under a rock.
Comparing alternative investments
Every investment anyone is considering needs to be compared to its peers and alternative investments. If you are a "balanced investor" with a moderate risk profile, you have to compare all of the "balanced" opportunities available. What is the after-fee return on a "balanced ETF, balanced mutual fund, or a balanced managed portfolio"? If they are all the same, then 10 or 30 years down the road you will have the same or similar result. It's easy to handpick a selection of ETF's or mutual funds and compare past performance, but it's not proper research because anyone making the comparisons can manipulate the choices. I can scan any fund company out there and pick a selection of mutual funds that have outperformed and then handpick a selection of ETF's that have underperformed and conclude that mutual funds are better than ETF's. It's like concluding that house A will be worth more in the long run than house B because it is cheaper to heat. There are too many other factors to consider in computing the future value of the property.
If you had bought and kept shares of Apple, Amazon and Google 15 years ago you would be way ahead right now, but you probably didn't. I'm not defending mutual funds or any one kind of investment, all I am saying is that fees alone are not a proper way to evaluate investment choices or returns.
Taxes
As an investor, you should be equally as concerned with your after-tax rate of return as you are with your after-fee rate of return. Both matter. Know the difference between a capital gain, a dividend, and an interest-bearing investment, as they are all taxed differently and can severely impact your real rate of return.
"One thing I do know for sure is that Canadians needlessly send enough money to CRA to feed a small country."
The Questrade Ad places a couple in an office with their Advisor and makes the assumption that the Advisor gets all of the fees. It's just not the case. The fees attached to various Mutual Funds can range from 1-2.5%. The Advisor may receive .25-.85% of that amount, depending on the type of fund. The fund company has to get paid to keep their office open and staffed with employees. The Advisor has to do the same and make a living. An Independent Advisor would have to manage in excess of $20 Million dollars to even make a modest living.
Advice and Planning
What kind of advice will you get with Questrade? Neither bad nor good - you don't get any advice. You subscribe to Moneysense magazine, watch Jim Cramer every day and sit close to the smart people at Tim Horton's. That's fine if that's what you want to do. Just like you can learn to do your own car maintenance or replace a toilet, you can learn how to invest and prosper. Not everyone wants to do their own investment and financial planning, they prefer to have an expert help them. And, to have an Expert means that Expert needs to and deserves to earn a living. To all you professionals out there, what you do matters.
I meet with clients and prospects every single week and you would be amazed at the effects of bad financial advice. Out of control debt. Retirees with a mortgage 2Xs larger than their RRSP. Zero understanding of government benefits. Financial products spread around town - it's like a scavenger hunt to find what they actually have and where. People without any insurance to safeguard their lifestyle, little educational savings for their children, no emergency funds. In fact, most Canadians are a couple of weeks away from financial ruin.
I'm saddened to say this, but Canadians are probably the most financially illiterate people on the planet and thanks to companies like Questrade the confusion continues. Access to easy credit and escalating home prices in the past 20 years has led to this. The sad reality is: this is all unravelling before our eyes and the next 2 decades will see the results of the past 2 decades.
The fact of the matter is we need Questrade. we need Wealth Simple. We need banks. We need private equity. We need mutual funds and ETF's and stocks and bonds and GIC's and insurance. We need all of these products because like a Carpenter, they are just tools for various situations and everyone has a different need. What Canadians need more than ever is advice. We need professional advisors with the proper training and qualifications to help people spend more wisely, save like Scrooge and have enough money to enjoy a worry-free retirement!
Full disclosure
Nancy, and I own and operate an independent Retirement Income Planning practice contracted with more than a dozen different financial institutions in Canada. Nancy has been licensed in the industry since 2003 and I, since 2014. I have successfully completed the Certified Financial Planning designation, the gold standard for financial planning in the world. We are both licensed by the Alberta Insurance Council. We specialize in creating retirement income and investment plans for those transitioning into retirement. We offer a hybrid fee model of hourly, a fee for service or fee-based full service.
