Questrade and RBC clash in advisor ad campaign
There is a publicity battle between Canada’s largest discount brokerage firm and Canada’s largest bank over the core function of investment advisers.
In one corner is Questrade, which claims clients can retire up to 30% richer by ditching high-fee advisers and investing in pre-built portfolios of exchange-traded funds (ETFs). The 30 percent figure is a rough estimate of the cumulative difference between fees charged by conventional fund managers and Questrade’s lowest fees of 0.2 percent of invested assets over $ 100,000 per year.
In the other corner is the Royal Bank of Canada, which claims that the whole story of the value of professional advice as a feature of long-term wealth building – beyond the fee – remains untold.
As with most ad campaigns, they’re both right and they’re both wrong, and the answer is somewhere in the middle.
In making the comparison, Questrade compares the value of passively managed ETFs to that of actively managed mutual funds. ETFs typically track established indices such as the S&P 500 and S & P / TSX Composite, and their individual sectors such as technology or resources.
The cost of ETFs is low compared to mutual funds because holdings are based on their underlying index instead of the discretion of a fund manager. It’s a fact that the average mutual fund underperforms its benchmark after fees are applied.
Questrade applies the cost savings and how they are compounded by staying invested over several years, to achieve its “up to 30 percent” claim. This is a great way to make a point, but it’s a crazy and fallacious guess once the “until” is added. “Up to” means it could be less and – as with just about any investment – you could actually lose money.
When RBC says the whole story isn’t told, it is referring to the many hard-to-quantify value-added services provided with a professional advisor, such as risk management tailored to a company’s goals and risk tolerance. client, asset allocation and tax and estate planning. One of the least popular advisory services is strategic retirement fundraising.
According to a 2015 study by the non-profit CIRANO of Montreal, investors who received professional advice accumulate 3.9 times more assets after 15 years than comparable investors without advisers. This ignores risk management strategies that make generating returns less stressful.
Both services provide basic research, but many of the larger active management firms have strong research departments that cover all industries and geographies, and can identify trends and risks well ahead of ETFs.
It’s important to note that some of my retirement savings are managed by RBC – by default. I first invested with my current advisors almost thirty years ago when they operated under the Richardson Greenshields banner, which was acquired by Dominion Securities, which was acquired by RBC.
I have always watched fees closely and have no doubt that the service I pay for has added to the overall value of my wallet.
I must also reveal that ETFs and discount brokerages were not an option thirty years ago, and their appeal is understandable, especially to young investors.
The full story that RBC doesn’t tell is how retail investors with small portfolios, who want diversification and professional management, have no choice but mutual funds.
Annual fees for mutual funds and their insured cousins, segregated funds, can exceed three percent of total invested assets. That’s a three percent loss before the first day of trading begins. Some fund fees are lower and some funds consistently beat their benchmarks even after fees, but picking the right one can be a roll of the dice.
These fees, also known as management expense ratios (MERs), pay for things like management, research, and administration. But they also pay the advisor who sold them, which begs the question of whether the selected funds benefit the client or the advisor more.
The battle of assets versus liabilities won’t be resolved anytime soon, but at least investors can win by being informed about their options.