Questrade and RBC go head-to-head in ad campaign for advisors
A publicity battle royale is being waged between Canada’s largest discount broker and Canada’s largest bank over the core function of investment advisors.
In one corner is Questrade, which says clients can retire up to 30% wealthier by ditching high-fee advisers and investing in pre-built portfolios of exchange-traded funds (ETFs). The 30% figure is a rough estimate of the difference accrued between fees charged by conventional fund managers and Questrade’s lowest fee of 0.2% on invested assets over $100,000 per year.
On the other side is the Royal Bank of Canada, which claims that the whole story of the value of professional advice as part of long-term wealth creation – beyond fees – is not being told. .
As is the case with most advertising campaigns, they are both right and wrong, and the answer lies somewhere in the middle.
In making the comparison, Questrade puts the value of passively managed ETFs against 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 a fund manager’s discretion. It’s a fact that the average mutual fund underperforms its benchmark after fees are applied.
Questrade applies fee savings, and how they accrue by staying invested over multiple years, to achieve its “up to 30%” claim. It’s a great way to make a point, but it’s a wild and dishonest assumption once the “until” is added. “Up to” means it could be lower and – as is the case with just about any investment – you could actually lose money.
When RBC says the whole story isn’t told, it’s referring to the many hard-to-quantify value-added services that come with a professional advisor, such as risk management tailored to an individual’s goals and risk tolerance. client, asset allocation and tax and estate planning. One of the less popular advisory services is strategic retirement fundraising.
According to a 2015 study by the non-profit CIRANO Institute of Montreal, investors who received professional advice accumulated 3.9 times more assets after 15 years than comparable investors without advisors. 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 robust research departments that cover all sectors and geographies, and can identify trends and risks long before ETFs.
It is important to disclose that part of my retirement savings is managed by RBC – by default. I first invested with my current advisors nearly 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 the fees closely and have no doubt that the service I am paying for has added to the overall value of my portfolio.
I must also reveal that ETFs and discount brokerages were not an option thirty years ago, and their appeal is understandable – especially for younger investors.
The full story that RBC doesn’t tell is how retail investors with modest 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 3% of total invested assets. That’s a three percent loss before the start of the first day of trading. Some fund fees are lower, and some funds consistently beat their benchmarks even after fees, but picking the right one can be a dice roll.
These fees, also known as management expense ratios (MERs), pay for things like management, research, and administration. But they also compensate the advisor who sold them, which begs the question of whether the selected funds benefit the client or the advisor more.
The active versus passive battle won’t be resolved any time soon, but at least investors can win by being informed of their options.