Personal Finance

Cheap index portfolio managers?

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  • May 12th, 2013 8:28 pm
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Jr. Member
Feb 12, 2007
189 posts
16 upvotes
Toronto

Cheap index portfolio managers?

Does anyone know of portfolio managers or investment advisers in Toronto who manage index (e.g., Couch Potato) portfolios at a reasonable cost?

I know of PWL capital, advertised on the Couch Potato website. For AUM of ~$1M, they charge around 1.25%, which is $12,500/yr. Obviously, I think this is excessive given how much work is involved with periodically rebalancing a portfolio of ETFs or index funds. Personally, I don't think their added advice is worth that price. A management fee that high significantly eats into returns over a time period of several decades.

I am asking for family members who are currently in actively managed mutual funds and not willing or able to manage their own portfolio.

Right now, I'm close to recommending the family members go with Jarislowsky. I don't completely agree with their investment philosophy, but at 0.5%, their management fee makes active investing cheaper than passive for those who don't want to manage assets themselves.

This seems like a service that would have, at least, a small niche market. Certainly, in the US, there are companies that offer this service for 0.3% - 0.4% of AUM. Why doesn't someone in Canada step up and offer cheap index portfolio management services?
15 replies
Jr. Member
Feb 12, 2007
189 posts
16 upvotes
Toronto
spooky wrote: Have you looked into a fee only planner?
Yes. The vast majority of those planners are not licensed to actually sell products. So they can recommend a portfolio but won't actually buy the products or manage it for you -- unless I'm mistaken?

The ones on that list who can sell products prefer an asset-based percentage, and I don't see any that offer to manage an index portfolio at a reasonable cost... I've checked out most of their websites, and they either have 'high' fees, or are affiliated with banks or mutual fund companies (read: selling me products I don't want). I'm looking for a service similar to Portfolio Solutions in the States...
Deal Addict
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Jan 28, 2012
1785 posts
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Managing a couch potato is easy once you identify the asset split. Why not just have a trusted family member do it for them?

All it involves is setting up regular contributions one time, re balancing once a year back to the pre-determined asset %. Paying somebody to do that is a waste.
Deal Expert
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Dec 11, 2005
20134 posts
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Why the heck would you need to pay someone to manage a couch potato portfolio?

Even if you go to the extreme of monthly rebalancing, you'd spend at most 30 minutes a month on managing the thing.

Heck if you went with a broker with API access like IB, you could automate the trades
To be nobody but yourself - in a world which is doing its best, night and day, to make you everybody else - means to fight the hardest battle which any human being can fight; and never stop fighting. -- E. E. Cummings
Jr. Member
Nov 11, 2012
140 posts
14 upvotes
Toronto
Not an expert in this field, but could TD's eseries help?
Jr. Member
Feb 12, 2007
189 posts
16 upvotes
Toronto
Rhaegar wrote: Why not just have a trusted family member do it for them?

All it involves is setting up regular contributions one time, re balancing once a year back to the pre-determined asset %. Paying somebody to do that is a waste.
Mixing family and investing sounds like it could end badly. If the markets have a bad year, I think it could create problems, even though the person buying and rebalancing wasn't responsible for the poor performance. Point well taken, though.
Jr. Member
Feb 12, 2007
189 posts
16 upvotes
Toronto
brunes wrote: Why the heck would you need to pay someone to manage a couch potato portfolio?
If the person knows NOTHING about stocks or investing, it can seem pretty intimidating. And I think there is some value in forced rebalancing when markets are either up or down significantly. What's simple in theory can often be difficult to actually do even for smart people.
Jr. Member
Feb 12, 2007
189 posts
16 upvotes
Toronto
Here's another company in the US that does what I'm looking for: AssetBuilder.

I know that many of you would just execute the trades themselves. But, I feel like there should be a way for people to have a passive portfolio managed for them, without getting fleeced on fees.
Deal Expert
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Dec 11, 2005
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screwdriver223 wrote: Here's another company in the US that does what I'm looking for: AssetBuilder.

I know that many of you would just execute the trades themselves. But, I feel like there should be a way for people to have a passive portfolio managed for them, without getting fleeced on fees.
Like I mentioned above, it would be pretty trivial to write software that would do this for someone automatically against a broker API.

I wonder if there is a market for this kind of software?
To be nobody but yourself - in a world which is doing its best, night and day, to make you everybody else - means to fight the hardest battle which any human being can fight; and never stop fighting. -- E. E. Cummings
Jr. Member
Feb 12, 2007
189 posts
16 upvotes
Toronto
wesboag wrote: Doubtful you will find any firm in Toronto willing to manage it for less than 1-1.5% annually. Then there are the actual fees for the funds used.
Jarislowsky Fraser, one of the country's largest investment counsels, will manage the portfolios for 0.5%. That would involve purchasing individual securities, so there are no underlying fees for funds. Trading costs are estimated at 0.1-0.2%/yr (they obviously believe in low portfolio turnover), with no custodial fees. Plus, that 0.5% is tax-deductible because most of the funds are in non-registered accounts.

It kills me that it's cheaper to pay for someone to actively manage the money than it is to have someone 'run' a couch potato portfolio.
wesboag wrote: I assuming you are only looking for investment advice or are they actually looking for a financial planner (i.e. tax and estate planning, financial plan, etc)?
This is perhaps a discussion for a different thread, but my personal belief is that a HNW individual will be better off minimizing fees on investments and then paying an hourly-fee adviser for advice.

Let's say the portfolio is $1,000,000, fees are 1.5%. That means the client is paying the advisor $15,000/year. What's a fair hourly rate? $150? Would that person get 100 hours of work out of the advisor?

I don't mean to be confrontational -- just to offer my perspective on why HNW clients are better off with low fees that may not include all financial planning services.
wesboag wrote: Lastly, have they come to you for advice on what to do or are you advising they seek an investment advisor simply to reduce their management fees?
They came to me with advice on what to do, and I suggested they can achieve better performance by minimizing their fees. Again, a topic for another thread, but I think the most important determinants of portfolio performance are asset allocation and fees. Asset allocation will be similar between well-designed portfolios. That leaves fees as a major determinant of performance, and one which an investor has a good deal of control over.
wesboag wrote: Where is their portfolio now?
At the brokerage arm of a major bank, in a wrap fund, with total fees of 1% (including the underlying funds in the wrap account). And no, their advisor doesn't offer any additional planning services to justify the fee.
Jr. Member
Feb 12, 2007
189 posts
16 upvotes
Toronto
brunes wrote: Like I mentioned above, it would be pretty trivial to write software that would do this for someone automatically against a broker API.

I wonder if there is a market for this kind of software?
I'm sure it would be relatively straightforward.... but why sell the software when you can find these suckers are clients who are willing to pay for the service indefinitely? I bet that website did the math, and decided it was more profitable to offer it as an ongoing service instead of a one-time software purchase.
Deal Addict
Oct 4, 2009
3590 posts
2953 upvotes
Montreal
Interesting thread.
screwdriver223 wrote: looking for a service similar to Portfolio Solutions in the States...
I don't think such a company will exist here. Rick Ferri offers a great low cost solution. Not sure it's feasible in the Canadian market due to regulation costs and economies of scale.

Is PWL really charging that much(1.25%) on the first million? I'd contact Justin Bender and see what he says. I have to admit I'm surprised Jarislowsky Fraser would do it so cheaply. You mentioned individual securities, what happens with international markets?

Please keep this thread updated, it could prove useful as a reference.
Newbie
Apr 24, 2012
44 posts
2 upvotes
BURLINGTON
2 options.

I believe the financial and wealth planning will likely be worth the fee. You say these people know nothing so it will not hurt to have someone design the portfolio for the income they need etc.

Other option, pay an advisor commission. Etfs have low turnover so likely after the initial allocation fees will be quite low year over year. But don't expect all the planning frills.

Last point, paying an advisor 1.25 and then adding on your etf mer will probably cost more than having them buy direct securities. So do rethink your thoughts on Etfs with a manager.
Newbie
May 11, 2013
5 posts
17 upvotes
Westmount
@screwdriver223 - we had to post a fee of 1.25% on the Couch Potato site because some of our other advisors were still charging that amount. For a $1 million portfolio, I would normally charge between 0.75% and 1.00% (depending on the client's financial planning needs).

Another option is to find a fee-only financial planner in Toronto (Barb Garbens is good), and determine a suitable asset allocation for yourself. For the investment side, you could keep things extremely simple by using the 4 main TD e-Series funds (bond fund, Canadian equity fund, U.S. equity fund and International equity fund) and allocate them tax-efficiently across your registered and non-registered accounts (the all in fee would be about 0.50%). Once you are more comfortable, you could always look at lower-cost ETFs. I'll be posting a blog this week on the topic of asset location if you're interested.

Best of luck!

Justin Bender

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