Investing

Investing Advice for In-laws - 5-6 years from retirement

  • Last Updated:
  • Mar 20th, 2019 7:25 pm
[OP]
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Feb 26, 2012
75 posts
8 upvotes

Investing Advice for In-laws - 5-6 years from retirement

Hi all,

My father in law currently has a LIRA with BMO Nesbitt Burns invested in the Blueprint Portfolio worth about 115K at the moment. They are charging 2% which seems ridiculous to me, and the returns do not seem that great. I feel like there are some way better options out there to invest this money.

They are probably 5-6 years from retirement...any suggestions on what to do with it? Canadian Couch potato low cost index funds? Any better managed accounts out there? Best brokerage for this? I think he mainly just wants to set it and forget it.

Thanks
23 replies
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May 11, 2014
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While 2% may be steep, we cannot judge the returns as high or low as we do not have enough information here. Blueprint has many different portfolios which are put together for clients.

Full service brokerages provide other services such as reporting, financial planning and wealth management. If your in-laws have been using these, the fee covers this and may be worthwhile. If your in-laws have just let it sit there and said "set it and forget it," then going lower cosf and self-management may be worth it.

The thing is, right now is a very important crossroad for your inlaws. Now would not be a time for someone to simply buy a portfolio and forget about it. Now would be the time for them to figure out what they want their retirement to look like and plan and invest accordingly. Low cost funds and roboadvisors may work in their case, but without considering their retirement plans, this could be costly or inappropriate.

If they are not happy with BMO Nesbit Burns, and want to go self-directed, I would suggest a fee only advisor. It will cost money, but they can at least direct and help set a plan for your inlaws. If you give further details, some of us can make suggestions, but just keep in mind this is an internet forum and in general there is only so much an internet forum can advise appropriately on. If you post more details you ight get a bit better answer than this.
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Jun 26, 2005
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How much money do they have OVERALL in total, are they okay to retire?

$115k is quite small to retire on. So i hope they have other investments.
[OP]
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Feb 26, 2012
75 posts
8 upvotes
xgbsSS wrote:
Jan 13th, 2019 7:36 pm
While 2% may be steep, we cannot judge the returns as high or low as we do not have enough information here. Blueprint has many different portfolios which are put together for clients.

Full service brokerages provide other services such as reporting, financial planning and wealth management. If your in-laws have been using these, the fee covers this and may be worthwhile. If your in-laws have just let it sit there and said "set it and forget it," then going lower cosf and self-management may be worth it.

The thing is, right now is a very important crossroad for your inlaws. Now would not be a time for someone to simply buy a portfolio and forget about it. Now would be the time for them to figure out what they want their retirement to look like and plan and invest accordingly. Low cost funds and roboadvisors may work in their case, but without considering their retirement plans, this could be costly or inappropriate.

If they are not happy with BMO Nesbit Burns, and want to go self-directed, I would suggest a fee only advisor. It will cost money, but they can at least direct and help set a plan for your inlaws. If you give further details, some of us can make suggestions, but just keep in mind this is an internet forum and in general there is only so much an internet forum can advise appropriately on. If you post more details you ight get a bit better answer than this.
Thanks for the reply. I don't currently know the year over year returns and such since I just have the last statement. I'm going to try and get online access so I can see a much bigger picture of how the investments have been doing. They are definitely not taking advantage of all the services provided by the full service brokerage which is why I find the 2% fee high and feel like I may be able to help them get into something a little less costly.
[OP]
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Feb 26, 2012
75 posts
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rfdrfd wrote:
Jan 14th, 2019 10:53 am
How much money do they have OVERALL in total, are they okay to retire?

$115k is quite small to retire on. So i hope they have other investments.
They have other investments, namely a DB pension. This was just a LIRA from a pension from an old job.
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nesburf wrote:
Jan 14th, 2019 8:55 pm

They have other investments, namely a DB pension. This was just a LIRA from a pension from an old job.
This tidbit of information does help change the conversation. As they already have an annuity/pension portion of their retirement, pretty much this LIRA becomes a cash account. A low cost portfolio could very well work well for them. Do they also have other retirement accounts as well? At this time, they may want to consider consolidating the accounts. this could make things much easier to work with come time for retirement.

In general, when someone retires, money should be draw in this order

1)RRIF/LIRA
2) Non-registered
Last) TFSA

Since RRIF and LIRA withdrawals are taxed as income, it is very important to take this out strategically. Taking out one large sum can trigger a large tax bill especially if this bumps them up into higher tax brackets. And while there is a minimum withdrawal schedule set by the CRA, it likely will be prudent to take out more cash than that to collapse the account. Further more, death of the RRIF holder may result in a large tax bill when it comes time to wind down everything and settle the last tax bill. This is even more important as there is pension income to consider. Keeping TFSA account as long as possible is ideal as this allows their assets to grow tax free as long as possible.
But as you can probably assume, this will all depend on the amount of assets your inlaws have and where they are invested.

As a general guideline, I would suggest the following. I would probably start looking at transfering their LIRA into fixed income GICs and HISAs. The reason being.is that they likely should start withdrawing from these upon retirement which is soon. If they have TFSAs, longer term investments if they have a lot of assets should be kept here to retain as much tax free growth as possible. They should speak to their pension administrator and find out the value of their pension. This can be taken as a pension itself, or the commuted value can be transferred to them as another LIRA and some cash non-registered. Keep in mind, the portion of the commuted value is treated as income (in general there is more benefit to a DB pension than the RRSP Pension adjustment, hence why doIng so is partially taxable). If your inlaws have worked for their current employer for a while, that commuted value will be quite big and likely pension is the better bet

Depending on the pension, then I would look at their entire assets and build the portfolio from there.

Do you see how this can be very complicated? You also have to keep in mind their retirement plans. Are they planning to have big ticket purchases, or will they have modest expenses?

The best advice I can give is have your inlaws start looking at all their assets and retirement benefits together. Ask them what they want to do, how much do they need. From there, plan investments and withdrawals taking into account taxes and try to minimize this. Have them consider what-ifs (eg. sudden illness, death, upcoming costs, will, inheritance etc.). As this can be complicated, look at getting professional advice. Perhaps they can ask BMO Nesbitt since they have been paying this fee. Get them to work for you. Remember, you dont necessarily have to go with them. Try approaching fee only advisors. This can cost a bit of money, but having a financial plan without product sale bias can help to get a plan that works for your inlaws.

Remember: While keeping fees to a minimum is important, the objective at their stage of life being able to enjoy.their retirement. Having big tax bills and managing their money in a way that is uncomfortable for them is likely not ideal. Having a smart, sensible plan in place and going into retirement with that is not only going to prepare them financially, but give them peace of mind knowing what they have in place and plan accordingly.
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nesburf wrote:
Jan 13th, 2019 6:30 pm
Hi all,

My father in law currently has a LIRA with BMO Nesbitt Burns invested in the Blueprint Portfolio worth about 115K at the moment. They are charging 2% which seems ridiculous to me, and the returns do not seem that great. I feel like there are some way better options out there to invest this money.

They are probably 5-6 years from retirement...any suggestions on what to do with it? Canadian Couch potato low cost index funds? Any better managed accounts out there? Best brokerage for this? I think he mainly just wants to set it and forget it.

Thanks
Before going hog wild about fees and going low cost based on 'the returns do not seem that great', you should check what risk profile your in-laws are comfortable with as you can always get better returns but usually at a much higher risk profile. If your in-laws aren't comfortable with a higher risk profile and something happens bad happens in the market, you are just asking for trouble...

Also, at 5 to 6 years from retirement, you have to think if the potential gains of savings 1/2 to 1 percent in fees is worth the trouble after they retire... after all, 30 years of fees is one thing, but a few years is a completely different story.
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craftsman wrote:
Jan 15th, 2019 12:05 am
Before going hog wild about fees and going low cost based on 'the returns do not seem that great', you should check what risk profile your in-laws are comfortable with as you can always get better returns but usually at a much higher risk profile. If your in-laws aren't comfortable with a higher risk profile and something happens bad happens in the market, you are just asking for trouble...

Also, at 5 to 6 years from retirement, you have to think if the potential gains of savings 1/2 to 1 percent in fees is worth the trouble after they retire... after all, 30 years of fees is one thing, but a few years is a completely different story.
6 years of 2% of $100K? $2K/year....... yeah, I'd say saving TWELVE GRAND is probably worth it. 10-12% of the portfolio.....that is highway robbery. Even if it was ONE year until retirement, I wouldn't give those crooks ANOTHER two grand.
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favelle75 wrote:
Jan 15th, 2019 12:54 am
6 years of 2% of $100K? $2K/year....... yeah, I'd say saving TWELVE GRAND is probably worth it. 10-12% of the portfolio.....that is highway robbery. Even if it was ONE year until retirement, I wouldn't give those crooks ANOTHER two grand.
But you're not saving the whole 2% a year unless you are assuming that the other path cost you NOTHING per year. You are obviously forgetting that you will still have to pay the related service charges to transfer the account out (unavoidable as this is a registered account), the trading fees to buy new ETFs, pay the ETF's MERs, maybe an annual administration fee at the discount brokerage, any penalties associated with selling the current investments (ie early redemption fees), as well as the possibility of paying a professional financial advisor if they use that service now.

As for your math, it's not 10% to 12% of the portfolio unless you are assuming that the portfolio earns NOTHING and makes NOTHING over the next 6 years so that the portfolio is valued at the same level then as it is today. If that is your assumption, why even buy ETFs? You are much better off to close everything down and transfer the money into a GIC and make 4% per year rather than paying the ETFs MERs and other associated trading fees.
Member
Sep 2, 2009
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Ottawa
This is less investing advice and more life advice/question: are you okay being the guy that recommended a "losing" investment when the markets drop temporarily and they bail out of your "investments" "losing" them tonnes of money?

All of the quotations because even though you will be saving them money - on the upside and downside - it will be your fault they lost money (I'm not saying it will actually be your fault).
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Feb 9, 2009
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a good decent low risk balanced etf...
[OP]
Newbie
Feb 26, 2012
75 posts
8 upvotes
So I was finally able to get some access to the account to get some previous year data. The LIRA was invested in a GIC up until September 2014 when it was converted into a Blueprint portfolio.

The dollar amount of the LIRA when it was invested in September 2014 was approx 106K. As of today, I am looking at the current value and it is sitting at 118.5K in securities and $1900 in cash. Doing the rough math, that means a rate of return of approx 13% over 4.5 years. I guess that's not terrible...considering they are charging a 2% commission.

Am I missing anything?
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nesburf wrote:
Mar 16th, 2019 6:03 pm
So I was finally able to get some access to the account to get some previous year data. The LIRA was invested in a GIC up until September 2014 when it was converted into a Blueprint portfolio.

The dollar amount of the LIRA when it was invested in September 2014 was approx 106K. As of today, I am looking at the current value and it is sitting at 118.5K in securities and $1900 in cash. Doing the rough math, that means a rate of return of approx 13% over 4.5 years. I guess that's not terrible...considering they are charging a 2% commission.

Am I missing anything?
13% over 4.5 years is less than 3% annualized. It kinda depends on what they are exactly invested in, but that return isn't that great. So the real answer will depend on how they exactly invested the money and for what reason.

Additionally, whether they want to continue with them will depend on what they decide to do with the funds. Considering it is likely one of smallest funds and reources they have, they could consider doing DIY but make this the first account they collapse.
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I'd be all cash/fixed income/gold 5-6 years from retirement, with such a small retirement fund. In 5-6 years the equity markets may not have recovered in the event of a recession.
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nesburf wrote:
Mar 16th, 2019 6:03 pm
So I was finally able to get some access to the account to get some previous year data. The LIRA was invested in a GIC up until September 2014 when it was converted into a Blueprint portfolio.

The dollar amount of the LIRA when it was invested in September 2014 was approx 106K. As of today, I am looking at the current value and it is sitting at 118.5K in securities and $1900 in cash. Doing the rough math, that means a rate of return of approx 13% over 4.5 years. I guess that's not terrible...considering they are charging a 2% commission.

Am I missing anything?
So in 4.5 years, the broker earned almost $9k and they earned about $14k. And there may be other costs if they hold any funds. Their broker has not outperformed the market for a balanced portfolio but they have lost nearly half the returns in fees. Those are the kinds of numbers that drive low cost couch potato investing.

I don't know what securities they have, but you can make almost the same net return now with a GIC that has ZERO risk. But as other posters have said, this really need to be planned in the context of other assets etc. and needs.

I know it is really problematic to be responsible for the decisions of others - even when you know they could do better.

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