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Investing in Mutual Funds and Stocks: MERs, Rates? TD or PC?

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  • Jun 21st, 2005 11:42 pm
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[OP]
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Investing in Mutual Funds and Stocks: MERs, Rates? TD or PC?

Thanks for all of your help guys, I've decided to invest in 2/3 Mutuals and 1/3 in Stocks.

Now I'm looking at the rates between the two:
PC: http://www.banking.pcfinancial.ca/ams/c ... invest.ams
TD: http://www.tdwaterhouse.ca/mutual/index.jsp

I am almost certain the MERs with PC will be less than TD. I'm not sure if I see a difference investing with CIBC or TD, and even if I end up making a bit more with TD, won't the MERs just take that difference away?

I'm thinking I should go with TD just because there is someone to talk to, and there's a more diverse selection of funds, but I'm not sure if the cut in MER and other annual fees are worth it.
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Nov 26, 2003
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simms wrote: I am almost certain the MERs with PC will be less than TD. I'm not sure if I see a difference investing with CIBC or TD, and even if I end up making a bit more with TD, won't the MERs just take that difference away?
You seem somewhat confused. Mutual Fund MER's have nothing to do with the brokerage house that you choose.

I'd recommend speaking with a financial advisor or doing some serious reading before pursuing this type of investment.
[OP]
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The MERs will vary from bank to bank. I'm not sure what you're trying to imply.

To simplify the question, should I go with CIBC because of lower fees, or TD because they more funds to choose from and better "in person" consulting.
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The published rates of return of a fund are post MER, that is real rate of return. For example, if you invest $1000 in a fund that has a published return of 5% per year, you get $50 at the end of the year. What the MER represents is the market rate of return is decreased by the MER to give the real return. That means for the above example that if the MER were 2% your $1000 actually made $70 on the market, but that the fund management took $20 as their fee for managing the funds porfolio and as sales fees, leaving you with $50 profit. So you can just look at the published rates of return and compare funds from CIBC, TD, and anywhere else (i'd recommend a look at PH&N) regardless of MER effects. However, lower MERs are desirable, as they tend to increase return.

As for TD vs. CIBC I'd say that you need to determine what your needs are. Do you need extensive finanical counselling? What are your risk tolerance and return goals? What is your time horizon? You'll need to find a fund or fund(s) that match your needs. Generally the big banks offer a very similar set of funds, so look for a fund matches what you want. Depending on your time horizon, you'll probably want to look at the long-term returns on the funds (10 yrs or greater) to get a good idea of their profitability.

Without any more specific questions, it's difficult to give any more specific advice.
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Nov 26, 2003
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simms wrote:The MERs will vary from bank to bank. I'm not sure what you're trying to imply.
I'm trying to imply that MER's vary from fund to fund, while funds purchased through different brokers will have the same MER.

You need to differentiate if you are trying to select a brokerage house, or trying to choose which funds to invest in. These are two seperate (and generally independant) questions.

ie. You can buy CIBC mutual funds from TD Waterhouse.
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Nov 28, 2002
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Considering you can buy TD's efunds through TDW these index funds would have lower MER's than the CIBC Index funds that PCF offers. TDW would also allow you to buy other funds and the stocks (with the right account) you mention. Last I checked PCF didn't offer equity investing as they don't have a brokerage.

PS: You're PCF link could be more useful than the login page.
[OP]
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ilfsoy wrote:Considering you can buy TD's efunds through TDW these index funds would have lower MER's than the CIBC Index funds that PCF offers. TDW would also allow you to buy other funds and the stocks (with the right account) you mention. Last I checked PCF didn't offer equity investing as they don't have a brokerage.

PS: You're PCF link could be more useful than the login page.
Thanks!

Now here's one more question.. I could buy Mutual Funds though TD Canada Trust or go through TD Waterhouse.

http://www.tdcanadatrust.com/mutualfunds/index.jsp
http://www.tdwaterhouse.ca/mutual/index.jsp

What are the differences?
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One's a bank, one's a discount brokerage. You can walk into TD and open an account to buy TD mutual funds. On the other hand you can open an account at TDW and unless you have $25k pay an annual fee, but you can also buy other company mutual funds and stocks (with the right account).
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simms wrote:Thanks!

Now here's one more question.. I could buy Mutual Funds though TD Canada Trust or go through TD Waterhouse.

http://www.tdcanadatrust.com/mutualfunds/index.jsp
http://www.tdwaterhouse.ca/mutual/index.jsp

What are the differences?
Typically branches only sell you their bank funds - so you may not be able to invest in say, Saxon, from a inbranch account...
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Jun 8, 2005
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As a financial advisor, I've had this discussion a number of times with my clients. In the end, would you rather "pay" 3% MER for a net return of 12%, or "pay" a cheap MER of 1.5% and get a net of 8%? People get too caught up in MERs because they assume that all funds are equal. Clearly, they're not. Also, keep in mind that some fund management teams get performance bonuses (resulting in an increase in MER). Now, who wouldn't mind giving their fund manager a bonus for superior performance? I wouldn't. Hope this helps.
[OP]
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bard wrote:As a financial advisor, I've had this discussion a number of times with my clients. In the end, would you rather "pay" 3% MER for a net return of 12%, or "pay" a cheap MER of 1.5% and get a net of 8%? People get too caught up in MERs because they assume that all funds are equal. Clearly, they're not. Also, keep in mind that some fund management teams get performance bonuses (resulting in an increase in MER). Now, who wouldn't mind giving their fund manager a bonus for superior performance? I wouldn't. Hope this helps.
I wouldn't mind either. :) I don't exactly have $25K, so I guess that rules out Waterhouse for me. I'm not sure if going to Waterhouse would really benefit me anyways. I guess I should stick with the bank's funds then?
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bard wrote:As a financial advisor, I've had this discussion a number of times with my clients. In the end, would you rather "pay" 3% MER for a net return of 12%, or "pay" a cheap MER of 1.5% and get a net of 8%? People get too caught up in MERs because they assume that all funds are equal. Clearly, they're not. Also, keep in mind that some fund management teams get performance bonuses (resulting in an increase in MER). Now, who wouldn't mind giving their fund manager a bonus for superior performance? I wouldn't. Hope this helps.
Personally, I'd rather stay with a company (and its funds) that keeps their MERs consistant over time, with its gains in-line with the fund sector. The performance of most funds is driven more by the market and sector itself than by the individual stock picks of fund managers. Why should we overly reward the fund manager who just happens to be the guy with the fund flavour of the year (read energy right now....)?

Besides, as I'm sure you know as a financial advisor, sometimes a significant portion of the MER goes to mutual fund salespeople and the like for their work. Why would you choose a fund that pays a lot money to salespeople that don't provide you, the customer, with ANY benefit if you can choose one that doesn't have that type of overhead? Funds with good returns and low MER are (relatively) easy to find, so I personally think that that type of fund overhead is unnecessary.

Just my opinion. Feel free to disagree. :P
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Jun 8, 2005
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TheDude79 wrote:Personally, I'd rather stay with a company (and its funds) that keeps their MERs consistant over time, with its gains in-line with the fund sector. The performance of most funds is driven more by the market and sector itself than by the individual stock picks of fund managers. Why should we overly reward the fund manager who just happens to be the guy with the fund flavour of the year (read energy right now....)?

Besides, as I'm sure you know as a financial advisor, sometimes a significant portion of the MER goes to mutual fund salespeople and the like for their work. Why would you choose a fund that pays a lot money to salespeople that don't provide you, the customer, with ANY benefit if you can choose one that doesn't have that type of overhead? Funds with good returns and low MER are (relatively) easy to find, so I personally think that that type of fund overhead is unnecessary.

Just my opinion. Feel free to disagree. :P
Before I proceed, let me premise this by stating that I am speaking in general terms, and if you require specific legal, tax, or financial advice, please speak to a licensed individual directly. (Can you tell I've been receiving PMs about financial advice?).

And now, my response:


I can see we may have a pretty good debate developing.

First, you're right. It makes absolutely no sense to pay high MERs and get nothing in return. Secondly, as a general statement, the compensation for fund companies to the advisor/institution is consistent by the fund company. How the receiving institution divies up that pie is dependent on that institution. E.g. Fund X pays Bank X based on the client's assets. Bank X pays employee Y for the client's assets. Or, Bank X may only pay employee X amount of salary regardless of the employee's work.

In my opinion, the ideal partnership is one where the advisor's compensation is directly linked to the client's wealth. That way, the client is ensured to receive quality service. Conversely, if the client's wealth decreases because of whatever reason, they can 'punish' the advisor by leaving the institution, moving some assets to another instiution, etc... IMO, it makes everyone that much more accountable, and that is a GOOD thing. Of course, you can expect superior service in this relationship.

In my practice, I try to align the best vehicle (be it investment, insurance, etc...) with the client's circumstances. I'm of the opinion, that if the fund manager earns the MER, then good for them. Motivation for quality work is a good thing. A high MER, poor performance fund is not likely to be in recommendations, so, to me, it is irrelevant.

Of course, if a person wants to fund-pick and not use the expertise of an advisor, then MERs are just commodities. So it would make sense to go with low MERs. However, if they are viewed as expertise, like medical advice. Then, it would make sense to go with the best medical professional even if their treatment/advice is more expensive. Oops... I just opened a new debate. ;p

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