Help with Parents RRSP strategy - MERs are too high

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Mar 13th, 2018 4:58 pm

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Mar 9th, 2018 8:48 pm

dickbann [OP]: Newbie; Jul 31, 2013; 26 posts; Oshawa

Mar 9th, 2018 8:48 pm

Help with Parents RRSP strategy - MERs are too high

Hi there,

I've been trying to help my parents with the finances lately and am looking for advice on where to move my Moms RRSP investment to.

My dad is retired, 62, with a pension income of approx $6900/month gross. My mom will be retiring later this year. Mortgage paid off recently.

My mom has an RRSP valued approx $32k and a spousal funded RRSP valued approx $45k.

I have an issue with them having it invested with Manulife Mutual funds (since 2011).

The funds they are in are:

MGF8291 - Dynamic Balance GIF Select - 2.9% MER
MGF8268 - Fidelity Canadian Balanced GIF Select - 2.8% MER
MGF8209 - Yield Opportunities GIF Select - 2.44% MER
MGF8216 - Growth Opportunities - 2.92% MER

I think these fees far too high think they should move them out of there. I have my kids RESPs in a couch potato TD E-series, but not sure if that would be the best decision to transfer it directly over to there at once. I was also thinking possibly about a Tangerine all in one type account.

They currently make $500/ month contributions combined between the two of them. I also told them they should consider stopping their contributions to retirements savings since retirement for both of them is nearly here and would be better off with increasing their monthly cash flow.

I personally think they could live on my dad's pension, so a moderate risk would be acceptable for what them have saved and likely without any further contributions.

Thanks in advance for any input and advice.

DB

14 replies

Mar 9th, 2018 8:54 pm

BrianV: Jr. Member; Oct 25, 2010; 109 posts; 16 upvotes; Eastern Ontario

Mar 9th, 2018 8:54 pm

For simplicity's sake, I would just move to Questrade and buy Vanguard Balanced (VBAL) for 0.22% MER. Questrade will pay up to $150 transfer out fee on one account, you would have to cover the other. No need to rebalance (with associated fees).

Mar 9th, 2018 9:06 pm

DaveTheDude: Deal Addict; Mar 3, 2018; 3272 posts; 3671 upvotes; GTA

Mar 9th, 2018 9:06 pm

At their age they should not be assuming very much risk to their savings. Probably 65% in fixed income. 35% in an ETF. They may not have years to recover if there is a crash like a 30 year old would.

They should be maxing out their TFSA accounts rather than their RRSP’s. Otherwise their old age security pensions could be clawed back when they reach 65.

+1

Mar 9th, 2018 10:39 pm

Thalo: Deal Fanatic; Jul 1, 2007; 8565 posts; 1755 upvotes

Mar 9th, 2018 10:39 pm

DaveTheDude wrote: ↑ At their age they should not be assuming very much risk to their savings. Probably 65% in fixed income. 35% in an ETF. They may not have years to recover if there is a crash like a 30 year old would.

They should be maxing out their TFSA accounts rather than their RRSP’s. Otherwise their old age security pensions could be clawed back when they reach 65.

The father has a defined benefit pension plan and the value of the mother's RRSPs is fairly insignificant in relation to the pension. There's no reason to be that conservative.

The funds they're in are guaranteed funds (GIFs) which are overpriced mutual funds to begin with, which have insurance policies attached to them making them even more expensive. Unfortunately, because these are sold by insurance salespeople (as opposed to accredited investment advisors), they're most likely back end loaded and the OP's mother might have to pay some hefty commissions to get out of them. If she get CAN get out, then she should take her money and run. BrianV has the right idea!

Money Smarts Blog wrote: ↑I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.

+1

Mar 9th, 2018 10:55 pm

dickbann [OP]: Newbie; Jul 31, 2013; 26 posts; Oshawa

Mar 9th, 2018 10:55 pm

Thanks for the info.

I agree that the amount of my mom's RRSP is relatively insignificant compared to my dad's DB pension. That's why I figured on no need to be overly conservative.

I will have my folks (or call myself) to find out about fees associated with leaving those funds.

Thanks

Mar 11th, 2018 9:58 am

Nadiazichev: Newbie; Feb 21, 2018; 8 posts; 1 upvote

Mar 11th, 2018 9:58 am

Have you had a portfolio manager review your investments? If you are in Toronto we have a fiduciary portfolio manager who can give you an unbiased opinion

Mar 11th, 2018 11:07 am

Spiritwalker2222: Member; Dec 5, 2017; 286 posts; 302 upvotes

Mar 11th, 2018 11:07 am

If there are back end fees, it's still worth paying to get out.

Mar 11th, 2018 3:10 pm

mr_raider: Deal Expert; Feb 29, 2008; 29857 posts; 5373 upvotes; Montreal

Mar 11th, 2018 3:10 pm

Spiritwalker2222 wrote: ↑ If there are back end fees, it's still worth paying to get out.

Be careful. They fees can be as high as 7% in the first few years.

They may be stuck for years.

Mar 11th, 2018 3:27 pm

hockeyfan1990: Deal Addict; Apr 18, 2017; 1054 posts; 922 upvotes; Toronto

Mar 11th, 2018 3:27 pm

Those are seg funds that’s why the MERs are so high

Mar 11th, 2018 6:49 pm

Spiritwalker2222: Member; Dec 5, 2017; 286 posts; 302 upvotes

Mar 11th, 2018 6:49 pm

mr_raider wrote: ↑ Be careful. They fees can be as high as 7% in the first few years.

They may be stuck for years.

In my opinion, it's worth it to get out. Pay 7% and be done with it. Instead of paying 2.5% more than a reasonable MER for 5+ years and still having to pay a back end fee (albeit smaller).

Mar 11th, 2018 7:22 pm

mr_raider: Deal Expert; Feb 29, 2008; 29857 posts; 5373 upvotes; Montreal

Mar 11th, 2018 7:22 pm

Spiritwalker2222 wrote: ↑ In my opinion, it's worth it to get out. Pay 7% and be done with it. Instead of paying 2.5% more than a reasonable MER for 5+ years and still having to pay a back end fee (albeit smaller).

The calculation depends on the amount and estimated return. For a small portfolio with low growth it may not be worth it. You can contact the MF company and get the fees paid on sellout .

Mar 13th, 2018 3:20 am

rfdyup: Newbie; Jun 30, 2016; 40 posts; 37 upvotes

Mar 13th, 2018 3:20 am

Yes the fees are high but I think there are some death benefit guarantees included plus the advisor may be providing other value-added services that should be taken into consideration?

Finding out the survivor benefits for your father's pension is important whether your mother receives the full amount or a % since that would help determine how aggressive she should be with her investments which should be efficiently moved to their TFSA accounts as soon as they can income split.

Mar 13th, 2018 10:33 am

Chickinvic: Deal Fanatic; Dec 27, 2009; 7912 posts; 5454 upvotes; Victoria, BC

Mar 13th, 2018 10:33 am

rfdyup wrote: ↑ Yes the fees are high but I think there are some death benefit guarantees included plus the advisor may be providing other value-added services that should be taken into consideration?

Finding out the survivor benefits for your father's pension is important whether your mother receives the full amount or a % since that would help determine how aggressive she should be with her investments which should be efficiently moved to their TFSA accounts as soon as they can income split.

I have never heard of a DB plan that pays the survivor the full amount. I think for that setup if it were even an option, the pensioner would have to be accepting a much lower pension during their lifetime to make up for that provision. OP's dad seems to have an incredibly high pension. Even 50% of it should be pretty good for the survivor with no mortgage, OAS, CPP, etc.

Mar 13th, 2018 1:24 pm

richardvoyageur: Deal Addict; Jul 29, 2007; 1192 posts; 685 upvotes

Mar 13th, 2018 1:24 pm

If you can get out without huge backloaded fees, i would second Brian's recommendation above and move it to Vanguard's new ETFs:

The Vanguard Conservative ETF Portfolio (VCNS) holds 40% stocks and 60% bonds,
Vanguard Balanced ETF Portfolio (VBAL) holds 60% stocks and 40% bonds,
Vanguard Growth ETF Portfolio (VGRO), holds 80% stocks and 20% bonds.

All three ETFs carry a very competitive management fee of just 0.22%. I have recently switched out all of my TD e-series funds to make it easier to manage. If you wanted to blend some of theirs you could always buy 50/50 of VCNS/VBAL to get 50%/50%, depending on risk tolerance. I wish a lot of Canadians would look at this stuff more closely, we have paid too many fees for way too long in this country. The new offerings from Vanguard are fantastic and super simple.

+1

Mar 13th, 2018 4:58 pm

mr_raider: Deal Expert; Feb 29, 2008; 29857 posts; 5373 upvotes; Montreal

Mar 13th, 2018 4:58 pm

Chickinvic wrote: ↑ I have never heard of a DB plan that pays the survivor the full amount. I think for that setup if it were even an option, the pensioner would have to be accepting a much lower pension during their lifetime to make up for that provision. OP's dad seems to have an incredibly high pension. Even 50% of it should be pretty good for the survivor with no mortgage, OAS, CPP, etc.

My mom gets 90% for 10 years than 60% for life. University pension.

+1

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