Personal Finance

Help with Parents RRSP strategy - MERs are too high

  • Last Updated:
  • Mar 13th, 2018 4:58 pm
[OP]
Newbie
Jul 31, 2013
20 posts
Oshawa

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
Jr. Member
Oct 25, 2010
105 posts
15 upvotes
Eastern Ontario
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).
Deal Addict
Mar 3, 2018
2753 posts
3006 upvotes
GTA
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.
Deal Fanatic
Jul 1, 2007
8514 posts
1669 upvotes
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.
[OP]
Newbie
Jul 31, 2013
20 posts
Oshawa
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
Newbie
Feb 21, 2018
8 posts
1 upvote
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
Deal Expert
Feb 29, 2008
28890 posts
4612 upvotes
Montreal
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.
Deal Addict
Apr 18, 2017
1047 posts
914 upvotes
Toronto
Those are seg funds that’s why the MERs are so high
Member
Dec 5, 2017
250 posts
224 upvotes
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).
Deal Expert
Feb 29, 2008
28890 posts
4612 upvotes
Montreal
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 .
Newbie
Jun 30, 2016
34 posts
20 upvotes
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.
Deal Fanatic
User avatar
Dec 27, 2009
7607 posts
5002 upvotes
Victoria, BC
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.
Deal Addict
User avatar
Jul 29, 2007
1162 posts
633 upvotes
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.
Deal Expert
Feb 29, 2008
28890 posts
4612 upvotes
Montreal
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.

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