Please allow us to share excerpts from a recent article in the Globe & Mail entitled "Retired couple pay $20,000 in fees but have no investment strategy" and see if you see something wrong with this picture...
The article starts this way..."Donna and Doug have done well for themselves, paying off their cottage-country home and guest house and amassing a substantial investment portfolio. Yet they have a vague sense of disquiet. He is 62, she is 58.
“My husband and I are retired (forced early retirement),” Donna writes in an e-mail, “and while we think we are okay, we have some doubts about our financial adviser and whether or not we are sustainable for the next 30 years.”
"Assets: Cash $5,000; term deposits $75,000; non-registered investments (mutual funds) $785,000; high-interest savings $75,000; TFSAs $50,000; her RRSP $90,000; his RRSP $100,000; residence $600,000; guest house $250,000. Total: $2.03-million
Monthly disbursements: Housing expenses $550; guest-house expenses $190; transportation $410; groceries, clothing $650; gifts, charity $125; personal discretionary (dining, drinks, entertainment, pets, grooming, clubs) $585; life insurance $100; health, dental insurance $140; telecom, TV, Internet $350. Total: $3,100
Monthly net income: $4,165
"They have been with the same mutual fund adviser for 17 years and now pay more than $20,000 a year in fees. Over the past 17 years, the fees paid would be enough to buy a house in their area, the planner says. There has been some growth, but most of the portfolio value can be attributed to their savings.”
It seems that Doug and Donna have done extremely well in doing their part of saving up and are doing well above the average savings that most Canadians accomplish upon retirement.
However, certain things have caught our attention like how can it be justifiable that the couple's investments earn them $50,000 a year while fees paid to the financial adviser is $20,000?
The article continues to say that "their investment mix – 86 per cent equities and 14 per cent cash and fixed income – exposes them to more risk than is necessary to achieve their goals. As well, the report that they do receive does not show their rate of return or benchmarks.
Donna and Doug are “overdiversified” in a portfolio of deferred sales charge mutual funds with an average management expense ratio of 2.2 per cent a year.
It is almost certain that over the long term they will underperform by the amount of the management fees,” Mr. MacKenzie says. For the year ended April, 2014, their investments returned 8.6 per cent, compared with 13.6 per cent for the benchmark. This five percentage point underperformance cost them $50,000."
We certainly are far from being experts in matters of financial investments but we firmly believe that diversification is key. Adding real estate into the mix is one good strategy which we personally apply to our own plan in order to achieve the financial goals that we've set for the family.