In this Newsletter, I will share my experience taking over my elderly father’s retirement accounts, the issues I encountered, and the frustrations dealing with his bank to make it right. Through this experience, I have realized that the financial system in Canada is set up, by default, to capture you and your money, and that stepping away from the system is not always easy.
My Dad is now 87. He has some memory troubles but thankfully still lives a simple, independent life at home with help from family and friends. He is no longer interested in managing his own accounts because for the most part, he is unable to. His bank which I will refer to as “The Bank”, advised us that they were no longer comfortable with us managing his affairs informally and asked that we seek power of attorney over his financial life. Basically, a formal legal way to manage my Dad’s day-to-day financial needs, pay bills and taxes, cash cheques, and look after his investments. Most everything we were already doing informally.
Luckily, Dad was on side with the Power of Attorney approach. I understand that if the loved one is not cooperative, this can get messy. Upon gaining full access to his accounts, we were shocked to find out that a large amount of my Dad’s wealth was unproductive and sitting in cash; his TSFA was not maximized and his RRIF (Registered Retirement Income Fund) had too much money in it for his age, which could create a huge tax bill should he drop dead unexpectedly.
If that was not bad enough, all his investments were in The Bank’s mutual funds: higher fees and lower returns. There was no US or international funds or any real sector diversification.
Historically, Dad always seemed to be happy with his returns from The Bank, and a long time ago they might have been fine, but at this point they had become a disaster. I do feel guilty not stepping in earlier, but like many relationships with elderly parents, there is only so much you can do when they are still in charge.
You would have thought that having a son who invests as a hobby would provide my Dad with an edge in investing. The reality is a little more complicated. I generally provide financial advice to friends and family when they ask. I have provided advice over the years to my parents but what they did with that advice has been mostly unknown to me. There is also a sense of not wanting to be responsible for the financial health of my parents. What if bad luck or ill-timed advice resulted in a negative life-changing to them. How would I live with myself if they had to eat cat food and shop at the Dollar store because of me? Mind you, my Dad loves the Dollar Store no matter what.
Surely Fixing my Dad’s Accounts Should Be Easy…Right?
This has proven to be more difficult than thought. The Bank has interpreted a clause in our Power of Attorney to mean that only their investment products can be used as investments. This means no direct investing, no stocks, and no international ETFs; nothing but the Bank’s most conservative mutual funds. They advised that if we wanted more flexibility, we’d have to go back to the notary and change the Power of Attorney. I countered that my Dad could walk into a branch and open a direct investing account now. They said sure, bring him over and he can sign some documents. I countered: “surely you do not want me to move my mobility impaired father to a branch just for a signature? Could we not have him sign it at home?” Nope.
Making The Best Of A Bad Situation
Not finding any solutions, I made the best of the situation. I readjusted his accounts in order to be fully invested, maximized his TSFA, lowered the cash levels to only what he needs for the current year, and redirected all the investments to a more appropriate set of mutual funds. This is much better than before – he is now generating more monthly income and is in a better tax situation. However, I am still stuck in The Bank’s ecosystem – paying big fees and living with mediocre returns – but at least it is a big leap forward.
This situation confirmed my dislike of Canada’s big banks. Most average investors that I know invest within their Bank’s ecosystem. It’s easy, local, and less intimidating than a lot of the other options. I can see why my parents did business with The Bank. The other problem is that my parents, like many Canadians, are not rich. A few hundred thousand dollars is a lot of money to my parents, but it really wasn’t enough for The Bank to be bothered moving the needle with their level of service. It’s actually in The Bank’s best interest to keep their clients in mutual funds where they (the bank) makes lots of money on management fees with little to no work.
I have not identified which Canadian bank I have been dealing with so as to avoid any legal repercussions. This also provides me with the ability to say that this one is truly evil, and the biggest. To be fair, there are only 5 big banks (more or less) in Canada and in effect they are all regulated the same way, so my experience would likely be similar with any of these banks. They are all basically evil, oops, said it again. I have no problem, however owning their stock: they do know how to make money.
The Squeaky Wheel? Or Money Talks?
Having accepted that I was trapped in The Bank’s ecosystem, I nevertheless expressed my dissatisfaction in an email with a different Bank rep in my local area. Without knowing it, my email got some attention and I was asked to attend a meeting to discuss how I could be better accommodated. Now all of a sudden a few different options have been made available to me, including opening up a direct investing account or adding my Dad to my existing family Wealth Management Account. They even agreed that my Dad could sign documents at home. Easy peasy!
Did this all change because I complained? Was it because someone realized that I happened by shear coincidence to have a wealth management account with The Bank and figured that it was in their best interest to keep me happy? I will never know for sure, but what you can take from this is that it costs nothing to stand up for what you think is right. Banks are big and if you cannot get resolution one way, there are other avenues to take within their system. It all comes down to finding the right person who is willing to help. In the end, there are other similar banks that are willing to manage your money. Levels of service vary amongst banks, provinces, and local branches. In this case, my experience with The Bank’s Montréal office was horrible, but it was totally different and much better in the Gatineau office.
Final Lesson
There is no doubt about it: if you’re a small investor in Canada, you are likely caught in a bank’s ecosystem. You may not think about it much, you may not even know that there are better alternatives. I have always said that the small investor eventually has to graduate away from mutual funds in order to benefit from lower fees and higher returns. In the end we are solely responsible for our own money and should not depend on The Bank. We need to take charge and invest in ways that are more efficient and beneficial to ourselves and avoid padding The Bank’s returns. The small investor can still stay within a bank’s ecosystem by opening up a direct investing account, which allows the purchase of low cost stocks and ETFs.
Wait A Minute – Is There An Elephant In The Room?
I know I am going to get some slack for investing most of my Dad’s wealth in equity. He is old, and should only be in fixed income, right? Well, the big picture is that my Dad is never going to spend all his money. He already has a pension that covers most of his expenses. The reality is that the investment horizon for these accounts are not for my Dad, they are for his heirs. One day, not too long from now, my dad will depart this earth and his wealth will pass on to me and my sister. This means that those accounts should reflect our investment horizons, which with a bit of luck will span twenty years or more. My Dad and my sister are comfortable with this approach. Dad is well taken care of and he will have enough money no matter what the future may hold. We are just investing it in a way that is best for everyone, but not so much for The Bank.
Sorry there was no Newsletter in July.
Marc’s Monthly Moves
- No buys or sells in the last 2 months.
Marc’s Portfolio YTD Performance
- Portfolio return: 13.4 % (including currency gains)
- Portfolio return: 10.5 % (without currency gains)
- S&P 500 return: 16.45 %
- RSP ETF S&P equal weight 8.23 %
- TSX: 10%
The portfolio is under performing the S&P500 by 5.95 % points.
Money with Marc 