Don’t pay for advice your ‘advisor’ is not allowed to give.

This week, one of the top stories brewing is the controversy surrounding Canadians paying fees for advice that the ‘advice giver’ is legally not allowed to give. Yes, us poor Canadians. Not only do we pay the highest mutual fund fees in the developed world in the regular, everyday, institutionalized, protected by the self-regulated industry ‘watch dogs’, we sometimes pay fees when we shouldn’t even be paying fees.

I have feeling this story has a ways to run, Controversial Commissions: DIY Investors Fight Back Against Trailer Fees.


This CBC report details how Steve Pozgaj paid trailing commissions on mutual funds at his discount brokerage. Trailer fees are a portfolio of your mutual fees that go to the dealer (advisor) who sold you the funds, and that’s largely for advice given. The thing is, if you call your discount broker you’ll discover that they don’t give advice, they are not allowed to give advice. From the article …

Canadian Securities Administrators (CSA), an umbrella group for all provincial securities commissions, estimates that there were more than $25 billion worth of mutual fund products paying trailer fees held in discount brokerages, as of the end of 2015.

Trailing commissions are typically 1%, so if we do the quick math that’s $250 million annual at the level of 2015 holdings. Mutual fund assets have grown in Canada from 2015.

Now I am going to add an opinion on investor personal responsibility here. The terrible irony is that Mr. Pozgaj is a former mutual fund employee. From the article … ‘Pozgaj considers himself a knowledgeable investor; in the 1990s, he was a chief information officer at Mackenzie Financial, a large investment management firm.’

I am shocked that this information did not cross his desk. Mutual fund fees and trailing commissions is so 101. This is the starting point, day one, when we start learning about mutual funds. Mr. Pozgaj should have been looking for the D Series of funds that strips out the advice or trailer fee component. He should have known this. This brings up the larger truth that if you are a DIY (Do It Yourself) investor, please ensure that you know what you’re doing. If you are a self-directed investor you are largely flying solo, you will not be getting advice at your discount brokerage house. One of Warren Buffett’s most famous and important quotes is …

Risk comes from not knowing what you’re doing.

Some advice is worth paying for, at the right price. And some brokerage offerings will have a separate advice arm available for those ‘self directed’ investors who want to check in to ensure that they’re doing the right thing and that their investments are all in order. adviceDirect is one such offering from BMO. Investors can also seek a fee-for-service advisor. In that scenario an investor usually has the option to pay a one time fee for advice, you then pay-as-you-go for each consultation. That investor can then move on to self direct their own investments. The-fee-for service advisor is not attached to any investment products or trailing commissions. They work for you.

That said, I am not trying to deflect blame from the industry and regulators. There is no reason for mutual funds that include trailer fees to be listed with discount brokerages. Regulators should have banned the practice (that they knew about) long ago. They should have insisted on D-series funds only. There is a motion to ban the practice. Let’s hope that they are successful and that Canadian investors get their refunds, with ‘interest’.

But some good news, and lets give credit where credit (or rebate) is due. Questrade has been on the side of investors for many years and has been delivering rebates to its clients. This from The Financial Post.

I more than touched on investor education or preparedness in this recent post Should You Create an ETF Portfolio or Go Robo with a Canadian Robo Advisor?  Of course, an ETF Portfolio is one of the lowest fee options available for that DIY investor. But again, that investor has to have a solid understanding of the investment basics. If we want advice and a managed portfolio a Canadian Robo Advisor is also a wonderful option. You can get digital or human advice, and again, the portfolio is managed for you. The fees will be some 60-70% less than traditional actively managed mutual funds. I’d suggest Mr. Pozgaj might consider the Canadian robo option.

But ironically, given that he is set up with TD’s discount brokerage he could have a purchased an all on one (one ticket ETF) balanced fund by entering an investment amount, then four letters, such as VBAL and then by pressing BUY. Here’s a very useful overview from Robb Engen at comparing one ticket offerings from Vanguard and Horizons. The ETF offerings have fees ranging from .18% to .25%. Mr Pozgaj could likely cut his investment fees by some 80-90% – assuming that he pays the industry norm of 2.2% – 2.5%.


And speaking of those Canadian robo advisors, it was more than interesting to see Weatlthsimple launch their Wealthsimple Roundup small change savings ‘platform’.



I am a big fan of any regular savings program. With this feature when a Wealthsimple client has their spending option attached to their Wealthsimple investment account, a purchase will be ’rounded up’ to the next dollar and that small change will be deposited into their investment account and invested every week. Simple, brilliant. We know that small change can add up over the decades. Put your small change to work. It’s the modern day version of the piggy bank.


Say you started investing $0.75 every time you bought coffee — five days a week — when you were 23. By the time you were 65, you’d have $23,712

Thanks to Larry Bates and Beat The Bank for the piggy with the wink. 

That small change might turn into the trip of a lifetime. Hey they say pigs are very smart. Saving on a regular schedule is smart.

On another note allow me scratch my advertising and branding itch. I am fascinated by the reaction and performance of Nike after their controversial Colin Kaepernick ad. While the brand love was down 38% there are reports that online sales are up 31% and that certain items were sold out at a rate that was 61% more than for the same period last year. I thought or knew that the ad would be controversial and ‘not liked’ by many Americans, and I thought that it would hurt sales over time. We’ll see. The Nike lovers have the ball and are moving down the field. The Nike stock price hit a new high. We’re early in the first quarter on this one, we’ll see what happens when in-store sales (where the older ad disapprovers shop) get factored into total sales figures.

All said, Nike did the math on Lovers vs Haters. This is not their first rodeo.

Thanks for reading, have a great weekend.

Dale’s note: While I do not accept monies for feature blogs, please click here for more about Dale and ‘how I might get paid’ disclosures.

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