You want to own the big Canadian banks, not their high-fee funds.

This week we saw the wonderfully outrageous profits of some of the big Canadian banks as they reported quarterly earnings. That’s the scorecard generally on how much they are reaching into the pockets of their customers, uh that’s you. Now certainly the big banks all have operations in other regions or within the US.

The big whopper of earnings was delivered by RBC. For the full year ending October 31, 2018, RBC earned $12.4 billion up from $11.5 billion in 2017. That’s an 8% increase of course. I found this in their earnings report.

“23% earnings growth in Wealth Management, mainly due to growth in average fee-based client assets, benefitting from our scale, talent and infrastructure advantage, including one of Canadian industry’s largest, most productive advisor bases.”

Did you see that ‘fee-based client assets’ mention? That’s called making money off of others’ investments. Did your portfolio experience 23% growth last year? Or, are you giving away your monies to high fee mutual fund and advisory fees? As you may know Canadians pay the highest fees in the developed world.

There’s no need to pay high fees when you invest.

Larry Bates, the author of Beat The Bank: The Canadian Guide To Successful Investing will agree with me that the way to Beat The Banks is to own them. The expression might now be …

If you can’t beat them, own them.

But step one to beating the banks is not losing to them. That means don’t fork over a significant portions of your financial wealth by way of investment and advisory fees. As Larry reminds us, investment fees are a wealth destroyer.

Larry Bates for Linkedin

As an investment plan it is better to simply own the big Canadian Banks – turn the tables. Make money off of them instead of the banks making money off of you. The big banks have such an advantageous oligopoly situation in Canada (wide moat, no competition, protected by regulators) that they even beat the world’s greatest investor Warren Buffett. That’s right, over the last few decades if you wanted to have bragging rights over Mr. Buffett and claim to be the world’s greatest investor, all you would have needed to do was buy the biggest 5 Canadian banks and reinvest those big and juicy and growing dividends on a regular schedule. Sorry Warren, hand over that world’s greatest investor crown.

If you’re comfortable owning individual stocks you might go that route through a discount brokerage house such as Questrade. Full disclosure I directly own the three largest Canadian bank stocks of RBC, TD and Scotiabank. Of course, pay attention to your concentration level (eg. what percentage are the banks of your total Canadian holdings and overall equity holdings). I perhaps have too much confidence in the ability of the big banks to keep making money. Or perhaps I don’t have enough confidence that Cut The Crap Investing and the other personal finance and investment bloggers will be able to convince Canadians to leave behind their high fee investments and other banks fees. Yes I am on a mission to reduce my big juicy dividends. But I am happy to fight that fight and happy to win that battle one Canadian investor at a time. Good luck to me/us.

Now of course you don’t have to own individual stocks to take advantage of the big Canadians banks and other Canadian financials, you can own a low fee fund such as an ETF. The Canadian market is dominated by financials. The popular iShares TSX 60 offers near 40% exposure to the financial sector. You’ll see that index fund in my ETF Model Portfolios.

You’ll also own the big Canadian banks in a low fee environment by way of the balanced portfolios offered by Canadian Robo Advisors. Here’s my recent review of Nest Wealth – Nest Wealth shows you how those low fees can be life changing where you will pay a Netflix-like subscription fee. It starts at $20 dollars per month and tops out at $80 per month. Even if you had a $500,000 portfolio your monthly fee would be that $80 – $960 annual. That’s 0.19% annual as percentage of assets. Compare that to mutual fund fees of 2.2% and above.

Net, net, don’t give them your money, make money off of the banks.

Other big news this week included the purchase of moneysense.ca by Ratehub inc. The good news might be that Ratehub communicated that they want to reinvigorate moneysense and grow that offering. As you may know moneysense had suspended its print format and greatly reduced its editorial and writing staff. Let’s hope this is a new beginning for moneysense, already a wonderful resource with over 700,000 monthly visitors.

On The Hub we had The Worst Markets for the Land Transfer Tax. The land transfer tax is nothing less than opportunistic theft of course.

The Hub also offered When high income meets high debt. That’s a lesson for everyone. It’s not what you make, it’s what you keep and invest.

And Rob Carrick offers 5 Surprising Facts About Robo Advisors, mostly that they are not all that robo as I keep reminding readers. They are all quite human.

roboAdvisor

Surprising Robo Fact #1

Human contact is readily available: Setting up an account can be done easily online, but robos stand ready to help new clients by phone. Several firms will assign you a representative to speak to whenever you have questions.

To go a step further, you can even get a full, tax-advantaged financial plan from the Chief Investment Officer when you sign up at Justwealth.

And on a sad note, GM leaves ‘the shwa‘ and Terence Corcoran suggests that it will take the typical government agency bribery (with your monies) as the only way to bring them back. Are we about to lose more money by way of corporate welfare?

Thanks for reading. I can be reached at cutthecrapinvesting@gmail.com. You’ll find the follow button at the very bottom of this page. Have a great Friday and weekend.

2 thoughts

  1. Thanks Dale. Helpful as always. This past year I finally convinced my mother to ditch some of her mutual funds with MER’s as high as 3%. I been after her for years but she didn’t want to “hurt” their feelings. I guess years of negative growth finally clicked in.

    On another notes, relating to the Banks I’ve helped all three of my children (all in their 20’s) set up TFSA’s through discount trading accounts. I’ve pointed them to banks and telco’s, safe and healthy dividends. I’ve encouraged them to keep enough money in their bank accounts to avoid the monthly fees and I’ve instilled a saying in our family “The bank pays us, we don’t pay the bank”. They are now collecting dividends and not paying fees.

    Keep up the good work

    Like

    1. Thanks Clever Rover, so nice to read all of that. Yes Canadians have to say goodbye to their high fee funds; it’s just doesn’t make sense. And as you know, I am a big fan of those big juicy dividends. I simply have several that you would find in Vanguard’s VDY. Have a great weekend and thanks for the support.

      Like

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