Portfolio (and Advisor) Review - Single Professional Female is Paying High Fees While Exposed to Unnecessary Risk

April 17, 2019 | Portfolio Review

Portfolio (and Advisor) Review - Single Professional Female is Paying High Fees While Exposed to Unnecessary Risk

From time to time I'm approached by a visitor to SeekAdvisor and asked to provide a review of their investment portfolio - and we're almost always happy to oblige.  

When I do these assessments I am reminded of my time supervising Financial Advisors and reviewing the activity/holdings in their client accounts.  Instead of explicitly protecting the client, the objective was always to determine the 'suitability' of the activity and the portfolio - ensuring the Advisor wasn't exposing the firm to undue liability.   The objective of account supervision at Investment Dealers generally is to protect the firm, the Advisor and finally the client - in that order.

What follows is an excerpt from my most recent review.

Age: 50ish 

Marital Status: Single, Female

Income: $150,000    

Liquid Net Worth: $625,000    

Total Net Worth: $1.25M

Objectives: Growth  

Risk Tolerance: Medium

Investment Time Horizon:  >10 Years                                                                                                                                                                  

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Fees - The first page of your statement shows the fees you paid in 2018 - this disclosure has been required since January of 2017.  However - these are only the fees you've paid to RBC Dominion Securities  (and your Advisor) - these do not represent your total fees.

According to your statement you paid the following fees in 2018:

Commissions: $598.14    

Trailing Commissions: $3,324.49  (these are commissions paid on your mutual fund holdings)  

Total: $3,922.63        

Again - these are not your total fees for 2018 - this only represents the portion of your fees which RBC DS is required to report to you.  The 'trailing commissions' on your mutual funds only represent a portion of your total fees on these investments.

Based on the closing values when this statement was produced - at the end of March - I would conservatively estimate the total annual fees on your entire account to be approximately $12,000.  This is an annual fee of about 2% of your total assets under administration.  

You are correct in what you suspected....your fees are much higher than what they should be, and certainly not what someone who has had not contact with their advisor in the last year should be paying!                                                                                                                                 

Holdings - Over 90% of your portfolio is invested in Mutual funds. Here is a snapshot of your total holdings: 

Dynamic Power American Growth Fund: $280,000  

Franklin U.S.. Rising Dividends Fund: $15,000  

Dynamic Value Fund of Canada:    $69,000  

PH&N Bond Fund: $100,000

Templeton Global Bond Fund: $115,000    

Stocks: GreatWest Life, Pembina Pipelines, REITs, BCE: $43,000                                                                                                                                    

Your total allocation is approximately 60% Equities and 40% Bonds.  While this seems reasonable - it does not match your objectives which are 100% "Growth".  It's not clear why you have such a large bond position and why this hasn't been addressed by your Advisors supervisor.

Your portfolio is concentrated by Geography (U.S...) and Sector (Technology).  Approximately 50% of your investments are held in U.S... Stocks through two mutual funds - the Dynamic Power American Growth Fund and the Franklin US Rising Dividends Fund.

Let's take a look at the Dynamic American Growth Fund where you have 45% of your total liquid net worth invested:

60% of this fund is concentrated in Technology stocks and 20% is held in Health Care.  The top ten holdings represent 50% of the fund.  Through this fund you personally own ~$50,000 worth of these three companies: ServiceNow, Xilinx and The Trade Desk, Inc.  Have you ever heard of any of these companies?  I didn't think so!

While this fund has done quite well compared to its peers this could be attributed to the manager making some fairly large bets on specific stocks and/or sectors - and not necessarily 'skill'.

This fund has been rated "medium to high risk".  This is misleading and quite frankly arbitrary.  These ratings aren't really all that meaningful - in the same way the ratings on Mortgage Backed Securities in the U.S.. (Medium Risk) were proven 'faulty' when the great financial crisis hit in 2008.   However, unlike MBSs and other instruments which are given risk ratings by independent, third party ratings agencies, Mutual Fund Companies in Canada rate their own mutual funds.  This is how the manager has worded the rating of this fund in their Fund Facts Document: 

"1832 Asset Management L.P. has rated this Fund’s risk to be medium to high. This rating considers how much the Fund's returns have changed from year to year. It doesn't tell you how volatile the Fund will be in the future. The rating can change over time. A fund with a low risk rating can still lose money."

I personally find that this fund would more appropriately be rated as "High Risk" - but this would not be in the fund companies interests....it would mean that fewer investors would be eligible to hold the fund and they would make less money!

Overall - your portfolio is not well diversified and highly dependent on the skill of a single fund manager and his enthusiasm for taking what appear to be fairly big risks.

Your annualized Rate of Return over the past 3 years has been 3.42%.  This is not particularly good given the amount of risk you have taken in the equity portion of your portfolio.

Your Advisor, XXXXXXXXXX, has been in the financial services industry since 1997 and he joined RBC DS in 2004.  He has completed the minimum requirements to be registered with the Investment Industry Regulatory Organization of Canada.  He took his last course in 2001 and does not appear to have any professional qualifications or even a financial planning designation. 

Assessment 

You are taking far too much equity risk in your portfolio and you lack diversification.  You are paying fees that are much higher than you need to be paying.  It would be reasonable to expect to cut these fees almost in half.  You also have indicated that you don't have any real contact with your Advisor - yet you are paying almost $1000.00 per month for his services, which is excessive by anyone's standards.  The performance in your portfolio has been very poor the backdrop of very robust markets - which is disappointing.

Recommendation 

I would suggest transferring your account away from your current Advisor at RBC DS. I would suggest that you do this without delay! The portfolio that he has set up for you lacks the level of sophistication that you should expect for the fees that you are paying. And he does not appear to offer you any other value add services!  He does not appear to have any professional qualifications or a commitment to continuing his education.

Based on what you have told me I would suggest you contact one of our SeekAdvisor members in your area - any of whom would be in a much better position to provide you with significantly deeper value than you are receiving from your current advisor.  I would specifically recommend:

Saeed Ally

Robyn Thompson

Scott Tomenson

...or any other Advisor profile that appeals to you!  They're all excellent professionals.  If you would like to chat further about anything that I have provided here, please feel free to contact me directly at 1.888.530.3888.

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Contact us today and we'll be happy to help!

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