By Scott Ronalds

Nobody likes looking at their account statement these days. No matter where you’re invested, returns are ugly. But beyond the numbers, there’s often a lot to be desired. We’ve had a number of statements come across our desk lately from investors who are looking for a new home. And in many cases, the foundation is shaky. One portfolio review in particular prompted the case study below.

Meet Pat and Stephanie. They’ve managed to put away a decent sum of money in their RRSP accounts, but they feel left in the dark on a number of fronts.

They don’t know what the performance of their accounts has been over the past 10+ years. They don’t know what they pay in fees every year. They own a long list of funds and have trouble interpreting their account statements. They’re not sure if they’re following a consistent investment philosophy, and they would like to know more about the decisions being made within the funds they own. Pat and Stephanie want to be more involved in the management of their retirement savings and are ready to explore an alternative to their current advisor.

A close look at their combined portfolio reveals that they own 14 mutual funds. Almost all of them fall under the dreaded deferred sales charge (DSC) category, which means their advisor reaped a handsome up-front commission for essentially locking them into these funds. If they sell, they’ll be subject to steep penalties.

While they are embarrassed to say they don’t know what the overall fee on their portfolio is, they can’t be blamed, as it is nowhere to be found on their statement. A little digging and some math reveals that they currently pay a fee of 2.58% a year on their portfolio of $164,000. That’s $4,230 a year based on their portfolio’s current value. Expressed this way, it makes them squeamish.

Of their 14 funds, they own 5 Canadian equity funds (including an oil & gas sector fund), 3 global equity funds, 2 U.S. equity funds, a balanced fund and 3 income funds. Their asset mix is roughly 65% equities and 35% fixed income. Upon closer look, they own over 700 stocks in their portfolio, with a lot of duplication and no direction. It’s a dog’s breakfast. In essence, they own a very expensive index fund.

After they were presented with the facts, Pat and Stephanie turned to their advisor and asked what the fees would be if they decided to transfer their account. They received a vague answer, “somewhere between 3-6%...it varies by fund.” Not much help. But in other words, they could be hit with redemption fees of $5,000-10,000 if they move on from their current relationship.

The couple wants to simplify, cut costs and put their retirement savings with proven money makers. They’ve committed to move to a new manager the 10% of their portfolio that isn’t subject to DSCs (investors can sell 10% of their holdings in a DSC fund each year without a penalty), as well as some of the funds with lower redemption fees. They’ll transition the rest of their portfolio over time to avoid larger redemption fees.

Pat and Stephanie have decided to take action and seek an alternative to the status quo. Steadyhand was designed for investors like them, and the couple will weigh our concentrated, non-index oriented, low fee approach against a list of other managers they have short-listed. They’ve made an important first step, though...they’re not just standing Pat.