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Heather and Harry’s goals are simple: paying off their debts, and saving for the children’s higher education as well as their own eventual retirement.


Because they're so frugal, Heather and Harry were vexed to see how much they are paying in investment fees. The numbers appeared in the new, more detailed statement investment firms are required to send clients under regulatory guidelines known as the Client Relationship Model 2, or CRM2.

The couple's registered retirement savings plans and their children's registered education savings plan are invested with a friend from university. "When we discovered how much we are paying in fees, we wanted to move our money somewhere where the fees are much lower," Harry writes in an e-mail. "We are thinking about robo-advisers, but we are nervous about managing this ourselves."

They don't really have a plan for retirement, Harry adds. "We feel like we have a bunch of things invested but there is no master plan. How can we best get prepared for this?" he asks. He also wonders whether they should have more life-insurance coverage.

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Harry and Heather are in an enviable position. He makes more than $215,000 a year in marketing, while she grosses more than $50,000 as a self-employed professional. He is 42, she is 39. They have two children, ages 7 and 9, and a house in a prosperous Toronto suburb. They also have a loan to repay from their student days.

Their goals are simple: paying off their debts, and saving for the children's higher education as well as their own eventual retirement.

We asked Warren MacKenzie, a principal at HighView Financial Group in Toronto, to look at Harry and Heather's situation. Mr. MacKenzie holds the chartered professional accountant (CPA) designation. HighView is an investment counselling firm.

What the expert says

Harry and Heather have a net worth of about $1.3-million, partly because their home has increased in value by more than $400,000, Mr. MacKenzie says. The rest is explained by the fact that they are "extreme savers," tucking away more than $6,000 a month.

"Given how little they spend on other things, it is understandable that they have a concern about the $7,000 they pay in fees each year on their mutual fund investments," Mr. MacKenzie says. "The more important issue is to know whether they are getting value for the fees they pay."

Even a small fee is too much if no value is being received, the planner notes. A reasonable fee can be justified if they are receiving value. To determine if they are getting value for their money, they can compare the actual results (from their statements) with the proper benchmarks.

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Turns out they earned 4.7 per cent in 2016, while a portfolio of exchange-traded funds with the same asset mix would have earned about 4.9 per cent. "While the passive portfolio of ETFs did slightly better in 2016, it would be expected that if their actively managed portfolio was properly managed, it would perform significantly better during the next market crash," he says.

They say they are thinking about using a robo-adviser but they are nervous about managing their investments themselves. "They should understand that, with a robo-adviser, they are not actually managing the money themselves," the planner says. Robo-advisers use ETFs and follow an investment process that is more structured and disciplined than most do-it-yourself investors.

"An even better solution might be to find a financial adviser who does financial planning, follows a disciplined investment process and constructs 'goals-based' investment portfolios."

Heather and Harry are correct in identifying the lack of a plan as being the most important issue to address, Mr. MacKenzie says. A properly prepared financial plan will show them how much they need to save and what average rate of return is required in order to achieve all of their financial goals.

Once they know the required rate of return, they can structure their investments accordingly – that is, to earn the return they need after fees to achieve their goals. "They should take no more risk than is necessary to earn that rate of return," the planner says. As it turns out, their existing asset mix of about 60-per-cent equities and 40-per-cent fixed income is reasonable considering their goals and their comfort level with volatility.

But they need a master plan for their investments. "The investment process is more important than the investment products, so they need to know that there is a disciplined investment process that is being followed," he adds. "With 27 mutual funds in the portfolio, there is no evidence of a disciplined investment process." As well, their portfolio is over-diversified, so over time, the net return is likely to be equal to the relevant benchmark – minus the 2.5-per-cent average MER (management expense ratio) they are paying, Mr. MacKenzie says.

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As for Harry's life insurance, he should definitely get more coverage. "Harry brings in 80 per cent of the family's gross income, so if something happened to him, Heather would be hard-pressed to raise the two children and maintain their lifestyle."

Finally, Heather and Harry might want to step back and reconsider how they are going about things, Mr. MacKenzie says. If they keep on as they are, they could have about $5-million by the time the children have graduated and moved out on their own. Do they want to leave the children a large estate, or would they rather spend a bit more money on family vacations, for example, and "leave the children with lots of good memories"?


The people: Harry, 42, Heather, 39, and their two children.

The problem: How to organize their investments so they pay lower fees and have a comprehensive plan.

The plan: Shifting to a robo-adviser will save them fees, but they may benefit from a financial adviser who also does financial planning and can draw up a proper, goals-based portfolio.

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The payoff: A better handle on what they are working and saving for.

Monthly net income: $12,000

Assets: Cash in bank $11,000; non-registered portfolio $149,420; his RRSP $153,970; her RRSP $86,225; his employer pension plan $101,430; RESP $41,460; residence $950,000. Total: $1.5-million

Monthly outlays: Mortgage $1,915; property taxes $430; home insurance $70; utilities $330; maintenance, garden $50; transportation $230; groceries $500; child care $540; vacation, travel $100; clubs $10; dining out $50; sports, hobbies $20; phone, Internet $160; his pension plan contributions $715. Total: $5,120. Surplus: $6,880 (goes to loan repayment, RRSP and RESP contributions).

Liabilities: Mortgage $171,640; student loans $32,000. Total: $203,640


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Some details may be changed to protect the privacy of the persons profiled.


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