FPSC: Updated expected returns | General financial discussion | Discussion forum

The truth of the matter is the DIYer can bring fees down to a mere 10bp or so by holding a Couch Potato ETF portfolio at a discount broker, or have an independent advisor do it on one's behalf for circa 1% of AUM.

I have not calculated my annual cost to manage my portfolio in some time but it cannot be more than about 5 basis points per annum and that is because my ex-Canada equity holdings are in ETFs while all my Canadian holdings are directly held.

It seems the FPSC is making blanket assumptions about % of AUM advisors with actively managed mutual funds as the mainstream investment portfolio mechanism. That will hopefully change with the ongoing pressure via regulators for transparency on fees.

Good thoughts from Loonie that align pretty much with my thinking.

1. Likely lower future returns will really expose the fee 'scandal' out there. The full service industry is becoming under more and more threat as financial education is more readily available, there are more options available including robo advisors, the advent of cheap ETF alternatives to mutual funds, etc, etc. More of the investing public is moving to lower cost models though whether it will ever be a majority or not, I have my doubts.

2. I disagree with Norman about transparency. The bulk of retail assets are still in DSC mutual funds and most retail investors don't believe they pay fees. The rude awakening will come when MERs will be front and center on statements. The move to disclose fees front and center should embarass the mutual fund pushers. There will be more investor challenges.

3. Short term interest rates have to increase someday. It may be that the yield curve has to steepen first to force central bankers hands. Time will tell, but I think the bond/Tbill estimates are on the high side. These projections may be intentionally devious to keep investors in fixed income. I really don't know.

Couple observations:
1. If you're the type of investor that hasn't clarified what fees are embedded or charged now then you're likely not going to read the new disclosure requirement details either. The folks I know who are big into mutuals spend zero time on financial literacy, they figure someone else is looking after their dough for them.
2. That T-bill return is nonsense, hasn't been near there in many years, I've no idea what they're trying to pull with that one. Virtually all levels of government in the West go deeper into debt every hour, they can never pay it off, so central banks can't raise rates unless they want to immediately trigger sovereign debt defaults that very well could lead to disorder and upheaval. They'd rather put it off as long as possible. It's instructive to remember, after all, why rates have been so low for so long in the first place and why we're seeing strange things like "negative" interest rates. This is clearly a cycle not seen worldwide before, and that's why the "experts" repeatedly have to defer the date of the expected interest rate rise. It's not coming.
Just my view.

Well, if they can't "do the math" on TBill projections, one does have to wonder, what good are they?

I had wondered if perhaps they were thinking of Money Market Funds, which sometimes do better than just buying TBills outright. Still, would not come close to their projections as far as I can see in my personal crystal ball.

Also, we are only talking about 5% of the imaginary portfolio.
However, it does raise eyebrows about calculations.

My comment on 30-50 years is based on the 5 criteria that were used to come up with these projections, including actuarial numbers from QPP and CPP, and note this quote from within the link:

William Jack, an actuary and CFP who worked on the guidelines, said the bond returns should be viewed as long-term projections that look beyond the next couple of years. "The really important thing to remember is that these rates are going to be used for projections that can stretch out 25, 35 or 45 years," he said.

These are long term actuarial assumptions and are not intended to accommodate short term bumps or 10 years or so. Still, a good planner will do 'what if' scenarios from this base to show what variability could expected..including near term underperformance due to low interst rates.

Personally, I found Monte Carlo simulators like FIRECalc adjusted for Canadian inputs invaluable to me about 15 years ago when I was planning my own upcoming retirement. It opened my eyes about a range of 'what ifs'.