bond – Money Smarts Blog

Questrade discount brokerage has just come out with a great way for retail mutual fund owners to save on high management fees by offering to rebate up to 1% of those fees.

What’s the deal with the Questrade mutual fund rebate?

Questrade will rebate up to 1% of the management fee for any mutual funds held at Questrade. This amount has to exceed $29.95 per month for the investor to get any rebate. This means that you need to have more than $36,000 in mutual funds before the rebate kicks in.

How is this possible?

When an investor buys a mutual fund from an advisor then the advisor is paid a “trailer” each year which is based on the amount of the investment. Typical trailers for equity mutual funds are 1%. Bond and money market funds will be lower. The amount Questrade will rebate will be equal to the trailer paid on the funds you owned.

The problem is for a do-it-yourself investor who wants to buy retail mutual funds is that they can only buy them through an advisor or a discount brokerage and they are charged for the trailer even if they don’t have an advisor. With this new program the investor will be able to save most of the trailer amount.

How much will it cost to transfer my mutual funds to Questrade?

If you transfer before March 2, 2009 from a different financial institution and transfer at least $25,000 then it will be free of charge.

How much are mutual fund trading fees?

Questrade charges $9.95 per mutual fund trade.

I don’t have $36,000 – is it still worthwhile?

Depends on the situation – if you are close enough to $36k (ie $30k or more) and will be buying more mutual funds then it might be worth doing even though you won’t get the rebate for a while. At the very least it won’t cost you anything.

Another situation might be if you have some back-end funds that you don’t want to pay commissions on. If you are planning to just buy low cost ETFs then you might consider moving the mutual funds to the same institution.

Where do I sign up?

Click on the banner below or on any of the links you see in the article.

I demand more information!

Check out my Questrade discount brokerage review and my Questrade referral promotion articles for more information.

Is it really cheaper to pay $10 per trade rather than get my advisor to do it for me?

Let’s look at an example – say you have $100k in mutual funds with an average mer of 2.5% and the only service you get from your “advisor” is he completes 12 trades per year for you “free of charge”.

With the advisor you will pay a total of $2,500 per year for the fund management, the advisor’s services and the 12 trades.

With Questrade you will get a rebate of $1,000 (approx) and you will pay $120 for the trading fees for a grand total of $1620 for the fund management and the 12 trades.

$2,500 (current fees) – $1620 (Questrade fees) = a savings of $880 per year.

Personally, I’d rather invest in passive index funds and ETFs which are way cheaper (also available at Questrade) but for anyone who wants to own retail mutual funds – this is a great deal.

RESP – Asset Allocations

This post is part of the Big RESP Series. See the entire series here.

See the previous post on resp withdrawals here.

When setting up a resp account it’s important to determine and monitor the asset allocation of the account. Typically the asset allocation is determined by the risk profile of the investor and the amount of time remaining until the money is required. Equities are considered risky assets but over a longer term they are fairly reliable. If you are making an investment and you need the money in two years then equities are not advisable because there is too much risk that their value will go down over those two years. Short term bonds or a high interest savings account is a better investment for money that is required in the short term. The idea is not get superior returns but to ensure that the money is there when needed.

So if equities are a good investment over the long term but not the short term, the question has to be asked – how long is the “long” term and how short is the “short” term. I would say that short term is anything less than five years and the long term is 15 years or more. Please note that this is strictly my opinion so don’t write it in stone!

Unlike retirement planning where you don’t know how long the portfolio will be in use for, RESP planning is a bit easier since you can make a pretty good estimate of the start date of withdrawals and the end date of withdrawals.

For this example I’ll assume that the student goes to school starting the year they turn 17 and finish up four years later.
I’ll go through different stages of the resp in terms of how old the student is:

Age range	Equity %	Bonds %
0-5	100	0
6-11	60	40
12-17	40	60
In school	0	100

Once they are starting school all the money will be withdrawn within five years so it should be in very safe securities such as high interest savings accounts, short term bonds or money market funds.

If you are a more conservative investor then you might want to do the following:

Age range	Equity %	Bonds %
0-5	60	40
6-11	50	50
12-17	25	75
In school	0	100

I would invest equally in Canadian, US and EAFE for the equity portion and in short term bonds ETF or a bond index fund for the bond portion. You can add other asset classes to the mix as well. This example is intended to show a simple asset allocation.

I’ve indicated the allocations at five or six year terms. If you are really keen and plan to rebalance every year then you can also adjust the allocation every year.

Obviously none of the above allocations are perfect for every investor so try to keep in mind the idea that money which is required in the short term should be invested in safe investments and try to adapt the above suggestions to your situation.

See the next post on RESP Individual and Family Plans.