The point: Yes, your own bad investing behaviour costs you, but your advisor's bad investing behaviour has the potential to cost you a lot more.

First off: I'm not a portfolio manager or an investment advisor (or adviser, for what it's worth). I was a registered representative (read: mutual fund salesperson) at CIBC for many years, but gave it up when I started my financial planning practice.

These days, I don't manage anyone's money but my own, and am happy to concentrate my expertise on what too many investment professionals would call "the other stuff"; things like behaviour, spending, debt reduction, and retirement planning, to name a few.

But just because I don't advise clients on securities anymore, doesn't mean I don't get to see what they're invested in. A big part of my work is helping my clients set reasonable expectations for their investments, which means looking at what they own and helping them understand what they're paying for. Whether they're investing in Realty Mogul or Fundrise, it's important people understand what they own.

How much does your bad investing behaviour cost you?

I had to laugh when I read the series of intro pieces written for the unveiling of the MoneySense Approved directory, in particular Preet Banerjee's How your own bad investing behaviour costs you, which begins with an interestingly-worded contrast between "advisor-hating, DIY couch potato investors in search of the lowest cost" and "those who believe in the value of higher-cost, actively-managed full-service advice", and goes on to say:

What often gets overlooked by investors who ascribe to such polarizing views of financial advice is the less salient cost of making avoidable investment mistakes. This is more colloquially referred to as “behavioural drag,” which is the tendency to second-guess investment strategies and make changes to portfolios, generally, at the worst possible times. It can have a big impact on your ultimate bottom line.

Preet then calculates how much this behavioural drag will decrease your rate of return, assuming a $100,000 portfolio invested for 25 years with a 6% rate of return before fees, which he assumes to be 2.5% for actively managed advisor relationships, 1.25% for passively managed advisor relationships, and 0.25% for passively-managed do-it-yourselfers.

Notice anything missing?

Of course many DIY investors make mistakes (despite tools like Stocktrades designed to ensure fully-informed decisions) "passive" couch-potato adherents and "active" stock-pickers alike. I've seen them first-hand. You can always start investing from your phone though if you are that lazy type. (Do magazine covers like this one contribute to the problem? Asking for a friend.)

What this calculation says is "your own bad investing behaviour costs you more than you're saving in fees by DIYing". But

I've seen some portfolios...

I would love to live in a world where engaging an investment advisor automatically meant eliminating behavioural drag, I really would. The portfolios I look at every day with clients are proof that we don't.

Consider the client who thought she had a 60/40 portfolio, but whose equity allocation was actually seven different income funds or managed portfolios at BMO and five at TD: BMO Asset Allocation Fund, BMO Dividend Fund, BMO Monthly Income Fund, BMO Income ETF Portfolio, BMO SelectClass Balanced Portfolio, BMO SelectClass Income, and BMO SelectTrust Equity Growth, TD Dividend Income Fund, TD Comfort Agressive Growth Portfolio, TD Comfort Balanced Growth Portfolio, TD Comfort Balanced Income Portfolio, and TD Comfort Conservative Income Portfolio.

Her equity allocation.

What does that tell you about the quality of the 2.08% investment advice that she was paying for?

Or consider the client whose advisor - after ignoring her for a year - finally decided to show up one morning and prove she's paying attention with a flurry of trades, including a buy recommendation on Potash. In July. What kind of drag did that set of trades have on the portfolio?

How much does your advisor's bad investing behaviour cost you?

That calculation could much more accurately say "your own bad investing behaviour costs you, but your advisor's bad investing behaviour costs you more, especially if you're paying a lot for it".

Forget about whether your portfolio is actively or passively managed for a minute and think about cost instead: high cost portfolios do damage to your investment returns, and that damage is magnified by bad behaviour (yours or your advisor's).

High costs are so damaging that even a perfectly-executed portfolio management strategy is likely going to underperform an imperfectly-executed strategy that costs dramatically less. If you're paying 2.5% for investment management, you'd better hope you've found one of the few human beings in the world immune to behavioural mistakes.

The choice to chart the cost of bad investing behaviour on every kind of investing model except for the "high-cost, actively-managed, full-service" advice he refers to at the beginning of the piece, coming as it does as part of a series introducing a list of investment advisors willing to pay $2,500 per year and able to prove that they're CFPs in good standing with clients who don't hate them (which, I believe, the Financial Planning Standards Council does a pretty good job of on its own), makes the whole exercise feel like an apologetic for an investment advice industry built around high embedded costs, justified by promises of better than average investing skill and long-term portfolio outperformance that just don't bear up under scrutiny.

Canadians wanting to manage their investments have up until now had three choices for their savings:

1. Open up a self-directed brokerage account, pay the trading and account fees,  and build a portfolio on your own with no advice from the brokerage.

2. Go to the bank (or have a mutual fund or insurance salesperson come to your house), pay a management expense ratio on mutual or segregated funds in excess of 2%, and get varying levels of "advice" for "free".

3. Find a fee-only investment manager close enough to you to do business with you, pay 1% on your total invested assets with them (provided you have enough money to meet their minimum, usually somewhere in the $500,000 and above range), and get financial planning and investment management services included in your annual fee.

In general, those of us with less than $500,000 to invest have chosen the bank route by default simply because that's what's available in our town, and something is better than nothing, but with the new low-cost and low-to-no minimum investment advisors like Nest Wealth, Wealthsimple, WealthBar, PortfolioIQ, and ShareOwner Model Portfolios* joining active manager Steadyhand online and across Canada, there's a fourth option, and one that should completely replace the bank and insurance salesman as a default option.

Why should you investigate what the media are collectively referring to as "the robo-advisors" (an inaccurate but appealing shorthand)? You probably already have some kind of portfolio, is it really that bad that you ought to consider completely replacing it with something new?

Here's why you should think seriously about it:

None of them are tied to bricks and mortar, and are therefore (for the most part) available across the country no matter how small a town you live in or how far away from transit your apartment is, and If you're paying 2% (or more) for a bunch of mutual funds your investment advisor picked out for you but can't articulate in one or two sentences what else that advisor does for you, you're paying too much. 

So how do the robo-advisors stack up against each other? Who's the winner?

As a financial planner and occasional personal finance blogger, it's really very tempting to look at each of these companies and declare a winner based on cost alone, or the combination (or lack) of services I value most, or what I think the average investor should want from portfolio construction and advice. But the reality is that each of us falls somewhere along parallel spectra: an ability spectrum, that moves from "knows a lot" to "needs hand-holding", and a wealth spectrum, that moves from "small nest egg" to "significantly large pile of money".

In short, you and I and the neighbour across the road might all need more or less help with more or less money, and while one provider might be a perfect fit for me, another might be just the ticket for you.

I unequivocally believe that - provided you have the relatively small amount of time necessary to set it up and maintain it, and the relatively large amount of intestinal fortitude to stick with your plan no matter what the markets are doing - a self-directed, simple Couch Potato portfolio of low-cost, index ETFs or mutual funds is the best investment strategy for most Canadians.

However, intestinal fortitude when it comes to market gyrations, investing fads, and scary or exuberant magazine covers doesn't come easily or naturally to everyone. There's no shame in wanting someone else to manage your investments, offer sound asset allocation advice, rebalance across multiple accounts, watch for tax-efficiency, and act as a dispassionate barrier between you and impulsive action when you're tempted to abandon your long-term plan in light of short-term events, provided you know what you're paying for...and receiving it.

I want to be really clear here that "investment management" and "financial planning" are two different things frequently offered by the same person or company at varying levels of skill and almost always conflated in the popular and media imagination.

Financial planning and coaching is the context, the "what I want and need my money to do for me as I live my real life", and investment management and advice the tool, the "and this is how my investments specifically will do it".

Investing is one of the many tools we use to live the life we want, but it's not the only one. Sometimes it's not even the important one. It shouldn't be a surprise that I believe your financial planning should come from someone you've paid directly, that your investment management should be separate from that advice, and that both sets of fees should be low. 

But doesn't a higher fee mean that the advice I get will be better?

Listen, "you get what you pay for" doesn't apply here, even though cost alone cannot act as the only indicator for how well an advisor will serve you. There is indisputable evidence that low fees are good for investors, and in the absence of a quantitative metric for how "good" someone's advice is, using lower fees as a proxy for how much more important your bottom line is than theirs seems pretty savvy.

So as you're seriously considering what the low-cost investment managers are offering (and you should be), I'd invite you to use the Canadian Investment Fee Calculator as a starting point to calculate the relative cost of each service for the amount of money and number of accounts you have. With that information, you can compare the services based on where you fall on the "how much money do you have?" part of the spectrum. That's the objective part of the choice.

The subjective part of the choice (although each provider would and has argued that it's not subjective at all) is all the rest of the information you need to spend time considering, preferably by calling each provider, telling them about your situation, and asking questions like:

• How the portfolios are constructed and why those particular funds or ETFs are used

• What institution acts as the custodian of your investments

• Whether financial planning of some kind is included in the fee, if it's purely investment management, or if all you're paying for is access to the portfolio with no advice included

• How often you're able to talk to someone if you need to

• How well-developed their retirement income and decumulation strategies are

If you can't articulate what it is that your investment advisor is doing for you right now beyond picking out investments, or - worse - how much it's costing you, write this down right now:I will give myself until next month to investigate the different low-cost online investment manager options, and I will decide on one and start the transfer process.

Or you can make a decision by virtue of not taking any action at all, and continue to pay outrageous fees for an Advisor Six-Pack and planning services you're not actually receiving.

---

*ShareOwner Model Portfolios, not to be confused with ShareOwner's "build your own portfolio" account, which isn't a contender for the purposes of this comparison.   

Before I let you read the rest of this post, I want us to agree on a set of facts:

1. It is extremely rare (but not impossible) for any one investor, investment professional, or investment management company to consistently and reliably outperform the market for any appreciable length of time.

2. The only way to profit from this legendary investor’s tactical brilliance is to begin investing with him or her very early on in his or her career, which necessitates identifying him or her before said brilliant career actually takes off in any appreciable way.

3. If 1, then 2 is unlikely at best.

4. If (almost) every investor, investment professional, or investment manager can only - at best - be expected to deliver long-term returns at about the same rate as the market in general, and only by sheerest luck (in most cases) will he or she happen to turn out to be of the rare breed mentioned in 1, then the only meaningful differentiation between everyone else is the amount of money it costs to invest with them.

4 a) The difference in cost to invest between any two investment professionals, since it must not have anything to do with investing acumen, must be explained by the amount of “other stuff” that professional does: (real) tax planning, (real) financial planning, (real) estate planning...you get the picture.

If we can’t agree on these basic points, then you should probably just find something better to do, because you’ll likely get outraged and/or defensive about what I’m going to say next: 

Why on earth are Canadians still paying 2% for “investment management” when there is no (real) “other stuff” offered?

(But first, a word on the proper place that investments should hold in the grand scheme of things:

Your investment portfolio, however large or small, is a tool that exists to help you accomplish your goals whether you hope to buy a house, save for retirement, pay for some of your kids’ education, or move to a farm and grow your own food.

The investment decisions you make will have less impact on your ability to achieve those goals than the amount you discipline yourself to save, the speed with which you pay off debt, and the conscious, everyday choices you make in your spending. In fact, how you spend your money month-in and month-out is the single most important financial characteristic.

By comparison, investing is a small piece of your life, yet it gets a disproportionate amount of attention from financial professionals, more than efficient dept repayment, more than goal planning, and far, far more than cash flow and budgeting. 

So why is “investment advice” the first (and sometimes only) thing most of us think about when we think about financial planning?

The reason that such a little thing gets such big attention is because there’s money in it. Lots of money. “Wealth Management” is what pays the bills for banks, you know. That, and it’s a lot sexier to talk about than cutting back on your grocery bill or starting to save regularly for your next property tax installment.

Not a single word of what you just read is news to you. If you’ve spent any time online, or read any of the good Canadian personal finance books out there, you know that what you’re supposed to do is open up one of the online brokerage accounts, buy the ETFs in the Global Couch Potato portfolio, set a reminder to rebalance once a year, and get on with your life.

The problem is this: Do-it-yourself asset management sounds intimidating, can be time-consuming, and tempts people who shouldn’t tinker to tinker. It isn’t for everyone, and for those who want to ask a question now and then, who want some hand-holding when it comes time to set up and start trading across TFSA, RRSP, and/or non registered accounts, or who just want someone else to do it, please, and let me get on with the things I do best...well... 

You can go to a bank or a mutual fund company:

The first place most of us turn to when we start thinking about investing is the army of bank/insurance/mutual fund company advisors who - in the face of all the evidence - still believe that paying 2.3% in fees for their company’s mutual funds is somehow a more effective long-term investing strategy than 0.30% for index funds or passively managed ETFs. These advisors believe that the extra money tacked on to the investment management fees in the form of up-front and trailing commissions pays them to give you advice, and will fight you tooth and nail if you even mention indexing.

Their advice - however well-meaning - depends on the amount of training they’ve received from the institution that’s paying them to sell you their own line of products, by the amount of time they are required to spend chasing new clients and new money, and by the likelihood that they’ll stay in their job any reasonable length of time. Generally, if you want to re-balance your investments annually, you’ll need to call, set an appointment, dictate exactly what you want, and re-hash all the same arguments over index funds you had the first time.

The upside, of course, is that you don’t have to do it yourself, and every town has at least a few people willing to sit across the desk (or kitchen table) from you and take your money. 

Okay, not the bank. How about a real asset manager:

For a real asset manager, one who doesn’t have regional sales targets to meet, who can craft and monitor a portfolio of securities not limited by a single institution, who know the specific goals, constraints, and strategies that you’re facing with said portfolio, and who will talk you down during times of market turmoil and rein you in when everyone else is losing their minds with greed, you generally need to have already saved between $250,000 and $500,000, and be willing to pay around 1% in annual fees, which should go down the more wealth there is to manage.

It’s a real "to him who has, much will be given" kind of scene.

These folks are harder to find, and not all of them are created equal. Some of them are in the game for the money, and some are in it for reasonable compensation. Believe me, there’s a difference, and there are many more of the former than the latter. 

Oh. I don’t have that kind of money yet, and 1% still sounds kind of high.

Right between expensive non-advice and expensive real-but-hard-to-find advice is the implementation gap. Canadians who know something’s not right with the advice they’re getting at the bank, don’t have $500,000 accumulated, and know they’re not interested or disciplined enough to build and rebalance their own investment accounts are out of luck if they want a low-cost, passively managed, common-sense portfolio that they can throw money at and get on with their lives.

Enter the robo-advisor, or - more properly - the “advisor who doesn’t pretend to deliver on most of the 'other stuff' outside of their area of expertise - investments - and has much lower overhead than your traditional advisor and can therefore offer their services at a reasonable cost”. These are companies like WealthSimple, WealthBar, and Nest Wealth, who are (or are in the process of getting) licensed and regulated the same way that the banks and asset managers are, but who have slipped the bonds of brick and mortar and can set up and rebalance your portfolio of index ETFs for under 1% from the comfort of your own laptop. That’s a better deal than the rich folks are getting.

Some financial media types and many protectionist old-school investment managers invoke the spectre of “why would you let a computer program manage your money for you” whenever the topic comes up, which is probably why they’re hit with the robo-advisor label in the first place. None of the companies I mentioned above fit the fear-mongering description given in this article (as an exemplar of many similar articles, albeit American). Rather, these are investment management companies with real-life people ready to talk you through your asset-allocation, risk tolerance, tax-optimizing, and rebalancing decisions.

For most of us regular Canadians, the best thing we can do with our investments is set an asset allocation target that fits with our true ability to handle risk and our tax situation, get the fees as low as possible - which usually means index investing - and then close our eyes and throw money at them. Ideally we shouldn’t even have to rebalance at all, because every time we have the opportunity to benefit from rebalancing (selling a recent winner to buy a recent loser on the cheap) we also have the opportunity to Not Rebalance.

Heck, I talk, write, and read about investing every day (see above), and I still had a hard time pushing the button to sell equities and buy fixed income this past spring.

If you let these not-robo-advisors do their job, your job would get very, very simple: make money and save some of it. No more trying to outwit the market because “interest rates are going to go up and I don’t want to be in bonds”...sometime in the past five and next five years. No more looking at how your equity mutual funds grew over 2013 and assuming that it was because of the amazing skill of the mutual fund salesperson you met with in 2012.

Invest like this, and your portfolio goes back to being a tool to help you accomplish the life you want, and shrinks in importance back to its proper place in the grand scheme of life, the universe, and everything.   

Sometimes, someone says something that is so egregiously wrong that it can’t be ignored. Take, for example, this piece, published this afternoon on Advisor.ca, an online magazine for financial advisors in the investment and insurance industries, which elicited this (totally articulate) reaction:

All the nopes // Don’t ban commissions, says Advocis, because "financial advisors and their clients will suffer." http://t.co/xW8xjoqywe— Sandi Martin (@SandiMartinSPF) July 9, 2014

The piece in question? This:

"Don’t Ban Commissions, Says Advocis”

If Canada completely bans sales commissions like the U.K. and Australia, advisors and their clients will suffer.This was the general consensus at an Advocis and PwC event held yesterday in Toronto.In Australia, the Future of Financial Advice (FOFA) reforms banned embedded commissions, established a best interests legal duty and expanded requirements regarding fee disclosure, says Advocis.

These changes increased the costs to serve investors by more than 30%, and compliance costs for advisors have amounted to AUD$700 million so far, finds a PwC survey of small- and medium-sized (SMB) advisory firms. And in the U.K., the number of advisors dropped 25% due to similar regulatory reforms.The investors that will have the most difficulty affording fee-for-service arrangements are those in the low- to middle-income range, finds the survey.

And those clients, who typically have assets under $100,000, make up 80% of the investor market.Meanwhile, 12% are those with assets between $100,000 and $500,000; 4% have between $500,000 and $1 million; and 4% have $1 million plus, notes the survey.

“We need a system that serves investors at all income levels,” says Greg Pollock, president and CEO of Advocis. “Given Canadians’ concerns around cost of living and retirement readiness, it’s critical that more people are able to seek professional financial advice.”

Also, there could be an economic impact if Canadian advisors follow the footsteps of those in the U.K. The SMB sector employs 182,000 people in Canada, and contributes $19 billion to the GDP (or 1.1%). This is greater than the auto (0.9% of GDP), aerospace (0.6%) or pharmaceuticals (0.3%) industries.The experts provided an alternative to simply banning commissions.

“If we can get to a disclosure model that’s appropriate, then consumers could make the choice,” says Pollock. “If my embedded commission is $1,000, or whatever that number is, then you have a choice, as long as they disclose that.”

Meanwhile, Byren Innes, senior strategic advisor at PWC, suggests advisors get ahead of regulatory changes by adapting the current frameworks; getting educated and demonstrating their expertise to clients; and responding to the change in client preferences by becoming more accessible online.

Let’s talk about the kind of professional financial advice that 80% of low-to-middle income Canadians with less than $100,000 are getting, and should apparently be overjoyed about, notwithstanding the industry-funded study quoted above:

1. Canadians pay the highest equity fund fees, highest money-market fund fees, and the third-highest fixed-income fees of the twenty-two countries surveyed in this Morningstar report. On average, Canadians pay in excess of 2% in mutual fund fees, including 1% or so in embedded commissions to the advisors who sell them the investments and the companies who make them.

2. Despite the availability of passively managed mutual funds and ETFs with annual fees in the 0.30%-0.50% range, the overwhelming majority of those low-to-middle-income Canadians that Mr. Pollock is so very concerned about are paying in excess of 2% (of which 1% or is that embedded commission we’re all going on about) for actively managed mutual funds that are underperforming the market as a whole. That means that instead of paying $500 a year for investments, they’re paying $2,000.

3. That extra $1,500 is supposed to be buying them financial advice. What kind of financial advice do low-to-middle-income families need? Save regularly, rebalance dispassionately, and keep your head during cycles of fear and greed. Investment advice comes way down the list after cash flow and budgeting, debt repayment and avoidance, setting goals, and what to expect in retirement, and I’ve yet to meet a commissioned advisor with hours to spend on an individualized plan for someone whose sales fees won’t even pay the office lease for the month.

4. The overwhelming majority of that 80% of Canadians are NOT receiving the kind of financial advice that will help them. In most cases, they’re getting told what mutual funds to buy and nothing else. Is that really worth $1,500 each and every year, when a fee-for-service planner can charge less than that for one engagement and set them on the path of healthy finances for life, without that icky feeling that the advice they’re giving is handcuffed to the products they’re selling (and receiving commissions for)?

Yes, there’s an implementation gap. Not everyone can transfer their savings to a self-directed brokerage and go on their merry way without any bumps in the road, and banning commissions to advisors isn’t going to change that or help them get the affordable investment advice they need (although the rapidly approaching shake up in asset management business models hopefully will - more on that later).

You know what banning embedded commissions will do? It’ll end the illusion that advisors on the commission system are anything more than salespeople, no matter how well-intentioned they are, and it will force them to charge fees more in keeping with the actual quality of advice they're giving, rather than the product they're selling.   

The point: management expense ratios do a poor job of communicating the price you're paying for a mutual fund and the value you're getting in return. This is the second of a two-part rant, and you can find the first part here.

If you walked into the grocery store tomorrow to buy chicken, and instead of seeing $2.99/lb on the price tag you saw "2.25%", would you buy it?

Dumb question. Of course you wouldn't - at least not yet. You'd collar someone and ask them "2.25% of what" and "what are you doing changing the price tags and wasting my time?" Unless you're in an enormous hurry to get out of the store, you take some time to understand if the price you're going to pay is a good one for the value you'll receive, right?

When you buy mutual funds, you're buying something with two price tags. How much time did you spend with the advisor figuring out how much you were paying and whether it was a good price?

I thought so.

This isn't an enormous guilt trip. Your intentions were good when you walked into the bank or had the investment guy over to your house, but it's extremely unlikely that either one gave you an unbiased primer on how to buy mutual funds before you signed the account opening forms. When you asked questions, I'd bet a good-sized chunk of money that the answer was given in the form of a product plus a stack of paper disclosure booklets. 

When you buy mutual funds, you're buying something with both an up-front cost and an ongoing cost*. It's like buying chicken that you not only pay for up front, but keep paying for as long as you have it in your fridge (now there's a way to combat food waste).

Your ten thousand dollars buys you units of a fund, at a price that reflects the market value of all the stocks and bonds (and possibly other securities) that the fund owns, divided up among all the owners. The second price tag is what the fund as an entity pays for ongoing management expenses, and is expressed as a percent of the net value of all of the investments the fund holds.

The trickiest thing about the second price tag is that you never, ever see it. It's disclosed once - when you purchase - and has already been paid once the performance of the fund is reported to you. This means that unless you're paying attention, you'll never know how much you paid for the second biggest asset you'll ever have (possibly first, depending on if you own a home or not and how much you end up saving.) 

What did I just buy, again?

So what is your management expense ratio actually paying for? It's paying for a company to manage the fund (duh), hire staff to pick out and trade stocks and bonds, comply with securities law, keep the books, advertise the fund, collect and remit GST/HST, pay lawyers, and compensate advisors (or bank branches) with an ongoing annual commission for selling you the fund in the first place.

Now, I'm going to venture to guess that you don't pay securities lawyers often enough to really understand how to evaluate their performance, or run a compliance department on a regular enough basis to have a good handle on the associated costs. That's probably why you (and I) invest in mutual funds in the first place. It's a little difficult for regular people to look at any one fund in isolation and declare the MER to be "worth it".

In fact, when it comes right down to it, who cares how much the lawyers cost? Or how expensive regulatory compliance is? What you and I and every other mutual fund investor out there really cares about is performance: how much money is my mutual fund investment making me? And - related - how much did it cost me to get it?

Except (again) it's almost impossible to evaluate a mutual fund in isolation. If your CIBC Managed Balanced Fund reported a -1.93% return for 2011, what does that really mean? It only has meaning when you compare it to other managed balanced funds, or to the market as a whole.

Enter benchmarking. 

Bench-whatting, now?

Benchmarking is the price comparison and review website of investing. It tells you how your fund performed against other, similar funds, and against the market as a whole (well, the relevant parts, anyway.)

The difficulty with traditional benchmarking (the kind you find underneath the "Performance of $10,000" section on the fund fact sheet your advisor just handed you) is that you can't buy the benchmark. There's no way for you to compare what actually buying your Monthly Income Fund with real, actual dollars would be like compared to actually buying "the benchmark" with real, actual dollars.

For regular investors, I use TD e-series mutual funds fill the benchmark role, because you can actually buy them with real, actual dollars. They have a ten year performance record that you can easily find online. You can weight the Canadian, US, International, and bond index funds the same way the fund you're comparing it to is weighted.

It's not perfect, because it's not replicating the exact investment strategy that your particular mutual funds are following. It doesn't take into account reinvestment of returns, or regular contributions. It assumes that you held the precise valuations that you hold today for the past ten years, and furthermore, it assumes that past performance is going to continue into the future. Short of a crystal ball however, it's still a pretty good way to evaluate what kind of value you're getting for the price you're paying.

When you compare the calendar year returns of the CIBC Managed Balanced Portfolio and the calendar year returns of a comparably allocated TD e-series, you get this result for an investment of $10,000 and MERs of 2.25% and 0.44%, respectively:  What you're seeing is the cost to buy inferior performance. Remember, returns are posted after expenses have already been paid, so the CIBC Managed Portfolio - after fees - fared worse than the TD e-series index funds every single year for the past ten years. In addition, if you had held that portfolio for ten years (subject to the limitations of the model above), you would have paid $1,818.65 more to earn $2,231.73 less.

That's horrible! Someone should make some laws or something something!

Before we get all hot and bothered about how horrible one fund may or may not be, let's think for a minute about what that $1,818.65 paid for, since that is, after all, the whole point of this exercise. We already covered the legal costs, reporting, et cetera, but let's talk about time and convenience.

If you're willing to pay to avoid the hassle of opening up a discount brokerage account and rebalancing it occasionally, and you think $1,818.65 is a fair price to do so, then well and good.

Keep in mind that the results aren't always so clear, either. My choice of a managed portfolio increased the likelihood that the fund would underperform the index funds, but that's not always the case, and it's precisely why you should be aware of the cost you're paying to invest.

You're not a chump for investing in mutual funds, although I'm sure you've been made to feel that way if you've ever lurked around on the internet before. You are a chump if you continue to pay the cost blindly and never once think about what you're getting in return.

*That is, unless you're talking about mutual funds with front-end or back-end loads, which are as appealing as their names suggest, and which charge you a third fee on top of the other two, either when you buy or when you sell. Kind of like a grocery store with a cover charge or a membership fee.