Author Topic: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)  (Read 5774 times)

scrubbyfish

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Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« on: April 22, 2015, 09:41:40 AM »
Because my money is in a Trust, and the Trust must be managed by a banker person, it cannot be in TD's direct investing (or Questrade, etc).

I'm aiming to follow the Canadian Couch Potato model for aggressive, with no bonds:
http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-TD-e-Series.pdf

Fees aside, in terms of breadth/diversity/etc do the following otherwise mimic the eSeries options?

RBC Canadian Index (vs TD Canadian Index Fund - e)
TD US Index (vs TD U.S. Index Fund - e)
National Bank International Index (vs TD International Index Fund - e)

Other leads? (I'm not sure what limits the banker is under in terms of what he's allowed to put me in, but these are the three he suggested based on my stand.)

RichMoose

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #1 on: April 22, 2015, 10:00:23 AM »
They all do effectively the same thing. The biggest difference being the MER. There are some small differences such as one tracks the TSX Composite Index, another the TSX Capped Composite Index, etc.

Which bank is your Trust with?

scrubbyfish

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #2 on: April 22, 2015, 10:03:38 AM »
Which bank is your Trust with?

TD.

PharmaStache

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #3 on: April 22, 2015, 10:07:44 AM »
TD has the same funds as the e-series, but with a higher MER.  I think they are the I series?  https://www.tdassetmanagement.com/fundDetails.form?fundId=7&lang=en  Would that be allowed?

RichMoose

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #4 on: April 22, 2015, 10:09:45 AM »
Yes, go with the TD "I" series funds. You can choose other bank funds but they will come with a higher than posted MER because of third party sales charges.

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #5 on: April 22, 2015, 11:17:13 AM »
You can buy the TD e- series mutual funds without opening a TD Direct trading or other brokerage account. i.e. in a regular old mutual fund account at TD.

Suggest you have a little discussion with the banker about this to clarify the what's and why's of any investment limitations in the trust.

Al

scrubbyfish

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #6 on: May 01, 2015, 11:02:38 AM »
So, I asked the banker...

I received what sounds like a rather terse and pissed response. I'm being mindful of "not reading tone" in an email, but I'm fairly confident it's there. Does she personally make more money if I'm with the ones mentioned in the opening post? I thought she was 100% salaried, and not at all impacted by which funds I agree to.

She said that, out of the options she's allowed to refer me to, she chose the RBC/TD/Natl Bank higher fee ones because of their performance outweighing the cost of fees. But then she said, "But I haven't actually looked at their performance since you put the money in." Since I only put the money in a few weeks ago, I suddenly realized she's making "higher fees worth it" decisions based on very recent performance. But very recent performance is meaningless in the big picture.

What seems to be angering her is my request to "put them in the lowest-fee option that mirrors the CCP approach, without regard for recent or anticipated performance."

There were a couple of push/aggression/bully strategies in the email, too, which is disheartening.

For my kid and I to have access to government disability money if/when/as need arises, the money has to be in Trust, which indirectly means no direct investing, no ETFs, no VanGuard, etc.

Cathy

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #7 on: May 01, 2015, 10:17:30 PM »
...I'm not sure what limits the banker is under in terms of what he's allowed to put me in...

This question would be answered by reviewing the instrument that created the trust. A trust is just an arrangement whereby one person (the grantor) transfers money to another person (the trustee) to be used for the benefit of other persons (the beneficiaries). The grantor and the beneficiary can be the same person, but there need to be at least two people involved in the trust arrangement or else it's not a trust.

The terms of the trust, including what the money can be invested in, are controlled by the grantor in creating the trust. The creation of a trust does not always require a written document, but as a practical matter there is usually a written document outlining the responsibilities of the parties and describing what the money can be used for and how it can be invested.

The point I'm conveying here is that the fact that the money is "in trust" does not really tell you a whole lot about what restrictions apply here. Those restrictions, if they exist, are defined by the trust instrument. I suggest obtaining a copy and reading it so that you can become more familiar with the arrangement in question. The trust instrument will also define what powers you have relative to the trust, including your ability to direct its investments.

You mention availing yourself of government benefits. My interpretation of your statement here is that there are certain means-tested government programs that exclude from consideration assets held in trust for your benefit, so long as the trust instrument satisfies certain conditions (such as a restriction that you cannot take distributions from the trust except to pay for medical expenses, and possibly restrictions on investment choices). In this case, the government program is indirectly setting the restrictions by defining a test that the trust instrument needs to pass in order for the assets to be excluded from means-testing. However, even in this case, the parameters of the specific trust in question are defined by the trust instrument -- not by the government program.
« Last Edit: May 01, 2015, 10:28:18 PM by Cathy »

scrubbyfish

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #8 on: May 01, 2015, 10:28:46 PM »
Thank you, Cathy!

I am the grantor, co-trustee, and (along with my kid) beneficiary of the money in Trust. It's a full legal document, very thoroughly (and expensively) prepared, and I'm super familiar with it.

The Trust is not restricting where the money can be invested. The bank is. The bank said that for it to agree to hold a Trust, the Trust would have to be managed by one of their fancy departments. The bankers working in the fancy department said "due to our licensing there are certain securities we cannot hold". They said this licensing matter means that all ETFs, eSeries, etc, are not an option. This is the barrier. Thoughts?

Cathy

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #9 on: May 01, 2015, 10:46:46 PM »
I'm hesitant to make any conclusory statement about the merits of the bank's position that it is unable to invest the assets held in trust in certain securities, because I don't know anything about securities law in BC. (Unlike in the USA, securities are regulated at the provincial level in Canada. See Reference re Securities Act, 2011 SCC 66, [2011] 3 SCR 837.)

Speaking solely in terms of the general principles of trust law, there are no categorical prohibitions on investment vehicles such as ETFs. However, the trustees do have a fiduciary duty to the beneficiaries. If the purpose of the trust as stated in the trust instrument is to provide for expenses in case of disability spending, then it might be a breach of fiduciary duty to invest the assets of the trust into speculative stocks, or gold futures, or artwork. If the bank is a co-trustee, it has to avoid investing assets in a way that would breach its fiduciary duty. If you are the sole trustee (and not the bank), the bank still may be concerned about facilitating a breach by you.

Without actually having reviewed any of the potentially relevant securities laws, I can't say for sure, but I am sceptical of the bank's claim that there is any categorical legal or equitable impediment to investing in a diversified broad-market low-cost ETF (aside from something in the trust instrument itself). What the bank may really be saying is that their policy is not to allow such investments. You may want to shop around and see what other banks say. In the USA, I know Betterment accepts trust accounts.
« Last Edit: May 02, 2015, 12:05:34 AM by Cathy »

scrubbyfish

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #10 on: May 01, 2015, 11:01:22 PM »
This ^ is something I've been wondering.

The co-trustees are me and a relative (because the relevant agencies require that someone who is not just-me be a trustee). The bank is not a trustee, but yes, I believe the bank, too, has a responsibility to ensure I make no crazy investments. But to eliminate a "diversified broad-market low-cost ETF" as an option -when the Trust itself does not... Something just keeps seeming weird to me.

I had wanted all my banking in one place, and with endless branches that can accommodate my geographic relocations, but yep, I now have inquiries into other institutions.

scrubbyfish

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #11 on: May 21, 2015, 04:32:53 PM »
Banker says:

RBF556 (MER .72%)
TDB661 (MER .35%)
NBC839 (MER .67%)
Weighted = 0.57%

...while eSeries options, as recommended in Canadian Couch Potato, converted to iSeries would increase from 0.41% to 0.81% overall.

Does this seem accurate, that a TD rep offering the iSeries would bring a higher cost than the above three options would?

RichMoose

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #12 on: May 21, 2015, 05:40:28 PM »
Is there the option of going with TD "I" series and then after (X) time period you port them over to the "E" series?

Frugancial Advisor

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #13 on: May 21, 2015, 06:24:49 PM »
I am not familiar with much of the trusts division with TD specifically, but depending on your representative they may be limited in the investment products they can offer. (E.g. essentially a variety of managed and standalone mutual funds).

Are you aware of your bankers credentials and licensing? Many are prohibited from offering individual stocks or ETFs as investment solutions due to their limited licensing as a mutual funds sales representative only.

scrubbyfish

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #14 on: May 21, 2015, 10:49:36 PM »
Is there the option of going with TD "I" series and then after (X) time period you port them over to the "E" series?

Generally speaking, yes, but not for as long as I hold the money in the Trust. (The Trust is of my own money, and I can undo it whenever I want. However, I benefit from it being in there.)

I am not familiar with much of the trusts division with TD specifically, but depending on your representative they may be limited in the investment products they can offer. (E.g. essentially a variety of managed and standalone mutual funds).

Are you aware of your bankers credentials and licensing? Many are prohibited from offering individual stocks or ETFs as investment solutions due to their limited licensing as a mutual funds sales representative only.

Yes, this is what she noted. She can't put it in eSeries or ETFs, but can put it in any of the funds listed above.

At this stage, I'm trying to sort out how the iSeries can cost a TD client more than funds offered by Nat'l Bank, RBC, and other parts of TD can. That doesn't seem to make sense.

Cathy

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #15 on: May 21, 2015, 11:09:44 PM »
...The Trust is of my own money, and I can undo it whenever I want...

Does a trust that you alone can unilaterally revoke "whenever [you] want" really offer you any benefits with government disability programs? (In the US, such a trust is called a "grantor trust" and it is not treated as a separate person from its owner under the Internal Revenue Code (see 26 USC 676), so I will use that term.)

It's unclear to me why any asset-testing program would provide special treatment for a grantor trust over which you have an absolute and unilateral power of revocation, since for all meaningful purposes it is the same as if the grantor still owns the assets outside the trust.
« Last Edit: May 22, 2015, 12:35:20 AM by Cathy »

scrubbyfish

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #16 on: May 21, 2015, 11:15:47 PM »
Does a trust that you alone can unilaterally revoke "whenever [you] want" really offer you any benefits with government disability programs?

Yes, as long as I cannot directly control (spend) the money while the Trust is in place. A third-party must approve any spending in advance of disbursement, and the government also gets to dictate what the third-party can approve. Lots of checks and balances. But that's not really the question here (that part is all sorted out, legally and financially, and there are other benefits to the Trust, too).

Cathy

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #17 on: May 22, 2015, 01:32:16 AM »
Does a trust that you alone can unilaterally revoke "whenever [you] want" really offer you any benefits with government disability programs?

Yes, as long as I cannot directly control (spend) the money while the Trust is in place. A third-party must approve any spending in advance of disbursement, and the government also gets to dictate what the third-party can approve. Lots of checks and balances. But that's not really the question here (that part is all sorted out, legally and financially, and there are other benefits to the Trust, too).

Now, I know you said this was not the focus of the topic, and so I apologise for the off-topic post. However, I was curious about what you said -- hence my question -- and since I did the research, I figured I might as well post it here.

I have restricted my research to the disability program established by the Employment and Assistance for Persons with Disabilities Act, SBC 2002, c 41.

First things first: If the beneficiary can revoke the trust whenever she wants, then she has complete control over the trust funds. She isn't at the mercy of any discretionary power of distribution, because she can just revoke the trust and spend the funds directly. I found no case law on this topic for BC, but this policy document from the ministry that administers disability programs in BC says that "[i]f the beneficiary has a legal right to collapse the trust and gain control of the assets, the ministry considers the trust to be an asset", which is consistent with what I would expect.

However, it turns out that the discussion does not end there because the Employment and Assistance for Persons with Disabilities Regulation, BC Reg 265/2002, contains an extremely generous exemption in s 12(1) which excludes from the means-testing the assets of a trust of a person with disabilities so long as the capital contributed to the trust is not more than $200,000, and so long as certain reporting requirements are complied with. Here are some interesting things about this exemption:
  • The beneficiary is apparently allowed to have complete and unfettered control over the distribution of the funds.
  • There is apparently no restriction on the purpose of the trust.
  • Distributions from the trust can apparently be used for anything, with no restrictions.

Even though a trust with less than $200,000 of capital will apparently be exempt as an asset regardless of what the trust is used for, distributions from the trust will count as income and act to reduce any disability benefits unless the distribution is used for disability-related costs or a couple other permissible things: s 7(1)(d) of Sch B. There is no requirement of any approval by anybody other than the beneficiary. The only thing that matters for the income exemption is what the distribution is used for.

In addition to that income exemption, s 7(1)(d.3) of Sch B also exempts from income the first $8,000 of distributions from trusts that are used exclusively for disability-related costs to "promote independence". However, this is a subset of what is allowed by the previous exemption and the previous exemption has no dollar limit, so it's unclear why this exists as separate exemption.

In one of the only reported cases on this regulation, D.J.C. v. B.M.C., 2003 BCSC 291, at para 35, a judge noted that the BC scheme is apparently unconventional:
              Counsel are under the impression that the "trust" contemplated by the regulations lacks some of the characteristics of a conventional trust, in that it is created and managed by the beneficiary, who in this case would be Mrs. B.M.C..  Apparently, her Ministry worker would have to approve any proposed withdrawal.  Counsel believe that approval tends to be readily granted and interpretation of the categories quite flexible.

Although the judge alludes to ministry approval, he does not inform us what the alleged legal basis for that requirement is. I am unable to locate any legal basis for it.

The case of K.A.K. v. British Columbia, 2011 BCSC 1391, is even stranger because the judge actually heard testimony from ministry officials on the meaning of the regulation. At paras 383-385, she then relied on that testimony to apply the law. To say the least, this procedure was highly irregular because testimony on the meaning of domestic law is in fact not admissible evidence and relying on testimony to interpret a regulation was, with all due respect to the judge, legal error.

While browsing this regulation, I also came across what appears to be a ridiculous loophole in their entire income-counting scheme. Section 1(c) and 2(a)(i) of Sch B together say that an amount deducted at source for income tax does not count in income. Meanwhile, s 7(1)(f) of Sch B says that a "tax refund" is exempt income, and s 10(1)(ss) says that a "tax refund" is an exempt asset. Finally, s 153(1.2) of the Income Tax Act, RSC 1985, c 1 (5th Supp), provides that taxpayers may elect to arbitrarily increase the amount of tax withheld from their wages.

The combined effect of these provisions is that you can have your entire income withheld at source for tax and then received entirely as a "tax refund" and thus avoid it being counted as income. Somebody with a job paying $1,000,000 per year could apparently pass this not-so-rigorous means-testing scheme.

***

For all we know, scrubbyfish might be interested in a completely unrelated program to the one I just researched, but as I said, I just spent a couple hours learning about this so I might as well post it.
« Last Edit: May 22, 2015, 02:19:17 AM by Cathy »

scrubbyfish

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #18 on: May 25, 2015, 01:28:34 PM »
Cathy: Yep! You've got it right about crazy regs and policies, etc. Now, multiply that research times "each program relevant to a family in which one or more person has disabilities" -because each has different and conflicting ones- and you'll get an idea of the effort involved in aligning everything for my son's long term. Even multiple programs for ppl with disabilities within BC -and even under the jurisdiction of the Province of BC itself- have conflicting rules. We go months or years at a time accessing no aspect of a given program because it's all too complicated.

scrubbyfish

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Re: Canada: closely mimicking eSeries? (RBC, TD, Nat'l Bank)
« Reply #19 on: May 25, 2015, 01:29:44 PM »
Back To Original Topic...

It's taken some hours, but I've gone online, called TD, researched, made a spreadsheet. I was surprised at the findings.

Short version: iSeries is indeed not only more expensive than the eSeries (which we already knew) but also more expensive than the equivalent options in RBC and National Bank.

The advisor believed she was putting me in "better" funds that were "worth the higher [than iSeries] fees". But unless I'm reading things wrong, these are in fact cheaper than the iSeries funds. Which means we're both happy: I have the diversity I want with the lowest fee option for funds inside a managed Trust, and advisor's first recommendations are what I'll stick with.

Am I missing anything?