Escaping financial advisor & fee-heavy mutual funds

[Knitwit]

Three years ago, before I discovered MMM, my DH and I wanted to start investing our money, so we went to see a financial advisor. We were fairly illiterate when it came to investing, so we just went along with what this advisor suggested. He set us up with a dizzying array of high-fee mutual funds: some with front-end load commission fees, some with deferred sales charges, all with very high MERs (2% on average - we are in Canada, where MERs tend to be higher, but yes, this number is still ridiculous).

These days, we have a better understanding of investing and want to take charge of our own money. However, all our money is tied up in these mutual funds. What is the best way for us to escape? We're planning to cease all contributions immediately. The FEL mutual funds, we should be able to just transfer those over to our brokerage as we have already paid the fees on those. (Ouch. Facepunches galore.) But what to do about the deferred funds? I'm not sure what's best: rip the band-aid off and pay the early withdrawal fees, or just leave them all in (as long as 4-7 years) and wait until the deferred load is zero?

Has anyone escaped from this type of set-up? Can you share your story and any tips you might have?

[lizi]

I can only talk to tax sheltered accounts. My DH had his TFSA and RRSP in mutual funds with RBC with 2%+ MERs. I do DIY through Questrade and he got on board with that. To switch over you open an account with Questrade and indicate you would like to transfer from an already-existing account. They do all the work for you, and cover the fee for closing your account (up to a certain amount, I think $250). Once the cash came through he bought ETFs at his desired allocation. If you don't want to go completely DIY, Questrade also has managed funds. I'm sure other companies (eg Wealthsimple) would cover the closing costs as well as an incentive to move with them.

If the deferred funds you have aren't tax sheltered ones, I think it would still be worth ripping the bandaid and paying those exit fees. Questrade and Wealthsimple have calculators where you can see how much the fees will add up to over time, so at least that will make you feel good about paying the exit fees instead of the ongoing high MERs.

[scottish]

When I realized how badly I had been screwed (this was about 1993), I ripped off the bandaid so as not to give the mutual fund f**kers any more money than I had to.

This was not necessarily the financially optimal course, but firing them was worth it!

[damyst]

Made a similar move two years ago. We didn't have deferred fees, but did have a healthy capital gain that would be taxable upon selling the funds (which had MER around 2%). When I actually crunched the numbers, I found we were paying three times as much in fees annually as the capital gain tax would be! Needless to say, we dropped the mutual funds like they're hot.

How high are your deferred fees? You should have all the data you need to calculate whether exiting now or later would be cheaper. For me, it's just a numbers game. Nothing emotional about it.

I second the recommendation for Questrade. They're not perfect, but they're the most forward-thinking financial institution I've encountered so far in Canada.