Should I go with my FInancial Advisors advice?

Question

Hello,

Our Financial Advisors have been great so far. We have accomplished so much to date with their aid.

They would like us to move our corporate investments from a current ETF fund into a Fidelity Global Balanced Class Port Sr B (CAD). They have advised that these styles of investment funds will shield our corporate investments from tax. (it will defer tax).

The numbers look good but we found out that this fund is a management firm that selects the stocks in the portfolio with managers. It is not tracking a grouping like an Index fund. My husband and I are in the Index Fund mindset and do not believe any one manager can play the market.

The fee will be 2.24% and our financial advisors are taking approx 1% of that. Our current investments are not in a corporate class and subject to tax laws. They are costing us 0.75% and we make a steady 10%-12% over the last year. The tricky part is the tax!

Does anyone have experience with corporate investments in a Non Registered Investment Account inside a corporate class investment?

Does anyone have suggestions for a corporate class that's an Index Fund or similar??

We are just not that comfortable with the idea of managers picking the stocks.

Thank you,

Agnes

Patrick Archer · Answer

2.24% is way too high.

Look up the Canadian Couch Potato investment strategy and open up a TD account and buy e-series funds. Extremely low management fees (some less than 0.4% and you’ll be able to select funds that follow various indexes.

We would need to know more about your corporate investment fund rules to give you any type of guidance.  Are you getting a match, are their rules around how long in needs to best, etc.

Agnes Chlebowski · Answer

I'm waiting for a call from my current robo advisor which is all ETF's. I will find out what vehicles they have that are more tax efficient.

If they do not have tax deferring vehicles I am open to switching since the account is just recent and the tax implications of moving the money is not too high right now.

I am looking into Horizon ETF's - They have TRI ETF's (tax efficient alternatives to corporate class) . The current corporate class vehicles I am looking at have not ETF's and seem to be, as suggest earlier, mutual funds and similar.

I saw this article while doing research so I'm pressing further into this:

https://www.theglobeandmail.com/globe-investor/funds-and-etfs/total-return-index-etfs-a-ticket-to-a-tax-efficient-portfolio/article29829250/

I have decided not to move forward with the financial advisors handling the account. Its too expensive, period!

Daniel Massicotte · Answer

Your tax situation and the 2.24% management fee, or MER, that you are paying are two different things.

That fee of 2.24% is insanely high. How do you expect to stay above inflation with that? MERs are subtracted from whatever the return is.

Jay Gill · Answer

I would personally stick to the index funds unless they have a great track record and even then I would probably not trust them.

On the tax side you should probably find another accountant who knows the ins and outs of what you need and just go in for a consultation.

I did have to eventually switch accountants when I began to generate revenue from multiple sources both personally and through corporations.

Theresa Harris · Answer

@Agnes Chlebowski  In general if you aren't comfortable with it, then don't do it.  If you feel like taking a bit of a risk, then move a small amount of money over and see how it goes.

Patrick Archer · Answer

Sorry I didn’t respond sooner.  Your tax situation is more complicated with the various businesses you own and I’m honestly not well versed in corporate class.  I don’t see why you still couldn’t do what they’re suggesting on your own.  Call up your bank and ask them about corporate class and let them know you’re happy with what you’re investing in but want to ensure you’re using the correct vehicle.

Agnes Chlebowski · Answer

I understand.

Does anyone know anything about the tax implications of a regular non registered versus a corporate class?

I asked my accountant and he has varying answers as well. Does not seem as clear cut as one would hope for.

-A

Roy Cleeves · Answer

I believe there are funds out there that are tied to Indexes that you could purchase without an advisor and should perform the same as the index it is tied to.

Agnes Chlebowski · Answer

I own a few companies and my bread and butter firm has a Non Registered Investment Account with Wealth Simple.

I started tucking money away into this account for a rainy day. Anywhere from $100 - $250 weekly. This is not a match, its diverting profit from the company into an investment fund. This is a long term investment fund for my early retirement. We wish to draw from it as salary. I plan on using it in 10-15 years to continue to fund my retirement. I'm currently 32 and love my job and my team so I do not see myself moving away from my firm anytime before that. I work about 20 hours a week and am actively working on getting my husband out of his 9-5 position as well. He is 10 years older than I am so I want to early retire with him at the same time.

My company makes close to $500,000 a year. From that I take a $76,000 income for the house (approx $65k after tax). Of which I save 30% into various RRSP / TFSA and other investment savings account including cash.

The remaining money (profit) after paying subcontractors etc, we use for investments. Part of that is rental property purchases (downpayments, rehab costs etc) The other part is weekly funding to our Wealthsimple account.

How do we fund an account with profits from my corporation into an appropriate tax deferring account? The corporation is Ontario, Canada registered.

My husband and I own short term rental properties with another incorporated company and want to do the same here but want to ensure we do it right to work around the taxes.

The current portfolio is Index Funds with 35% equity and 65% fixed income. I have it in a standard account with conservative risk. We have about $16,000 in the account and it makes us anywhere from 6% to 12% its been doing well (knock on wood)!

The financial advisors told us that right now we are eligible for capital gains tax on the fund. They have advised to move it into a tax deferred vehicle (corporate class) which would mitigate the capital gains.Again they told us to move it into the Fidelity Global Balanced Class Port Sr B (CAD). We just dont know how we feel about this account at 1.24% and than the financial advisors taking another 1%.

We would like to do this but feel there should be an Index fund option for Corporate Class at lower fees.

The 2.24% is very high comparable to our current 0.75% and we do not believe in managers picking stocks. We prefer to ride out the overall market with index funds.

I hope this is enough info!

I am going to research the couch potato investing.

-Agnes

Should I go with my FInancial Advisors advice?

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