Weekend Reading: Stop Paying 2% For Mediocre Returns Edition
I’m going to let you in on an investing secret that has eluded millions of Canadians for years. A secret that will save you literally thousands of dollars a year in fees and deliver stronger investment performance. A secret that does not require you to transform into a superstar stock picker or professional asset allocator.
Millions of investors keep their retirement savings in the same bank-managed balanced mutual funds. They pay about 2% of their portfolio value each year for mediocre performance and little to no advice.
What if I told you that switching to a single balanced ETF would save you thousands, maybe tens of thousands, possibly even hundreds of thousands of dollars over your lifetime? And that switch would be relatively painless, frictionless, seamless, and does not require an awkward breakup conversation with your bank advisor?
The Numbers Don’t Lie
| Fund | MER | YTD (Jul 31, 2025) | 1-Year | 3-Year (ann.) | 5-Year (ann.) |
|---|---|---|---|---|---|
| iShares Core Balanced ETF (XBAL) | 0.20% | 5.60% | 11.07% | 11.11% | 7.94% |
| Vanguard Balanced ETF (VBAL) | 0.24% | 5.66% | 11.22% | 10.67% | 7.56% |
| RBC Select Balanced Portfolio (A) | 1.94% | 4.80% | 8.90% | 9.30% | 6.40% |
| BMO Balanced Portfolio (A) | 1.72% | 4.74% | 8.46% | 8.81% | 5.49% |
| CIBC Managed Balanced (Class A) | 2.13% | 4.49% | 7.58% | 7.32% | 5.38% |
| Scotia Selected Balanced Growth (A) | 2.00% | 4.05% | 6.37% | 7.04% | 4.85% |
| TD Comfort Balanced Portfolio (I) | 1.91% | 3.02% | 6.47% | 6.99% | 4.64% |
A portfolio of $250,000 invested in a typical bank balanced fund with a 2.0% MER costs $5,000 per year in fees, compared to only about $500 with VBAL or XBAL. That is a difference of $4,500 every year, money that could be compounding for you instead of the bank.
The bigger the portfolio, the bigger the impact.
I’ve made these fee comparisons before, but sometimes we have a hard time wrapping our heads around percentages or the impact of long-term compounding. It amounts to hundreds of thousands of dollars – real dollars you can spend in retirement.
Let’s say you’re 50 years old today and have $750,000 invested across various accounts at the bank, paying on average 2% MER. You read this post but still can’t decide whether or not to make the switch. All you know is that you’re going to retire when your portfolio hits $2M.
Now let’s say one version of you contributes and invests $12,000 per year, earning the average annual return of 7.75% that XBAL / VBAL returned over the past five years (it’s just an example – I don’t have a crystal ball). And the other version of you stays the course at the bank and earns the average annual return of 5.5%.
Guess what?
Results at 65
- Bank fund: ~$1.94 million
- VBAL/XBAL: ~$2.62 million
- Difference: +$674,000
But also, the VBAL/XBAL portfolio crossed the $2M mark at age 62. The bank fund still hadn’t reached the milestone at age 65. Indeed, by switching out of bank mutual funds into a low-cost balanced ETF, this hypothetical investor could hit the $2 million milestone three years earlier and potentially retire sooner.
Why VBAL or XBAL make sense for most investors currently in bank mutual funds
- Lower fees, better returns. ETFs like VBAL and XBAL have outperformed most big bank A-series funds in every time frame from year-to-date through 5 years, while charging a fraction of the fees.
- Simplicity. One ETF, one ticker. No need to rebalance, monitor multiple funds, or pay hidden dealer costs.
- Seamless switch. You can usually make the change within your RRSP or TFSA at your bank or online broker, no advisor required and no drama.
- Tax efficient. ETFs work well inside registered accounts, and any taxable capital gains from selling mutual funds can sometimes be managed with the help of your custodian or accountant.
What is coming, and why it matters
Starting January 1, 2026, Canadian investors will fall under new Total Cost Reporting (TCR) rules from the Canadian Securities Administrators and CIRO.
This means that your dealer will be required to show, in dollar terms, how much you paid in fees during the year. Your first statement with this disclosure will arrive after December 31, 2026, which means you will see the true dollar cost for the first time in early 2027.
Segregated fund providers will have similar rules on the insurance side.
When those statements arrive, many investors will be shocked by the dollar figure. If you are not motivated to switch now, you may feel very differently when you see the fees clearly laid out on paper.
Takeaway
Bank balanced mutual funds typically charge around 2% for mediocre performance.
Balanced ETFs like VBAL and XBAL have delivered stronger returns with fees around 0.20%.
Soon you will see your actual dollar cost of investing on your year-end statement.
If you have been wondering if there is a better way, the answer is yes. And making the change is much simpler than you think.
This Week’s Recap
Last weekend reading I looked at dividends, rents, and the illusion of “income”.
Earlier this week I wrote the young adult’s smart guide to money.
Thanks for the kind feedback on both of those articles. It means a lot.
We’re getting ready to send the kids back to school next week, which means soon after I’ll resume duties as part-time chauffeur from 5-9pm. Good times!
Next month I’ll be in Nanaimo for the 23rd Annual IAFP Symposium – where the brightest minds in financial planning (plus me) gather to network and level up our financial planning game.
Promo of the Week:
Wealthsimple has extended its Summer Match offer to October 1st. That means if you register for the promotion and then transfer an account with a minimum of $25,000 you’ll qualify for a 1% matching cash back bonus.
I’ve already spoken with dozens of readers and clients who have taken advantage of this promotion and are on their way to receiving thousands of dollars in cash back:
- Open a Wealthsimple account (here, use my referral link and get an extra $25: http://wealthsimple.com/invite/FWWPDW), and;
- Once you’ve opened an account, or if you already have an existing account, you’ll want to register for the new Summer Match offer: http://wsim.co/Summer-Margin-Match-2025
- Initiate an account transfer from your Wealthsimple platform – it’s easy – within 30 days of registration.
One note: make sure to also open a Wealthsimple chequing account – that’s where the cash back bonus will be deposited.
When transferring accounts from one institution to another I want you to keep in mind my Las Vegas analogy:
“What happens in your RRSP stays in your RRSP. You’re just moving across the street to a cheaper hotel with more amenities. You’re still in Vegas.”
This same thinking applies to all registered accounts (RRSP, RRIF, LIRA, LIF, TFSA, RESP, etc.).
Open an account at Wealthsimple, open the appropriate account type(s), initiate the transfer(s), and Wealthsimple’s back office contacts your existing bank’s back office to request the transfer. This is a federally regulated event and happens every day, and no break-up conversations need to be had at all.
Weekend Reading:
Another reminder to remain vigilant (and don’t pick stocks): Investors lose billions on meme stocks as ‘pump and dump’ scams multiply.
Investors are sometimes reluctant to sell a stock because the capital gains tax will be substantial. Here’s how to handle a stock with a huge capital gain.
The fragile decade: Why the first years of retirement matter most:
“When distributions begin, market downturns force retirees to sell shares at depressed prices to meet living expenses. This creates “sequence of returns risk,” which is the danger that poor early retirement returns will permanently impair a portfolio’s ability to sustain long-term withdrawals. Research demonstrates that the first five years of retirement are particularly critical for this sequence risk.”
A MoneySense reader wants to report half the capital gain for a rental property on his spouse’s tax return. Can you move income back and forth between spouses? Short answer: no.
Markus Muhs explains how RESP withdrawals work and how to do them in a tax smart way:
David Chilton and Jamie Golombek had a great conversation about taxes and estate planning on The Wealthy Barber podcast.
Finally, an absolutely wild story about a billionaire, a psychic, and a bad investment (of course it’s crypto).
Have a great weekend, everyone!
Well said. The last time fee disclosures were mandated, my account statement grew from 3 to 7 pages and became much harder to follow. I can only imagine how long they’re going to become in 2027.
Hopefully it ends up as clear as this example makes it seem: https://www.getsmarteraboutmoney.ca/learning-path/rules-and-regulations/what-is-total-cost-reporting-and-how-it-will-work/
Excellent article. Really kicks my butt to now do something.
In your article you stated “ … that switch would be relatively painless, frictionless, seamless, and does not require an awkward breakup conversation with your bank advisor?”. My question is… HOW does one make that switch from the advisor (at the bank, or credit union etc) to one’s ETF trader (ie Qtrade, questrade, Scotia, etc) of choice without that conversation?
Hi Rich, thanks!
It’s quite simple. Decide on your online brokerage of choice. Could be your bank’s discount brokerage arm (ex. RBC Direct Investing, TD Direct Investing, Scotia iTrade) if you want to keep your investments within the same ecosystem but have choice in selecting lower cost products, or choose a low cost online platform like Wealthsimple or Questrade.
Open an account at your platform of choice, open the appropriate account types that you need, and then initiate the transfer *from* that platform. That’s right – you can do this online from the comfort of your living room. Your new brokerage platform will contact the existing bank and arrange for the transfer as requested. You don’t have to talk to your existing bank or advisor if you don’t want to.
Of course, sometimes we actually have relationships with these advisors and want to give a courtesy call or email heads-up that this transfer will be, or has been initiated. That’s up to you. I’m just saying you don’t have to – it’s your money and you can move it wherever you want.
Thanks Robb.
I’m in Alberta and with ATB Financial so they don’t really seem to have something like a trading platform. Due to our total investment amount our MERs are approx 0.7% and we’ve done ok (but not as well as the markets).
I did open a Qtrade account and put some money (approx 20-30k) into a few ETFs and have watched them do nothing in ~4 months so that was not the reinforcement I wanted or needed. Now while that’s a fair amount of “play money” the intention was to dip my toes into ETFs.
So this raises the other issues… of choosing appropriate ETFs and getting into the right head space.
Hi Rich, understood. I’d start here – a great toolkit for getting started with DIY investing using ETFs: https://canadianportfoliomanagerblog.com/model-etf-portfolios/
Have the conversation! You will be amazed how supportive your advisor will be. He or she can’t, shouldn’t, or won’t tell you that they’ve long since made the move themselves. If they haven’t made the move with their own portfolio, he or she is likely not the advisor you would want anyway. Actually, your choice of company will do it all for you… But if your relationship is that good, the advisor will respect you and appreciate the face to face.
That’s a great point, Curt. And, to be fair, I’m seeing less and less pushback from traditional advisors when their clients move to self-directed investing with ETFs.
Robb, is this problem across all age groups?
Seems like my parents generation speak no ill to the powers of the all-mighty ‘mutual fund’ and this falls right in there with that line of thinking (and fee structure)?
Also, Wealthsimple transfer complete – our Questrade days are now…. Limited after our 12 month test of Wealthsimple passed with flying colours. Thanks again!
Ravi, it’s a problem for every Canadian as long as our primary advice channel is the bank branch.
Good to hear you’ve consolidated accounts. I’ve just got one more to go!
Put another way. The average balanced mutual fund makes 8% per year before fees. Fees are 2% so they are taking 25% (2/8) of your profit yearly.
Hi Rob
We need an article from you on the impact of the massive increase in index ETFs on performance. There is a recent paper on this mentioned in the Globe by David Berman Aug 28.
Good Morning Robb
Great article. Simple and clear.
Question: My wife has just opened a Wealthsimple account. She has opened a TSFA and an RRSP. Both accounts hold xbal. Her current RRSP is with a major Canadian Bank and they are in mutual funds. We will soon be initiating the transfer from the Wealthsimple platform. Do the Mutual Funds simply get transfered “in-kind” and once received we simply sell and buy xbal? Or does the bank sell the Mutual Funds and send the cash for us to purchase xbal? What are your thoughts?
Hi Tom, thanks!
Since Wealthsimple is a platform for trading stocks and ETFs (no mutual funds), you would initiate the transfer “in-cash”.
Upon receiving the transfer request, the bank will sell the mutual funds and send the money to Wealthsimple to be deposited into her RRSP – waiting for her to “self-direct” it into more XBAL.
When I first started investing in my mid-20’s, my biggest misunderstanding was that the fees only applied to what my portfolio had increased by in that year, as opposed to my entire nest egg. I figured that was the motivation for my advisor to do well – if my portfolio went negative, they’d earn nothing! But when I asked about it after a few years of negative growth, my eyes shot wider than they’d ever been before: the fees were a percentage of all the money I’d saved and grown myself. That’s a massive difference! Huge! Switching to WealthSimple was almost effortless – they assigned me a person, and did all the paperwork for me. I just had to e-sign a few documents. Years on, my only regret is that I wish I had switched sooner!
Did WealthSimple pick up the fees charged by your financial institution to transfer out each of your accounts?
Yes, I think it was $250 per account that they paid, for each my husband and myself. It was unexpectedly seamless.
I also bank at ATB financial. All of my RRSP & TFSA investments were tied up in mutual funds. When I actually started paying attention to the fees it was shocking! I had paid $2000 in 1 year!!
In January of this year I had the conversation with my advisor ( very nice guy, but not much advice), I told him I was trying to fund part of my retirement, not the banks retirement and that I was going to move everything out to Wealth Simple. He wasn’t surprised, because I had told him a few times prior that I was concerned about the fees. It was scary making the move, but it was easy and I have no regrets about the decision, I only wish I had done it sooner, as I am 4 1/2 years away from retirement. Lesson learned.
Thanks Robb for the great article.
Great article Robb. Another great way to see the damage of high fees to your returns is Larry Bates’ T-Rex score. https://larrybates.ca/t-rex-score/ Hovering over the graph shows how much you pay each year and the total lost to fees over the selected time period. It’s simple to use and certainly drives home your point. His book ‘Beat the Bank’ is also good.
Regarding the RRSP switch to Wealthsimple, I love the Vegas reference….and yes, from experience I can personally confirm your statement. Once again thanks to the heads up on this website a year ago when I made the move. As a result I received the $17,000 gift for switching – and free trades ! It’s been one year now for me. Wealthsimple continues to improve and is adding more to its offerings.