ModernAdvisor Blog

Guiding you along your financial journey

investors group

Mutual Fund Portfolio Review – October 2016

By Isaac Schweigert | October 21, 2016

On our website, anyone can submit a request for a portfolio review in which we look at the fees the client is paying and how well they are diversified.  Most of the requests are from people that have a mutual fund account with a financial advisor at a bank or a mutual fund company.


Tim Smith (not his real name) sent us the account statements for his and his wife’s Investia accounts in September which we took a look at for him. Tim and his wife each had an RRSP and taxable account, and they also had a joint account.  For this review we will pool their accounts together to review the household fees and asset allocation as one.  Below is the list of mutual funds that the Smiths hold, including the annual MER for each.


The Smiths’ portfolio uses a wide variety of funds from several mutual fund companies, including a low cost Mawer fund which was their largest holding.  The MERs on their mutual funds ranged from 0.94% to 3.04%, the weighted average MER for their funds was 2.10%.  Having the lower cost Mawer funds and a Mackenzie bond fund helped to keep their average MER below the 2.30% that is typical for Canadian mutual funds.

The Smiths’ Asset Allocation

Next we looked at their asset allocation which was as follows:


The Smiths who are retired with decent pension plans that provide most of their income, had a fairly balanced asset allocation with 65% in stocks, 34% in bonds and cash, and 1% in other.  The usual recommendation for retired investors is to have most of their portfolio in bonds and other types of fixed income, but with a solid pension the Smiths can take more risk in their portfolio.  Their geographical allocation is fairly even on both the stock and bond sides.

In comparing the Smiths’ portfolio to a ModernAdvisor portfolio, we selected our Risk Level 7 portfolio since it has a similar exposure to stocks.  Below is a comparison of their asset allocation to ModernAdvisor’s Risk Level 7.



On the stocks side of the portfolio, the ModernAdvisor Risk Level 7 portfolio has less in Canadian, US, and international developed market stocks than the Smiths’ portfolio.  That difference goes mostly to emerging market stocks and real estate investment trusts (REITs) both of which currently have higher expected future returns.

ModernAdvisor portfolios don’t hold developed country bonds such as US or European bonds and typically hold very little cash.  Those allocations from the Smiths’ accounts are replaced with emerging market bonds in the ModernAdvisor portfolio.


Aside from the asset allocation, the major difference between the Smiths’ Investia portfolio and ModernAdvisor Risk Level 7 is fees.  With their current mutual fund portfolio they are paying a weighted average of 2.10% in MER every year!  The weighted average of the MERs on the ETFs we use in our Risk Level 7 portfolio is 0.21%.

That means on the Smiths’ portfolio they are paying $13,083 every year in MERs!  On the ModernAdvisor portfolio they would only be paying $1,308.  Add in our management fee of 0.40% (plus GST) and they are looking at only $3,925 for the year.  Over the long term, those fee savings compound quickly.



Since we can’t predict the future, and for simplicity, we’ve assumed in the above chart that both portfolios earned 6% every year before fees.  That fee savings means that the Smiths could potentially have an additional $693,000 after 25 years just by lowering their fees.  Since they are retired, another way of looking at the savings is they have a much lower chance of outliving their savings.

One expense of mutual funds that is rarely discussed is trading expenses.  This is measured in the trading expense ratio, or TER.  Actively managed mutual funds often have TERs of more than 0.20%.  For small funds that trade a lot, a TER of 0.50% would not be unusual.

Fortunately for the Smiths the weighted average TER of the funds they hold is only 0.05%.  That works out to $312 per year.  Since the point of investing in expensive mutual funds is supposed to be active management, we would have expected the TER to be higher which would indicate more active trading.

The weighted average of the TER on the ETFs in the ModernAdvisor portfolio is 0.00%.  It is probably not actually 0.00%; the ETF providers round anything under 0.005% to 0.00%.  Even if we assume the TER was actually 0.0049% (which rounds to 0.00%), that would be only be $31 on their portfolio.

To summarize, the fees for both portfolios are:


For much lower cost, the Smiths can switch to a ModernAdvisor portfolio saving thousands every year, while getting a more diversified portfolio. Since the Smiths are retired, keeping an additional $9,438 in their pocket every year could mean the difference between struggling to make ends meet and having a comfortable retirement.  It also considerably reduces the chance of outliving their savings.

Since their portfolio is over $600,000, the Smiths had large capital gains on the mutual funds in their taxable accounts.  We transferred their existing portfolios to ModernAdvisor in-kind and were able to rebate 90% of the trailer fees, saving them 0.8% per year in trailer fees.  When it makes sense from a tax perspective, we will sell their mutual funds and switch them into the lower cost ModernAdvisor portfolio which will save them even more.

To see how much you can save, request a free mutual fund fee report or send a statement from your account to

ModernAdvisor is the smartest way to reach your financial goals

Try investing now with an account funded by us. Learn more

Isaac Schweigert

Isaac Schweigert

Isaac is a CFA charterholder and is Portfolio Manager and Chief Compliance Officer at ModernAdvisor. He has over 11 years of investment industry experience, including asset allocation, portfolio management, due diligence, compliance and reporting.