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TD Mutual Funds to Directline?

The journey from TD Mutual Funds to TD DirectLine has proven a winding and lengthy one. In Adieu TD Mutual Funds, I outlined how it all started.

Thanks to changes to the TD Mutual Fund Account for my son’s RESP, we will be moving it to TD Directline. The changes meant we would be unable to use the TD E-series Index Funds unless we moved the account. I also grew weary of the clashes over Investing Risk Profiles.

This moving of accounts is not possible online. We had to make an appointment with a TD Branch nearby. The meeting went, interestingly.

Meeting

The meeting was with a TD Investment Rep, my wife and myself. My wife needed to be there because we held the RESP for our son. It all started well, and we proceeded to traverse the myriad of online forms to open a new Directline RESP and then transfer the TD Mutual Funds content into the same account. Every step was online, and I should have been able to do it myself if I had access to the system.

My wife and I each already have DirectLine accounts. We were looking to add this account to one of those accounts. The Rep said the account needed to be added to my wife’s account. I had no issue with that advice.

The process of setting up the account meandered along. We filled in the information for my wife, and at the end of the questioning, an odd form came up. The paper stated that it was about to open a new account for my wife. This seemed strange since we had already told the system that she had an account. The same thing happened while collecting my data, and again, a new account was mentioned.

The meeting concluded with the process partially complete. The transfer still had to be processed. More forms needed to be signed, so we made another appointment to come in and complete the move of securities.

TD Directline Still Waiting

This meeting took place in October, it is now three months later, and the RESP account has not moved. I followed up with the branch, and they dutifully told me they would “check in to it.” Nothing came of these inquiries.

While I waited, I moved another account from a TD Mutual Fund position to a TD Directline Account. I solely held that account, and the move took three days. I went in and dealt with the same young lady, and it all went, except I ended up with a new Account and a New Directline access as well.

Too Many TD Directline Acccesses

I called TD Directline to consolidate the three login accesses that ended up being created by these processes. At this juncture, things got more interesting.

The representative managed to consolidate all of these accounts until one online login. One login makes life simpler for me. The Rep also inquired about the RESP transfer. It was delayed due to incorrectly done forms at the branch. He called the branch and may have cleared up things, but I am still waiting. The RESP still sits in a TD Mutual Account and remains transferred to the new Directline RESP account.

Keep Calm but Follow Up

That is what I continue to do. I will check in the new year what is happening with my son’s RESP. Given he turns 17 in a few months, I don’t have much more time to put money into it.

Other TD E-series Funds Stories

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Adieu TD Mutual Fund Account

Thanks to TD’s new stance on using TD E-series Index Funds in TD Mutual Funds account, it is goodbye. I still have two accounts open, and they are both going to move somewhere else.

Estimated reading time: 2 minutes

A while ago, I received a cryptic letter about “changes to my TD Mutual Fund Account.” I could only find out by going into the bank and talking to a TD investing person. Through some “internet research,” I suspected it had to do with TD E-series Index funds. This research included:

My suspicions were confirmed. I spoke to a rep with whom I had to reschedule my appointment. She confirmed with me the E-series Index Funds would no longer be “tradeable” in these accounts. This means:

  1. I could not buy any more of the TD E-series Index Funds in those accounts
  2. I cannot re-balance those accounts, by moving between these funds
  3. It would not be possible to do this at the Bank or Online either. Why online it is removed is bewildering.

So now I am moving my two accounts to TD Directline. I have had TD Mutual Fund accounts (and CT Mutual Fund accounts) for more than 27 years. Maybe I should have done this sooner.

TD E-series Done?

No, I can continue to buy them in my TD Directline accounts. There have always been issues dealing with E-series funds in my TD Mutual Fund Accounts. The Bank investment advisors make little or nothing from them, so there was little motivation to help.

I have also read about other, even lower MER ETFs (e.g. HXT, VCN, ZCN, XIC). I can also use them in a TD Directline account.

Other TD E-series Funds Stories

Questrade

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Exposed on Banks

Even as a simple country Index Investor (to paraphrase Bones McCoy), you need to understand the Index you invest in. If you own a TSX-based, Canadian S&P Based or Dividend Royalty based index you hold a lot of Banks.

Two examples of this are:

  • S&P/TSX Composite Index, (OSPTX) which holds 36 % “Financials“. The top 10 holdings 4 are banks (Royal Bank RY, Bank of Nova Scotia BNS, TD Bank TD and Bank of Montreal BMO).
  • S&P/TSX Composite High Dividend Index ETF (TXEI) which holds 30% “financials”. You find 4 banks in their top 10 holdings (Bank of Montreal BMO, Bank of Nova Scotia BNS, Canadian Imperial Bank of Commerce CM, National Bank of Canada NA)
exposed on banks

Why this imbalance? Banks are doing very well lately, and have done well for over 15 years.

Are banks likely to “Nortel out“, in the near future? No, but realize that you are holding a lot of Banks if you are investing in Canadian Indexes.

My problem is that I am highly exposed on Banks. From my days as a Stock holder, I still hold TD and BMO in one of my larger investing portfolios. In this same portfolio I also hold a TSX index fund, which means my exposure to banks is too large (given I may retire within the next 10 years).

Questrade

As Interest Rates slowly rise to more normal rates, I should start thinking about some more stability and start building a GIC Ladder in my portfolio. I should be looking for more stability given I am within 10 years of retirement.

Treat This as Informational

I am not offering advice. I am simply pointing out that many passive investors are heavily exposed to the Financial Sector in Canada.

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Risk Profiles and Rejected Orders

My daughter is running into the same issue that I had when my TD E-series orders were rejected. This was due to my investment risk profile. Unfortunately, she has set up a TFSA with TD Mutual Funds (not TD Direct investing). As we learned to use TD E-series funds in a TD Mutual Fund account, you must complete many steps. None of these steps include the change your investment risk profile to stop having your TD E-series orders rejected.

e-series orders rejected

I have talked about using the E-series funds to set up a simple Couch Potato investment portfolio. My daughter is going to use the idea for her TFSA account.

The application to allow you to use TD E-series Index Funds in your TD Mutual Fund account is straightforward and easy to fill in. You must do this if you end up with a TD Mutual Fund account. This is what you end up getting if you go into a TD Branch. My daughter thought she was opening a TD Direct Investing account. She did not.

If you fill in the form, you assume that you can then buy E-series funds. They even show up in your list of funds that you can buy. However, that is incorrect.

The E-series funds are Index funds with low MER fees. I use them in many of my accounts as full disclosure. I am not receiving any compensation for talking about them. Many different websites have talked about them and how useful they are, but they are tricky to use in a TD Mutual Fund account.

A TD Mutual Fund Investing Risk Profile is completed when the account is opened, and periodically after that (every year or two), it is updated. The profile questions usually push folks into a lower risk Balanced profile, and evidently, the E-series funds are far riskier.

The E-series Funds have turned into the red-headed stepchild of the TD Mutual Funds group. None of their staff seem to want to sell them or use them in any form. It is easier to use TD E-series funds in a Questrade account than a TD Mutual Fund account.

My opinion is that due to the E-series being lower cost, the TD Mutual Fund reps don’t make much money (if any) trading them. This makes the rep less motivated to use them. Why the TD Mutual Fund online system seems to default to E-series orders rejected is another issue.

Simple Solution to E-Series Orders Rejected ?

I will suggest a simple fix to TD Mutual Funds who adds the following “initial” block.


I allow the TD Mutual Funds group to alter my Investment Risk Profile to enable me to use the E-series funds in my investment portfolio.

Name:  ________________           Initials: _____________


Seems straightforward to me. I doubt this will happen, it is too clear, and nobody makes money.

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Index Investing Downsides

Even though I do Index Investing (mostly) I do realize that with all investing plans there are downsides. I read an interesting article in the Kiplinger magazine (by Elizabeth Leary) that talked about the obvious Index Investing downside, you are investing in the Index. In these raucous days of market corrections, this is a concern to Index Investors

The best quote from the article is:

“By definition, index funds guarantee that you will suffer 100% of the next bear market’s decline,” — Jim Stack, president of InvesTech Research.

Given  you are an Index Investor, you already knew that, but for others the subtleties of the statement is lost. When the Indexes are in a Bull Market, you enjoy the low MER and growth, but when the Bear Market comes (and it has?) you will feel the brunt of the market drop. The argument that actively traded funds make are that they can react quicker to market corrections.

Index Investing

Both of those statements are true, but the losses you incur from Actively Traded funds MERs are usually not mentioned (especially during Bull Markets, so you lose some of your profits). Do all actively traded funds manage to stop-loss during market corrections? No (some do), and some might argue they are some of the market forces that cause the market corrections.

The other point folks forget is that the “Yard Stick” that most Index Funds use correct themselves as well. The S&P (and others) regularly update (add and drop) stocks from their Indexes, depending on what the Index is tracking. They don’t typically do this during a market correction, but the “bad apples” do eventually go away.

Ms. Leary points out that if you buy into the argument about Indexes and how active traders can be more nimble, you are assuming that your Mutual Fund manager are smart enough to deal with rapid market changes. This is a very big assumption to make, you must choose the wisely managed Active Trading Mutual Funds or risk being worse off than if you simply use well-defined indexes. The hard part is figuring out which funds are the wisely managed nimble ones.

My Opinion

I will stick with index investing for now. I tried to be an active investor myself and lost enough money to realize that Market Timing is not possible for an individual investor. Are there Actively Traded Mutual Funds that beat the market (i.e. out strip the Indexes)? Yes, however, it is interesting that it is rare to find any that can make that claim over 10 years.

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