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TD E-Series RESP Beartrap

This was written a while ago, 2015. Back then I was attempting to cash out TD E-series Index Funds in my kids’ RESPs. Using the TD E-series RESP method is good, but fraught with gotchas.

Just when I thought I couldn’t possibly find anything more to write about with my kids’ RESP account, TD puts a beartrap in the process and I end up with yet another article to write, about the  TD E-series RESP mutual fund account, and how it is not a straight-forward process cashing out.

Is this another rehash about a visit to my local TD Branch to cash out my TD E-series RESP funds? Yes, and no (after a fashion).

Four months ago, when I changed all of my TD Mutual Fund savings vehicles, into accounts that allow for the purchase of the TD E-series Index Funds. Remember I did outline in Quicken and transferring E-series Index Funds, how to change from the I-series funds to the E-series versions (which have lower MER fees), little did I know that with that change, I set the beartrap, that I stepped on Friday evening.

TD E-series RESP bear trap
It snapped shut tight

I went to my local branch of TD Friday because my youngest daughter’s tuition fees were due. An appointment was set up at my branch last week, to get what I needed to pay for this term. You must go to a branch to prove your child is in a reputable program, before you can have access to the RESP funds. I had my letter, I knew what part of the portfolio I wanted to liquidate, so what could go wrong?

Upon arrival at the branch, and I was dealing with a polite young man, that I had dealt with previously. I explained quickly what I wanted, and he logged in and started clicking and typing. Time passed, screens seem to fly by and then return and I started to wonder, “What is wrong?”.

After about 10 minutes the gentleman turned to me and said, “We have a problem here”. At that moment, the bear trap snapped shut on my ankle.

The “Advisor” then explained that the in-branch Financial Advisor/Mutual Fund persons are not allowed to touch E-series funds. I believe my response was a confused but polite, “I beg your pardon?”. The young man went on to explain that he could only trade the I series funds. The TD E-series RESP funds were out of his “jurisdiction”.

At that moment I almost asked, “So I have a Save only account?” (i.e. I am allowed to put money in, but not allowed to take any money out). There is a methodology to take money out of a TD Mutual Fund account with E-series Index Funds.

Steps to Withdraw Funds

  1. Get a proof of enrollment letter from the post secondary school she is attending. Luckily I already had that from September
  2. Make an appointment with the local branch to do an RESP withdrawal. This is so someone trusted at TD can attest to the letter that you got in the first place (hint for TD, maybe I could have the letter sent to YOU or faxed?).
  3. Go on-line to my TD Mutual Fund account, and move the funds I want, into a TD Money Market account. This is a fund that the Mutual Fund expert or Financial Advisor can do something with. Do this at least 2 days before you go to the branch (to allow the transaction to go through).
  4. Go into the branch and spend 1/2 an hour answering questions, and possibly having to review your investing profile, but eventually put through the transactions to cash in the funds you want.
  5. Wait for the funds to arrive on-line

Epilogue

As an epilogue to Friday, I also asked what would happen if my RESP was with TD Waterhouse (in hindsight what I should have done in the first place)? It becomes more complicated, and at the end of your visit to the local branch, you must then wait for TD Waterhouse to release the funds to you (so you need to wait longer for it).

I must now return this Wednesday to attempt the same thing I attempted back on Friday (i.e. cash out my TD E-series RESP mutual fund account).

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Quicken and Transfering Mutual Funds?

So I tripped across an interesting feature in Quicken’s investment tracking feature . Quicken, in one transaction (well, it does the delete and add transaction for you from what I can see), Quicken transfer mutual funds from one account to another. Big deal you say? Well for me, over the past few weeks, this has made my life simpler tracking my TD Mutual Fund Accounts.

Next question, why do you have TD Mutual fund accounts, aren’t you a TD Direct Invest dude? I didn’t initially start with TD Mutual Fund accounts. Remember there are 3 different silos in TD, the Banking Side, The Mutual Fund Side and TD Investments. There is also insurance and a few other sides, but I shall leave them out for discussion purposes. When I first opened RESPs, and an “Emergency” account I was a customer of Canada Trust. They didn’t really have an “Investing Wing” (and I wouldn’t have known what to do back then).

Quicken transfer mutual funds
Another intricate Dance to Change Things at TD

When TD purchased CT long ago, all my CT Mutual Fund accounts became TD Mutual Fund accounts. All of my CT mutual funds turned into I-series TD Mutual Funds (again, before I really understood the problems with higher MER Mutual Funds).

I finally got off my lazy derriere and have transferred all of those I-Series funds to E-series funds, using the same models as outlined in Ideal Portfolios  :

TDB909 – TD Canadian Bond Index (e-Series)
TDB900 – TD Canadian Index (e-Series)
TDB902 – TD US Index (e-Series)
TDB911 – TD International Index (e-Series)

To be able to use these Index Funds in your Mutual Fund account you must Mail (by Canada Post, no Faxes allowed) the following:

Your TD e-Series Funds account is opened after your original, signed application, and TD e-Series Funds Understanding and Consent form are received by TD Investment Services Inc. (TDIS). Unfortunately, we are unable to accept applications by fax.

This is assuming you already have an account. If you don’t have an account, might I suggest going straight to TD Direct Investing ? TD Mutual fund account allows you to purchase only TD Mutual Funds. This limitation seems obvious in the name, but needs to be emphasized.

Once you get all of your “OK you can use them” confirmations, you can simply go on-line and use Quicken transfer mutual funds to move the associated I-series fund to an E-series fund (and thus save on MERs and such).

Finally we have reached the Quicken part of the discussion, if you have your Mutual Fund savings account set up in Quicken (and why wouldn’t you?), you would go to the account and simply choose Enter Transaction .

If you search down the list of possible transactions (once the dialog box comes up), select Mutual Fund Conversion, and the dialog box will then only ask you for:

  • Date of the Transfer
  • The Mutual Fund it is coming “from”
  • The New Mutual Fund to use (you may have to create that in Quicken)
  • How many shares were created of the New Fund
  • How much the price was (per share) of the new fund

And let it run it’s merry way. Quicken removes the holdings of the old security and adds the new security holdings to your account. After this, you are now tracking the right funds.

I have always been pretty lazy when it has come to tracking my investments, but I am trying hard to keep a closer track of all of my various investment vehicles (as I close in on retirement).

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Reversing Mutual Fund Purchases

Written in 2014, but this still happens with the one TD Mutual Fund account that I still have. Your Risk Profile is what they base things on, and they will make you live up (or down) to it.

TD’s Mutual Fund group proved yet again why I really don’t like dealing with them. Some might ask, “Why do I have so many TD Mutual Fund accounts?”. Surprisingly because I had a group of CT Mutual Fund Accounts, that changed over to TD Mutual Fund accounts. I should have just closed them and gone with TD Waterhouse accounts, but hindsight is 20/20.

One of the accounts is my “Emergency Fund“. I decided that I should move funds from a T-Bill Fund to a Bond Fund (E-series) for more potential growth. A Bond Fund is a little riskier than a T-Bill account, but it was not like I wanted to buy the TD North African Sahara Sand Fund or something risky like that (keep that in mind).

Transacation Cancelled
Transaction DENIED!!

The transaction went through (it actually showed up in my list of funds in my account). Then a day later, the transaction was reversed. I received the following e-mail:

Dear Investor,

We appreciate your business and thank you for your request.

For security reasons, we have not included your name and account number in this communication.  Please do not reply to this e-mail.  It is our policy not to send, nor to ask our customers to send account and trade-related information by e-mail.

After further review of your trade, we are required to reverse your trade request because it may not be suited to your current investor profile.  We have based this assessment on the information you provided us regarding your personal circumstances, investment knowledge, objectives, time horizon and risk tolerance.  Not only do we want to help you make the best investment decisions, we are required to assess the suitability of all mutual fund account transactions.  Please contact a Mutual Funds Representative1 to review and update the information we have regarding your Investor Profile.  

A not very helpful email from TD Mutual Funds

Stopping Grandmothers from taking their funds and dumping it into a Chinese Hay Bailing Mutual Fund, is good. How is moving from a Money Market account to a Bond Fund that risky?

The transaction went through, the Mutual Fund transfer appeared and then it was reversed! Wonder if anyone got a commission on that?

I called up to talk to a pleasant young man, and he informed me that my Investing profile hadn’t been updated for a while. We went through each question and at the end of it, I was still not an aggressive enough investor to buy the TD E-Series Bond Fund (TDB909 ). This is not the first time I have been told I am Too Conservative in My Investing

At that point we entered into a hypothetical situation. I might have asked the young man what I needed to do to allow me to invest in whatever I wanted in the Mutual Fund account. The very helpful young man may have suggested we review a few of my answers. In this hypothetical situation, I might have changed my answers a little to reflect a more aggressive investing stance. This might have happened after someone might have explained what each response might mean. At the end of it, I might have been allowed to transfer my T-Bill Index Fund holdings into the TD E-series Bond Fund.

What Should I really Do?

I really should just transfer these accounts into TD Directline accounts. TD Mutual Funds needs a, “I Understand the Risks and Wish to Do It Myself” declaration, absolving them of any wrong doing, should I decide to buy the “Buggy Whip and Bumpers Mutual Fund”, or the like?

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NB: I blundered on this one, after a commenter pointed out my blunder, I have re-worded this to make it a little more correct and less flawed in its assumptions.

If ETFs, Mutual Funds, Index Funds and such had to publish the growth of the fund before it took their management fees would we care? I would, however, since many folks don’t seem to connect these two concepts, maybe they need helpful tables or graphics?

Would you notice if you saw the following table (which makes some naive assumptions about growth being static over 25 years, but is supplied as a simple example (also doesn’t include purchase and selling fees as well):

MER2.44%
Actual Growth Avg3.89%
Static Growth Model
Fund SizeGrowthMERReal GrowthYear End
$10,000.00$389.00$253.391
$10,135.61$394.28$256.821.36%2
$10,273.06$399.62$260.311.36%3
$10,412.38$405.04$263.841.36%4
$10,553.58$410.53$267.411.36%5
$10,696.70$416.10$271.041.36%6
$10,841.76$421.74$274.721.36%7
$10,988.79$427.46$278.441.36%8
$11,137.81$433.26$282.221.36%9
$11,288.86$439.14$286.051.36%10
$11,441.95$445.09$289.921.36%11
$11,597.11$451.13$293.861.36%12
$11,754.38$457.25$297.841.36%13
$11,913.79$463.45$301.881.36%14
$12,075.35$469.73$305.971.36%15
$12,239.11$476.10$310.121.36%16
$12,405.09$482.56$314.331.36%17
$12,573.32$489.10$318.591.36%18
$12,743.83$495.73$322.911.36%19
$12,916.65$502.46$327.291.36%20
$13,091.81$509.27$331.731.36%21
$13,269.35$516.18$336.231.36%22
$13,449.30$523.18$340.791.36%23
$13,631.69$530.27$345.411.36%24
$13,816.55$537.46$350.091.36%25
Totals$11,485.14$7,481.22

 

So from this table what can we glean ?

  • The model is overly simplistic in that:
    • Growth is static
    • MER is calculated on the Year End total (which may make it an overestimate, where normally MER is calculated every day of the year, and added accordingly).
  • From an initial investment of $10,000 after 25 years given the average actual growth and MER we end up with $13,816.55
  • Our Actual growth is $11,485.14  but the amount paid in MER $7,481.22 leaving us with a Net Growth of $3,816.55
  • The Net growth as a percentage year over year is 1.36%  (no I don’t think anyone would buy a fund with this crappy a growth, but it’s a simple model).
  • Management fees consume about 65% of the the actual growth seen by the fund.

Would this help investors? Would they see this? Would any investment firm publish this table?  Would a graph help ? Would anyone want to know that they are paying almost $7500 in Management Fees on a $10,000 investment?

I have tried to explain this to a few folks, and I guess I am not very clear in my statements, because they mostly dismiss my statements as being either incorrect or inconclusive.

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DIY Balanced Funds for Investing

I always find it interesting that most of the times I have spoken to an “investment person” I have been told What you need is a Balanced Fund, which on face value is a good piece of advice. Rarely have I walked in and made the following statements:

  • I love High Tech, what I want to do is buy a single stock that has very high risk and very high potential pay back.
  • I feel comfortable investing in hedge funds, and want to explore that further
  • Bangladesh and Russia look like interesting investment opportunities, lets put all my money there.
  • I don’t trust the stock market, so all I want are Canada Savings Bonds

Most of the questionnaires I have filled in would not show that, however, I do find it interesting that a lot of the wording in these questionnaires are very “Balanced Fund Sympathetic” (but most questionnaires tend to herd the subjects towards the middle of the pack).

While I realize everybody needs to earn a buck, the Balanced Fund gig pays pretty well with the CIBC Balanced Funds having Fund Expenses of 2.55% , someone is living the high life on those fees. I do like the extra 0.10% in “Trading Expenses”, who gets that money? Oh their traders? Mostly I would guess.

So if you read the CIBC (or TD or whoever) Quarterly Portfolio Disclosure you can see that the top few investments in the fund are:

Balanced in What Way?
Balanced Doesn’t Have to Mean Expensive
  • Cash & Cash Equivalents 4.87
  • Government of Canada, 1.50%, 2023/06/01 4.46
  • Toronto-Dominion Bank (The) 2.83
  • Royal Bank of Canada 2.71
  • Government of Canada, 4.00%, 2041/06/01 2.05
  • Bank of Nova Scotia 2.04
  • Canada Housing Trust No. 1, 2.35%, 2018/12/15 1.97
  • Canadian Imperial Bank of Commerce 1.78
  • Korea KOSPI 200 Index Future, December 2013 1.77
  • Suncor Energy Inc. 1.75
  • Bank of Montreal 1.47
  • Japan TOPIX Index Future, December 2013 1.36
  • etc., etc.,

If you were really a wild investor you could simply mimic this list, but I suspect you’d end up paying a lot in trading fees. The other option is to group the list into and see if you can mimic it using simple Index Funds. Yes this might take you about an hour or two, but then you have about the same mutual fund, but with Index Fund (or ETF) Management Fees.

Let’s Have Fun!

Want to really have fun? You know when I ask that, it’s going to be fun, but the next time your “Investment Person” proposes a similar Balanced Fund (my apologies to CIBC all the banks have expensive Balanced Mutual Funds, not just them) ask them if they could create an investment plan using Index Funds for a lower MER. Wonder what the response to that query might be?

Do you really want to pay a 2.55% fee (every year) ?

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