I’ve grown used to the antics of mutual fund companies and commission-based fund hawkers who criticize index investing. It’s predictable, pathetic and unlikely to change. What really disappoints me, however, is when the antics come from an investment company that I thought was one of the good guys.
Readers of this blog and my work in MoneySense know that I have often recommended the TD e-Series index funds for Couch Potato investors. They have the lowest MERs of any retail funds in the country, a long record of low tracking error, and the added benefit of being available online without a discount brokerage account. But this week I got an alarming email from Shannon, an investor in western Canada who is untangling herself from a large and notoriously expensive financial services firm. Shannon has decided to get started with index investing and, having read about the e-Series funds, gave TD a call. Here’s how she described the bank’s behaviour:
“First, we were encouraged to invest in regular TD mutual funds. When we said no, we wanted the e-Series index funds, we were told that the I-Series were just as good and could be bought at the branch. Again I said no, we want the e-Series because the MERs are lower, and they said they’re not that much different. I said every bit counts, and they asked what were we paying on our other investments. I said between 2.75 and 3%. They said they had mutual funds with lower MERs than that, and higher returns than the index funds, so why didn’t they have a wealth management specialist call me?”
Sure enough, a TD rep called the next day and explained to Shannon that index funds simply aren’t a good a good investment, and that she should instead choose from TD’s lineup of actively managed funds, which carry fees between 1% and 2.7%.
It was classic upselling, like you’d get from a fast-food restaurant: Would you like any muffins or donuts with your coffee? Would you like to super-size your fries? Can I get you some fees with those mutual funds?
Amazingly, the TD rep failed to mention that the TD Canadian Bond and TD Canadian Equity funds failed to outperformed their e-Series equivalents over the last five years. (To be fair, they were neck and neck.) Or that the TD U.S. Blue Chip Equity Fund couldn’t even beat a lowly S&P 500 index fund over the last decade. I’m sure it slipped his mind.
“Why wouldn’t TD champion their own e-Series funds?” Shannon asks. “I get why they want me to pay higher MERs on their funds, but should it be this hard?” Of course it shouldn’t be this hard. And yet a search through other Canadian finance blogs suggests that Shannon’s experience is hardly unique:
- Youngandthrifty.ca reports that it took her six weeks to set up an e-Series account “mainly because when you walk into any TD branch, no one knows what the heck you’re talking about.”
- Million Dollar Journey related a similar story: “There was some resistance when I mentioned the e-Series account. Even though it is a TD product, it is an online product only, and the personal banker wouldn’t even talk about it. I suspect it’s because they receive no commission or recognition for selling the TD e-Series products.”
- Learn Save Invest says, “I had to actually direct the staff to the web page on TD’s site to explain to them what I wanted.”
It would seem that the easiest way to open an e-Series account is to fill out the online application and mail it in. If you do want to deal with your local TD branch, a number of bloggers suggest telling them you want to open a regular TD Mutual Funds account. Once you fill out the paperwork and get your signature on file with the bank, then you can go home and convert your regular account to an e-Series account. That will at least help you sidestep the bank employees who try to talk you out of it.
If you’ve had a good or bad experience opening a TD e-Series account, please post a comment and share it with other readers.
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I simply invest in e-funds thought TD Waterhouse. It couldn’t be easier: you just need to know the fund code to enter your buy order. I find that it’s an easy way to dollar-cost-averaging by investing small amount (100$) as often that you want without anybody making you feel that you are bothering them too often with insignificant investment amounts.
However, I remember that when I first learn about the e-Series funds, I tried to get more information from TD Bank representatives; I also felt that nobody knew much about them.
Since TD have not added e-funds for a long time and don’t offer such product as Emerging markets e-funds, I called and e-mailed TD Mutual Funds recently to see if there were any chance they add new products, and again, I felt that not only index investing isn’t a strategic priority for TD (after all, didn’t they scrap their ETFs just before the ETF boom?), but that e-funds are not even a afterthought…
My experience is much the same as Yves’. I progressed from a regular TD/CT RRSP holding mostly GICs in the 1990s to a TD Waterhouse electronic account, with relatively little difficulty or delay. I have not solicited advice on funds from TD, especially from my branch, for at least 10 years. At no time have I ever seen the e-funds promoted locally or nationally.
TD e-funds may be an even better “bargain” and more flexible than Couch Potato, Yves and Shannon think. Like Yves, I buy regular small amounts of the e-funds during the year. Its hassle-free and there are no trading costs/commissions. At the end of the year, I re-balance. If I have reasonably large holdings of e.g., the TD US e-fund, I will sell some or most and invest it in a comparable US ETF with somewhat lower MER. Costs me $9.99 commission, but that is a trivial one-time cost if I buy and hold. I may also switch $$ among the TD e-funds, at no trading cost.
Basically, use the e-funds for small purchases, switches, etc. When you get a reasonably large holding, convert to a comparable ETF with lower MER at year-end. Many investors do not consider that there are two hidden costs to ETF beyond the MER: sell/buy commissions and the spread between the bid/ask prices and the NAV. So, your real MER for ETF can be higher than for comparable e-funds if you trade/invest frequently or are a small investor with less than $100K in your account (then your commission is $30/trade). For example, the MER for the TD Canadian (TSX) e-fund is 0.30% versus the MER of 0.25% for the iShares/Black Rock TSX ETF. Throw in some small trades for the ETF (especially with a $30 commission), and the effective MER is higher than for the e-fund.
Final thought: TD has “managed” index funds with higher MER than the comparable e-funds. So, they do not appear to be generally averse to index funds but instead specifically averse to low MER. Cannot blame them for trying to get their $$ for managing more active funds, but how much expertise and time is required to “manage” an index fund?
Thanks Dan for the quick response. So went in this morning to the local branch and like most of the people’s experience here, they had no experience. There were three “advisors” and they kept on saying it had to be opened through Waterhouse if it was to be self-managed. Finally they decided to call their helpline and confirmed that one could open a TD Mutual fund account and then convert it to e-series. Overall, one of them was very helpful and constructive, the other two were still reluctant and told me the account would be closed within days if the no “funds” were bought. I don’t think that’s true.
@Everest: The stories all seem pretty consistent, don’t they? Hope you’ll be able to finally get the account open. Let us know how it goes.
Opening my TD e-series account a few years ago was a major pain in the butt. I ended up opening a TD Waterhouse account to side-step all the up-sells, smirks, and negative banter from the bank folk. +1 for me. I would advise everyone with a TD Waterhouse account to watch out for minimum balance fees (if you’re under 10K) and account inactivity fees. A fat $25 fee on a small account is no small potatoes.
I had a relatively good experience compared to most people I think, but I still had to suffer through the usual babbling that most new customers probably do. After about 30 minutes of me letting the advisor ramble on, we finally got down to the nitty gritty, where she asked me if I had any particular regular Mutual Funds in mind. I then broke the news that I wanted to invest in some Index Funds through e-Series, and she was clueless, but was very eager to help and learn. She was impressed because I came in obviously prepared, called her help desk and spoke to someone who luckily knew exactly what I wanted to do too. She hung up the phone, and said it was the first time ever that anyone has ever mentioned these things to her, and said she would share the information with her fellow employees. I was there for an hour and a half, which seemed a tad excessive, but overall I was impressed with her willingness to help me and not try to talk me out of what I wanted to do.
The guy at the branch did know what I was talking about (e-Series fund).
But I saw, before going there, on their website that you can convert their normal mutual fund account to a e-series account. So I opened a normal mutual fund account with nothing in it at the branch. Asked for an Access Card (I was not a customer) for EasyWeb access.
Then went back home, printed out the paper for converting the normal account to a e-series one, posted it. Couple days later days later it was done. Went in EasyWeb and began transferring money into my e-series funds.
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