Breaking up with your bank isn’t hard to do

May 4, 2017


Breaking up with your bank isn’t hard to do


When I started WealthBar, many financial industry leaders told me that it would be tough to get people to switch over from their bank. “Canadians are naturally apathetic,” they said. “They stay loyal to the bank where they opened a bank account when they were 6 years old.”

Four years later, after many Canadians have made the switch, we can say we’ve put a dent in that mountain of an objection. I’m proud of my team for what we’ve been able to accomplish. I’m excited about the future. Today, we’re a viable and rapidly growing company! Still, the industry leaders weren’t totally wrong.

Some Canadians aren’t switching. But it’s not necessarily because they’re apathetic!

To get some perspective, let’s look at the difference between what’s going on here and in the USA. In the US, most of the investible assets are in ETFs. Canada has some catching up to do. North of the 49th parallel, the top 10 funds are still high-MER mutual funds.

Canadians just aren’t moving as quickly to a low-fee investment model. But largely, I think that’s because Canadian banks just make it harder for their customers to make the switch.

As I’ve noted elsewhere, financial advisors at banks in Canada earn commissions tied to their portfolio recommendations. Naturally, these bank advisors will lean towards higher-fee portfolios so they get the highest possible commission, even if that’s not the best match for the client. Another hurdle, aside from skewed incentives, is around the technology that the big banks use.

Banks in the USA tend to have better systems integration than in Canada. It’s just easier for clients to literally see all of a bank’s offerings listed in the same place on their computer screen. They can more easily compare options, even on their own.

In contrast, a Canadian bank’s online dashboard might not show the ETFs on the same page as those higher-fee funds. Clients in Canada often literally don’t know what they’re missing. It’s no surprise that they don’t switch.

I’ve been speaking with clients about their funds at a different financial institution. I see that better financial education is going to get Canadians switching to ETFs – maybe not this week, but it will happen.

As we all know, it only takes a pinch of confusion for people to hesitate and stick with the status quo. Maybe I’m wrong, but I think that the lack of movement into ETFs largely comes down to misinformation.

3 more reasons people don’t break up high-fee mutual funds at their bank (even when they should)

“Transfer fees are going to cost me too much!”

Every time you want to move money out of a financial institution, they will charge you a ‘transfer out fee.’ This can be anywhere between $50 to $175, plus any trading charges for disposing of the current investments.

In my humble opinion, this is a completely frivolous fee. It’s not justifiable! Unfortunately, that’s the reality. Transfer fees are put in place to stop people from leaving.

That’s why we offer a credit for the transfer fee against future fees, for transfers over $25,000. This applies for a maximum credit of $150. That way, if you are thinking of switching over, transfer fees won’t be a sticking point.

“I’m worried about the tax consequences of switching my registered account!”

It’s common knowledge that registered accounts, such as RRSPs, TFSAs or even RESPs have restrictions on withdrawals and deposits. These restrictions are punitive both in terms of taxes and in terms of contribution limits.

But this common knowledge leads to a common misunderstanding. A lot of people assume that transferring their accounts to another institution will be treated as a withdrawal. If you handle the transfer correctly, you won’t have to pay that penalty!

Here’s the wrong way to do it: simply withdraw money and redeposit it into a different account at another institution. If you do it this way, it will count as a withdrawal. That would be bad.

Here’s the right way to handle the transfer, which won’t trigger penalties: fill out Canada Revenue Agency’s T2033 form. (Transfer into a WealthBar portfolio and we’ll handle that paperwork for you. All you’ll have to do is sign).

“My bank is big and has been around forever. Why should I trust a plucky upstart with my money?”

In Canada, be it a 100 year old bank or a plucky start-up, we are all regulated by the same government agencies. We’re subject to the same rules. Your account at WealthBar is opened in your name, at an IIROC registered trustee, (usually similar to, or in some cases, the same as the big bank). It is covered by a Canadian Investor Protection Fund, much like your investment accounts are covered at a large bank brokerages, like RBC Dominion Securities or CIBC Wood Gundy.

All power we really have over your money is to direct that trustee to invest it into a portfolio that we agree on ahead of time. In the unlikely event that WealthBar goes out of business, the most put out you’ll be is having to find yourself another adviser. Your money and your account will be completely intact. CIPF protects you against the IIROC member trustee going out of business.

And at WealthBar, account holders can count on the reliability of BBS Securities as a top-tier, award-winning custodian. BBS is famous for offering superior quality trade execution services via their Virtual Brokers (VB) unit.

In other words, your money is perfectly safe with us! Breaking up with your bank and transferring investments isn’t so hard, after all.

Interested in getting a second opinion on your investments, to see if your money is performing for you? Looking for better diversification to protect your assets? See what you could be missing and chat with a WealthBar adviser.

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