WealthBar — Index Fund Portfolios For Canadian Expats

canadianflag

There’s a new investment firm on the block called WealthBar.

And it’s going to help Canadian expats.

For years, Canadians overseas have had just a couple of investment options.

They could build their own portfolios through an offshore brokerage account.

Or, more commonly, they could invest in any number of offshore pensions, otherwise known as variable annuities or investment linked assurance schemes (ILAS). Unfortunately, most have taken the second approach. And the results are disastrous. Brokerages selling offshore pensions such as those through Zurich International, Friends Provident, Royal London 360, Royal Skandia and Generali have stuck investors in quicksand.

There are five problems with such investment platforms:

  1. Investors pay Everest-like fees.
  2. Portfolios are rarely diversified properly.
  3. Advisors stuff portfolios with yesterday’s winners.
  4. Clients pay high penalties to sell before a predetermined date.
  5. Advisors earn massive commissions

Those firms are like horse drawn buggies.

 

WealthBar is an electric Tesla.

And they accept expatriate Canadian clients.

Neville Joanes oversees portfolio management and investment operations at WealthBar. “WealthBar can open accounts for Canadian expats,” he says. “However, there is an account minimum of $25,000. The client will also need to have an existing account with a Canadian financial institution, provide copies of their identification documents and the process may require some paper work to get the accounts up and running.”

 

For Canadian expats, it’s well worth the effort.

WealthBar builds low cost portfolios of index funds using products called ETFs.

They charge 0.6 per cent per year for accounts valued up to $150,000 per year. This fee percentage drops as the account value rises above $150,000. There’s also a small internal charge that goes to the ETF provider. According to WealthBar, this costs roughly an additional 0.25 percent per year.

 

By comparison, the typical Canadian mutual fund costs nearly three times more.

It charges roughly 2.4 percent per year. 

The typical offshore pension costs nearly six times more than what you would pay with WealthBar. When adding establishment charges, fund charges and ongoing account fees, most offshore pensions cost 3.8 percent or more.

 

But High Fees Aren’t The Only Concern

Fees aren’t the only problem facing most people’s investment accounts.

Poor investment behaviour also has a hemorraging affect. Studies show that most investors underperform the funds they own. This is especially true when an advisor can earn a large sales commission. To impress prospective clients, they show charts of yesterday’s winners, saying “this is what we can do for you.”

Advisors and individual investors often jump into yesterday’s winners—just in time for them to become tomorrow’s losers. This is a recipe for disaster. Let me show you an example.

There’s a mutual fund company in the United States called American Funds. Investors must buy these funds through a broker. Such brokers earn a 5.75 percent commission. As such, advisors have large incentives to “make sales.”  So investors get sold on what’s impressive. They often buy yesterday’s hot funds instead of building a diversified portfolio of funds across a variety of geographic sectors, including stocks and bonds, and simply leaving it alone.

According to data from the fund research company, Morningstar, investors with the American Funds family, for example, underperform their own funds by roughly 1.71 percent per year. I have placed 10 year results for reference at the bottom.

The typical Canadian mutual fund investor underperforms their funds by roughly 1 percent per year. I’ve estimated that the average commission based broker with offshore pensions causes clients to underperform their funds by at least 1.71 percent per year.

“Yesterday’s winners are far more likely to be tomorrow’s losers,” says John Bogle, in the Wall Street Journal. He was named by Fortune magazine as one of the four investment giants of the 20th century.

 

In contrast, a firm such as WealthBar suffers from no such bias.

They don’t build portfolios with yesterday’s winners. They simply build a diversified portfolio of low cost ETFs, rebalance it each year, and stick to the game-plan.

No index fund is selected for its good performance. WealthBar just builds portfolios of indexes and rebalances them once a year.

No speculation. No guesswork. Just a broad low cost representation of the global stock and bond markets.

 

The comparative results can be startling.

Here’s how it could play out over time, assuming an investor started with $25,000, then added $12,000 per year.

 

$25,000 Initial Investment

$12,000 Invested Annually For 25 Years

Assume Stock And Bond Markets Average 9 Percent Annually

Investment Platform

Total Fees Charged

Annual Deduction For Poor Investment Behaviour

Portfolio End Value After 25 Years

Typical Offshore Pension

3.8 percent per year

1.71% per year

$542,006

Typical Canadian Mutual Fund

2.4 percent per year

1% per year

$754,932

WealthBar Index Fund Portfolio

0.75 percent *

0% per year

$1,166,436

*Fees start at 0.6% for management, but lower to 0.35% as the account grows. This 0.75% would likely be a conservative average after accounting for ETF expense ratio charges.

WealthBar’s investors can also receive independent advice on insurance, estates and wills. Nobody at WealthBar earns commissions on products. So the advice is objective. Best of all, it comes from licensed Certified Financial Planners.

Andrew Hallam is the author of The Global Expatriate’s Guide To Investing (Wiley 2015) and Millionaire Teacher (Wiley 2011)

 

Contact WealthBar

 

And read more about them at:

 


 INVESTORS’ BEHAVIOR

Example of How Commission-Led Advisors Hurt Their Clients

American Funds Results, March 31, 2005 to March 31, 2015

*Note that American Funds Must Be Purchased Through A Broker

 

U.S. LARGE CAP

10 Year
Fund Return

10 Year Investor Return

 

American Funds AMCAP A (AMCPX)

+8.77%

+7.44%

American Funds Growth Fund of America (AGTHX)

+8.61%

+6.81%

American Funds American Mutual A (AMRMX)

+7.83%

+6.89%

American Funds Fundamental Investors A (ANCFX)

+8.85%

+7.36%

American Funds Washington Mutual A (AWSHX)

+7.49%

+5.60%

DFA U.S. Large Cap Value DFLVX

+8.06%

+7.34%

DFA U.S. Large Cap Value II. DFCVX

+8.17%

+5.65%

DFA U.S. Large Cap Value III. DFUVX

+8.20%

+7.89%

U.S. Large Cap Category Average

   

Investors’ Under-performance/Over-performance

American Funds Category Average

+8.31%

+6.82%

-1.49%

 

 

EMERGING MARKET EQUITY

10 Year
Fund Return

10 Year Investor Return

 

American Funds New World A (NEWFX)

+8.70%

+5.93%

DFA Emerging Markets DFEMX

+8.62%

+7.91%

Emerging Market Category Average

   

Investors’ Under-performance/Over-performance

American Funds

+8.70%

+5.93%

-2.77%

 

 

BROAD INTERNATIONAL EQUITY

5 Year
Fund Returns

5 Year Investor Returns

*Ten year returns not available for American Funds Investor Returns

    

American Funds International Growth & Income Fund (IGAAX)

+6.65%

+5.65%

DFA International Value DIVTX

+5.14%

+7.67%

 

DFA Global Equity I DGEIX

+7.5%

+7.5%

DFA International Value DFIVX

+4.98%

+2.98%

Investors’ Under-performance/Over-performance

American Funds Category Average

+6.65%

+5.65%

-1.0%

 

 

SMALL CAP EQUITY

10 Year Fund Returns

10 Year Investor Returns

     

American Funds Small Cap World A SMCWX

+8.98%

+7.41%

DFA U.S. Small Cap DFSTX

+9.82%

+10.05%

DFA U.S. Small Cap Value DFSVX

+8.50%

+6.76%

DFA International Small Cap Value DISVX

+6.91%

+5.53%

American Funds Category Average

+8.98%

+7.41%

-1.57%

     

Overall Investors’ Under-performance/Over-performance (based on 4 equity categories)

American Funds

+8.16%

+6.45%

-1.71%

 

Source: Morningstar.com. Returns to March 31, 2015


andrew hallam

andrew hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (Wiley 2011) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use.

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35 Responses

  1. James Biersteker says:

    Hi Andrew,

    Can I follow your couch potato strategy with this company? How does it compare to others like Saxo, TD International or DB Vickers?

    Thanks!

  2. Hi James,

    WealthBar builds portfolios that follow a couch potato-like model. It’s different to Saxo and the other discount brokerages because WealthBar builds and rebalances these portfolios for clients. With Saxo and the others, you have to drive your own car…metaphorically speaking.

    Cheers,
    Andrew

    • Phil says:

      Good day Andrew

      I have read your site got the books, done some research, hooked myself up with a DBS retail account in Singapore, and a trading account, moved $$ to the trading account and now ready for the first buy.

      So I wonder in this instance if WealthBuilder is a good option? Would seem I am far enough along to stay the course on my own as per research done on your sight and books. Maybe the tax and will aspects of WealthBuilder would have merit? I wonder if they offer a la carte service (sorry not been to the site yet, I will check)

      Comments on my hybrid asset allocation would be greatly appreciated.

      I think of it as a hybrid permanent/fundamental/swap with a twist line up.

      For grounding, I am a Canadian living and still working in Thailand.

      My proposed line up:

      Horizon HXT 12.5% (Cdn equities, lower % as Cda small % of global mkt)

      Horizon HXS 25% (US Equities)

      Vanguard VSB 35% (Cda Gov. Short Term Bonds – ST as inflation to me has only one way to go)

      iShare CIE 15% (International, lower % as I live and work in Thailand now)

      Gold 12.5% (I think I would like to buy actual gold rather than a fund)

      I am not sure if buying actual gold is more/less expensive than buying a billion fund – does anyone have a comment? I figure to buy gold as it is very liquid here and is useful even in emergencies.

      The mix represents the fact I live in Thailand and earn salary in bhat, so I lowered my international exposure to equities. Bonds I want to keep short term as inflation can only go one way in my mind now – the % is low given I am 50, but I do have a pension coming to me also so I feel the increased risk is mitigated by the fact I will have that guaranteed income stream coming.

      Appreciate all comments

      • Hi Phil,

        This looks like a good portfolio option. As long as you have the strength to stick to it, you shouldn’t need WealthBar. But do keen in mind that you won’t be able to rebalance your physical gold. The power of the Permanent Portfolio comes from the rebalancing element. With physical gold, you will be giving that up. Unless you think there’s going to be a global Armageddon, I don’t suggest you load up on the yellow stuff.

        • Phil says:

          Hi Andrew

          Thanks for the quick reply.

          Ha ha, yes well global Armageddon was not on my mind when i drew it up – more a localized thing but yes i take your point.

          Perhaps I can just squirrel away a bit on the side to indulge my survival instinct, lol.

          Ok so then off we go.

          Thanks for all you have done via this forum and your books and other public literature. Myself and a number of others I have mentioned you to are all benefiting – at least the plan is there, now to execute and watch for the benefit.

          I was invested in Canada for the past ten years with professional advisors and told to buy and forget – which i did all too well. My return from 2006 to 2014 was 0.15%/year.

          I can not get that time back, but i am not wasting any more time thinking about it, moving on to this strategy.

  3. James Biersteker says:

    So, .7 versus 3-5%? Seems an easy enough decision.

    Any worries as an expatriate Canadian (non-resident) in regards to the taxman versus investing with others like TD International, Saxo, or DBS Vickers?

    I’m going to contact them today.

  4. Chris Nicola says:

    Hey Andrew thanks for taking the time to write about us. Just for full disclosure about our funds and fees. Our 0.6-0.35% fee is our management fee, which is in addition to the MER of the funds in the portfolio (usually around 0.25%). All in it is still well under the average commission driven mutual fund, and still less than buy-direct mutual fund options.

    The good part is our fee covers everything else including:

    – Financial planning and advice
    – Online financial tools
    – Trading costs
    – Administrative costs
    – Currency exchange costs (where US ETFs are used in the portfolio)

    Hope that helps keep everything as transparent as possible.

  5. Vig Lacera says:

    Hi Folks,
    Just posting once more as I’m not sure my comment went through.

    A question for fellow non-resident Canadians about withholding tax on dividends – specifically as it applies to Saxo Singapore:
    Why is Saxo withholding 25% of my dividend payouts for tax? I’m a non-resident Canadian and live in a country that has a tax treaty with Canada that — if I’m interpreting it correctly — reduces the withholding tax to 15%. So it seems I’ve been getting over-taxed.
    What can I do to make Saxo deduct the correct amount of tax?
    Thanks anyone ; )
    Vig.

    • Vig,

      You have to let them know. I had to do the same thing with DBS Vickers about six years ago.

      Cheers,
      Andrew

      • Vig says:

        Hi Andrew, thanks as always for your swift feedback. I can appreciate that you’re probably swamped.

        I’ve contacted Saxo by phone & email and — maybe unsurprisingly — they seem to be dragging their heels on this. But I’ll persist.

        Regards,

  6. Luke says:

    Hi Andrew,

    Just contacted WealthBar and am waiting to see what they say about my situation. I was quite interested in setting up my own ETF portfolio at an international discount brokerage after reading The Global Expatriate’s Guide to Investing. However, as a Canadian residing in Australia, I have been told that I’m unable to open an account with first DBS Vickers and then TD Direct Investing International as well. Any idea why this is? Also, could you comment on why it’s not a good idea for expatriates to invest where they are living/working? Is the idea that anything I purchase on the ASX would eventually be sold in AUD when I retire (in Canada)?

    Thanks,
    Cheers,
    Luke

    • Neilio says:

      Hmm, I’m a Canadian that recently opened an account with TD Direct. On the application form, did you put Canada as your ‘residency for tax purposes’? And also whatever Austrailian address you have as your current address?

      • Luke says:

        Canada is not my residency for tax purposes, Australia is. I believe this not to be a problem on Canada’s side, but a restriction from Australia’s.

        • Hi Luke,

          You should contact an Australian tax accountant about this. If you live in Australia, they should frown upon you trying to shelter money offshore. It would be much the same for an Australian residing in Canada. Revenue Canada would not be happy about that person trying to shelter money in an offshore account. While in Australia, just use an Australian brokerage. Buy ETFs through that.

          Cheers,
          Andrew

  7. Vig Lacera says:

    Hi Everyone

    For those with accounts at Saxo, listen up.

    For over a month I’ve tried to get Saxo to reduce my tax on dividends to 15%, the correct amount given my situation. They are taking 25%. They are overtaxing me.

    Despite repeated requests to them to adjust my tax on dividends down to 15%, they haven’t. They are skirting the issue.

    Recently they contacted me. They said I have to sort it myself. They said that I have to hire an outside party to collect the money that Saxo overtaxed me! Forget it. I’m not doing that. And I’m not paying to get my money back that Saxo shouldn’t have taken in the first place. Ridiculous? Of course it is.

    Anyone else dealing with a similar nightmare?

    Andrew, I’m afraid it’s not so simple as “calling them up and letting them know.” Perhaps DBS Vickers is a touch more professional?

    • You can transfer Canadian domiciled Saxo assets straight to DBS. You’ll pay roughly $50 per counter to do it. Much cheaper than selling and buying.

      TD Direct International says you can transfer the money to them as well. I’m going to try the TD route with some of my counters (ETFs) so I know if it’s doable.

    • Neilio says:

      Hey Vig,

      When I first made my account with TD Direct they gave me this form which speaks to exactly your situation (if you’re Canadian). Can be viewed here:
      http://www.cra-arc.gc.ca/E/pbg/tf/nr301/README.html

      In their accompanying email it said:

      These forms are not mandatory for trading Canadian securities. By completing the forms, if there is a tax treaty between Canada and your country of residence the dividends will be taxed at treaty rates instead of the default 25%.

      So, this may be why you’re getting taxed 25%…

  8. Phil M says:

    Hi Andrew,

    My wife and I have been investing in ETF’s here in Singapore for about a decade now (Thank you, BTW!). When I was las in Canada I opened up a TD non-resident investing account with the plan being shift everything to there to avoid potential US estate taxes. I was ready to transfer when I came across this post. Thought I’d share my thoughts with everyone and ask you two questions.

    I’ve done a decent job over the years of staying disciplined but every so often either get caught up in the moment, get distracted with life etc, and don’t rebalance and deposit as I know I should. I’ve thought that it would be great to have a Vanguard type account – automatic deposits and rebalancing – available for Canadians. Wealthbar sounds like it.

    I opened up an account to learn more and they set up a 30 minute call with the CEO, Tea Nicola (what phenomenal service!). She answered my questions, including my biggest one that everything would still be in my name, they just do the investing on my behalf.

    I do have two questions for you.
    -Their portfolios are more diversified than the standard account you propose. In addition to US, World and CDN equities, and Bonds, they include Real Estate ETF’s, Preferred Shares ETF’s and Covered Calls. Tea explained that they are non-correlated asset classes which add diversification. It all makes a lot of sense to me, but I’m a bit weary of investing in anything that I don’t understand. Would that concern you, or would the extra diversification be worth it?
    -In the year since you posted this, any updates you’ve come across? There’s another similar company called WelathSimple and I’m sure there ore others. This sort of thing seems to be gaining traction in Canada which is great and definitely gives me confidence to pull the trigger. From what I can tell WealthBar does a particularly good job for expats.

    Anyways, thanks for everything you keep on doing. Enjoy the new adventure!
    Phil

  9. Hi Phil,

    I’m a big fan of what Wealthbar is doing. But if their Covered Calls component makes up much more than 5% of your portfolio allocation, I suggest that you ask them to adjust that component, or not use the brokerage at all.

    Cheers,
    Andrew

  10. Adam says:

    Hi Andrew, what do you think of adding a preferred shares etf as part of the fixed income component in one’s portfolio?

  11. David Harris says:

    Andrew, I am not sure where to log a new question/topic so I am putting it here. My question is this – I have two rental properties in Kitchener-Waterloo and have had to jump through many hoops to get mortgages for these places. As you can imagine, one has to have a credit rating to get a loan (discovered this a decade ago but if you list a foreign address for you bank, then you don’t register with the rating companies. I have since used my daughter’s address for my bank and credit card connections. The bank can’t seem to figure out what to do with me now and I never know if they have me registered as a non-resident or as a resident. Has this come up with other investers? Canada wants us to invest in the country but there still seems to be some glitches in the system.

  12. Charles Messier says:

    Hi Andrew !

    Do you think I would make more money by investing a PP or in Wealthbar ? Thank you !

  13. Julie says:

    Hi Andrew, read your books and recently viewed your article on DBS Vickers and now Wealthbar. Both seem like great options. I am an expat teacher living and teaching in Singapore. I’m 30, single, and new to investing with about $25000 in the bank, minimal retirement money or plans for where I will end up in the future. In your opinion, which company should I go for? I was thinking of following your couch potato plan. 30% Canadian short term government bonds, 10% Canadian stocks, 30% US stocks, 25% international stocks and 5% emerging market stocks. Would you agree with this? And what ETF’s would you suggest for each? Thanks again for writing your book! Any and all advice would be appreciated.

    • Hi Julie,

      I still recommend the ETFs that I recommended in the Global Expatriate’s Guide To Investing. That won’t change over time. They’re diversified and low-cost.

      Cheers,
      Andrew

  14. Ray says:

    A young Canadian of my acquaintance (with a 6 figure salary and a high savings rate) who is resident in the US has just opened an account at Vanguard and anticipates putting the bulk of his savings into a cheap and easy Target Retirement Fund.

    Since he doesn’t know if he will be in the US for 2 years or 20 years – but he doesn’t anticipate retiring there – he doesn’t know whether he should also add a Canadian stock or bond index fund. I don’t know whether taxation enters into the equation but since he has no access to a 401K and he makes too much for a Roth IRA he can only shelter $5500 per year in an IRA and the bulk of his investments will be in taxable accounts.

  15. Jonathan Iliffe says:

    I am looking into using Wealthbar for my investing. I am a Canadian in Vietnam. I am looking to invest a 50,000$ lump sum and 1000$ monthly for the next 25 years. They have offered me this portfolio. What do you think? This is their “conservative balanced” option.

    25% Vanguard Canadian Short-Term Corp Bd ETF (Fixed Income)
    15.0% BMO Covered Call DJIA Hedged to CAD ETF (Equity)
    15.0% Vanguard Canadian Short-Term Bond ETF (Fixed Income)
    10.0% BMO Laddered Preferred Share ETF (Fixed Income)
    10.0% BMO High Yld US Corp Bd Hdgd to CAD ETF (Fixed Income)
    7.5% Horizons S&P 500 ETF (Equity)
    7.5% iShares Core MSCI EAFE IMI (Equity)
    5.0% BMO Equal Weight REITs ETF (Equity)
    5.0% Horizons S&P/TSX 60 ETF (Equity)

    I am looking to leave this money and let it grow.

  16. Gina says:

    Hi Andrew,

    I was also planning on investing with DBS Vickers in Singapore (teaching in Thailand) and now see the new WealthBar option. Would either conflict with being a non-resident for tax purposes Canadian (no intention to move back)?

    WealthBar is attractive because they do the rebalancing (I really want to do this myself, but am also worried that I will screw it up). However, my first lump sum is only going to be $4,000 and the same yearly sum for next year. (In two years, my mortgages will be paid in full and that should increase to $12,000-15,000).
    Given this information, I suppose my only option is DBS Vickers? Am I better off waiting for one more year (I need to fly to Singapore from Thailand to open an account)?

    Thanks,
    Gina

  17. Phil says:

    Good day all:

    A quick question I am posting here as I do not find an appropriate existing thread.

    As background, I am a convert to the low cost indexing system, and have bought the books, done the research and have my portfolio churning away.

    I have an opportunity now to move back to Canada for a period to do a project. If I choose to do so, and become a resident again, do I have to unwind all my banking and investments (now with DBS Singapore) and go back to banking in Canada? Or can what I have set up now stay in place?

    Wondering if the audience out there has any experience they can share.

    Thanks in advance