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:
- Investors pay Everest-like fees.
- Portfolios are rarely diversified properly.
- Advisors stuff portfolios with yesterday’s winners.
- Clients pay high penalties to sell before a predetermined date.
- Advisors earn massive commissions
Those firms are like horse drawn buggies. WealthBar is an electric Tesla.
WealthBar 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 $1,000. 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 could 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. Bogle 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 |
*WealthBar 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.
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