I'm planning on transferring some of the money in my RRSP into an index fund. My bank (CIBC), has a balanced index fund that has 1.2% management expense ratio (https://www.cibc.com/en/personal-banking/investments/mutual-funds/growth-funds/balanced-fund.html). I'm just wondering if there are any advantages to sticking with my bank, or this fund in particular, given that I could put it into a Vanguard index fund with a 0.04% MER instead; especially since everything I read online suggests that the best way to maximize your profit with index funds is by reducing your MER.

  • Look at the average returns of each over time - does the bank fund earn more that 1.16% more annually than the Vanguard fund to make up for the additional fee? – D Stanley Sep 6 '17 at 18:26
  • Looking at the CIBC fund details, this is not an index fund. It is an actively managed fund that invests in a "balance" of bonds and shares. While I agree with others that 1.2% annual expences is high by todays standards, it is not high in the Canadian mutual fund market. – Nick R Sep 6 '17 at 19:38

That expense ratio on the bank fund is criminally high. Use the Vanguard one, they have really low expenses.

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    I wouldn't use 'criminally', as it is not literally criminally. It is high, and should be avoided, for sure. – Aganju Sep 6 '17 at 18:40
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    While a colloquialism, the use of "criminally" would be an expected usage here. – zeta-band Sep 6 '17 at 18:42
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    1.2% for an unmanaged index. I think someone should literally go to jail for this, even if it's legal today. (Although, I'm not convinced the bank's product is an index fund) – JoeTaxpayer Sep 6 '17 at 18:50
  • It should be criminal. Outrageous fund fees are outrageous. – Rocky Sep 7 '17 at 1:46

Your bank's fund is not an index fund. From your link:

To provide a balanced portfolio of primarily Canadian securities that produce income and capital appreciation by investing primarily in Canadian money market instruments, debt securities and common and preferred shares.

This is a very broad actively managed fund. Compare this to the investment objective listed for Vanguard's VOO:

Invests in stocks in the S&P 500 Index, representing 500 of the largest U.S. companies.

There are loads of market indices with varying formulas that are supposed to track the performance of a market or market segment that they intend to track. The Russel 2000, The Wilshire 1000, The S&P 500, the Dow Industrial Average, there is even the SSGA Gender Diversity Index. Some body comes up with a market index. An "Index Fund" is simply a Mutual Fund or Exchange Traded Fund (ETF) that uses a market index formula to make it's investment decisions enabling an investor to track the performance of the index without having to buy and sell the constituent securities on their own. These "index funds" are able to charge lower fees because they spend $0 on research, and only make investment decisions in order to track the holdings of the index.

I think 1.2% is too high, but I'm coming from the US investing world it might not be that high compared to Canadian offerings. Additionally, comparing this fund's expense ratio to the Vanguard 500 or Total Market index fund is nonsensical. Similarly, comparing the investment returns is nonsensical because one tracks the S&P 500 and one does not, nor does it seek to (as an example the #5 largest holding of the CIBC fund is a Government of Canada 2045 3.5% bond).

Everyone should diversify their holdings and adjust their investment allocations as they age. As you age you should be reallocating away from highly volatile common stock and in to assets classes that are historically more stable/less volatile like national government debt and high grade corporate/local government debt. This fund is already diversified in to some debt instruments, depending on your age and other asset allocations this might not be the best place to put your money regardless of the fees.

Personally, I handle my own asset allocations and I'm split between Large, Mid and Small cap low-fee index funds, and the lowest cost high grade debt funds available to me.


Extortionate expense ratio aside, comparing the fund to the vanguard balanced fund (with an expense ratio of 0.19%) shows that your bank's fund has underperformed in literally every shown time period. Mind you, the vanguard fund is all US stocks and bonds which have done very well whereas the CIBC fund is mostly Canadian. Looking at the CIBC top 10 holdings does seem to suggest that it's (poorly) actively managed instead of being an index tracker for what that's worth.

Maybe your bank offers cheaper transaction costs when buying their own funds but even then the discount would have to be pretty big to make up for the underperformance. Basically, go Vanguard here.

  • Care to explain the downvote? – Koen vd H Sep 6 '17 at 22:11

Basically, no.

Selecting an actively managed fund over a low-fee index fund means paying for the opportunity to possibly outperform the index fund. A Random Walk Down Wall Street by Burton Malkiel argues that the best general strategy for the average investor is to select the index fund because the fee savings are certain. Assuming a random walk means that any mutual fund may outperform the index in some years, but this is not an indication that it will overall.

Unless you have special information about the effectiveness of the bank fund management (it's run by the next Warren Buffett), you are better off in the index fund. And even Warren Buffett suggests you are probably better off in the index fund:

This year, regarding Wall Street, Buffett wrote: “When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.”

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    The random walk hypothesis (and the EMH it draws from) is flawed, even Malkiel himself has admitted this. It is still extremely hard for an everyday investor to outperform and they would do well to take up an index fund but actively managed funds that have periods of outperformance too long and too high to attribute to chance do exist. – Koen vd H Sep 7 '17 at 8:06

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