Would You Like Fees With That?

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 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 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.