Monday, July 25, 2016

Performance of my London Life RRSP raises many questions

Do you have a story concerning saving for retirement and receiving either good or bad advice from an expert? I'd love to hear some stories detailing my readers' experiences: both good and bad. Now, to tell my story.

My London Life RRSP has lost more than half its value over the past 16 years.

I'm puzzled. I invested more than $4000 in a London Life managed RRSP some 16 years ago. Today that investment is worth less than $2000.

According to the inflation calculator posted online by the Bank of Canada, just to keep pace with inflation my investment should be worth $5673.25 today. But it's not. It's only worth $1841.49. I shake my head with puzzlement. How is this possible?

I'm retired. All my RRSPs have now been converted to RRIFs except for one: My London Life RRSP. All my RRSPs are now delivering a tidy income, all but one: My London Life RRSP.

If I had put the original sum in a simple monthly income fund, something like the TD Monthly Income fund (TDB622), I'd have $14,836.97 today. My money would have grown by more than 350% rather than losing more than half its value. And how much risk would I have assumed to achieve such stellar returns? Not much, actually. TDB622 is a relatively low risk investment.

I'm not an investment whiz. But even my self-managed portfolios are easily outperforming my London Life investment. My portfolio is the purple line in the graph posted below. Clearly, I am doing O.K. I am up 15.52% YTD. My London Life RRSP YTD is up 6.9%. I'll grant you that 6.9% isn't all that shabby but I must still ask why an amateur-run, self-directed account is delivering more than double the YTD growth of an investment managed by experts?

Note: Last year was a bear for me. This year's gains are erasing last year's losses.

I'm going to call my contact tomorrow at Navigator Financial Corp, which has connections to London Life Wealth Management. I'm going to ask the following questions. I'll post the answers. Stay tuned.

  1. If my original $4196.71 investment had only grown with inflation, it would now be worth $5673.25. But it's actually only worth $1841.49. How is this possible?
  2.  If I had put the original sum in the TD Monthly Income fund, I'd have $14, 836.97 today. Why didn't London Life match the simple and relatively low risk TD fund?
  3. I've called and I've driven to London Life for in-person talks. Nothing that I have done has improved this investment's growth. What do I have to do to get a little fire burning under this thing? (I say little fire because it is too late for a big fire. Too risky.)
  4. I'm not an investment whiz. But I'm up 15.52% YTD while my London Life RRSP YTD is up only 6.9%. Admittedly, this isn't bad but why is an amateur-run, self-directed account out-performing the London Life experts?
  5. How much annual income could I realize today from this investment?
  6. When can I cash this investment in and get back a minimum of 75% of my original investment? Sadly this 75% figure is calculated on a 16 year old dollar amount and not on the inflation adjusted value.


Called London Life

I called London Life and I had a chat with an advisor. It was not the fellow I asked for. He was in a meeting. The fellow on the other end of the line began talking about risk-free investments. I protested that no investment is risk-free.

To be fair, investments claimed to be risk-free do exist. Risk-free investments return the money originally invested plus accumulated interest. A GIC is considered a risk-free investment. I held GICs in the '70s and during two of those years inflation beat the rate of return. I know what it feels like to hold risk-free investments while watching the buying power of those investments shrink. And, as most of us know, recent historically low interest rates have resulted in GICs failing to keep abreast of inflation.

Admittedly, it is rare but GICs can lose buying power. GICs are not totally free of risk. This is a fact and when a client makes it clear that they do not consider any investment risk-free, a sensitive advisor drops the phrase and moves on.

But a few bad years is not my biggest complaint with GICs. It's the good years. They just are not good enough, at least not for me at my age. As I mentioned, back in the '70s when I started saving for retirement, I put my RRSP money into GICs. If I had continued to do so, I'd have been O.K. If one starts early and contributes regularly and generously, the GIC approach can work. But there were years that I didn't have the money on hand to make the generous contributions necessary. After decades of saving, it was clear that I was not going to have enough cash on hand at retirement. My safe, no-risk approach was going to guarantee failure.

At this point, I'd like to refer you to an article on the CPA (Chartered Professional Accountants of Canada) Website. It states that historically GICs have bested inflation by about 2.92% annually. That's not bad and, when teamed with a generous annual RRSP contribution, it is easy to see how this approach could work.

But it is not just the generous contributions that make the GIC approach work. It takes time to allow compound interest to work its magic. One needs to save a lot, save often and do so over a long period of time: decades. My London Life contribution was neither generous in size nor made early in life. I was less than nine years from retirement and I my retirement nest egg needed to grow. I needed to take on some risk.

I cannot fault London Life for making a risky bet for me but I can find fault with the chosen fund. I believe it was a fund that London Life eventually dropped from their line-up. It was a certified financial dog. What puzzles me is why after making a very poor decision at the start, my London Life investments did not recover smartly. Why did my investment not rebound from the initial early financial pounding?

I have been retired since January 2009. My wife and I need money to live and we have to live with risk. We have little choice. If I put money into GICs, I would watch my principal shrink every year. The RIF withdrawal rules would see to that.

If my wife and I put our money into an annuity paying a fixed amount each year, it is easy to see inflation shrinking the buying power of that payment by half or more during our lifetimes. During the first 30 years of my life, inflation ran at about 4% annually. Do the math. That rate if inflation is a killer when it comes to buying power.

I would be willing to look at a creative proposal when it comes to managing my retirement funds. I've talked with a number of financial advisors. Not a one has put anything down on paper. Not a one has addressed my concerns. I would not be surprised to learn that a mix of financial vehicles could meet our needs while minimizing the risks but as long as the financial advisors at banks and insurance companies come across as cousins to car salesmen rather than as experts in a complex financial mine field, I'll muddle along on my own, thank you very much.

The Last Word

I had a chat with Jim Collins, a partner at Navigator Financial Corp. He was gracious, understanding and talked like an adult. He didn't flinch when it came to discussing the problems with my account. For once, no mealy mouth phrasing. He was willing to call a spade a spade and, even better, to call a loss a loss. I feel confident that Mr. Collins is going to try to wrap up this failed investment account in a manner acceptable to all. I wish Mr. Collins good-luck.

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