I recently had the pleasure of listening to an insurance company pitch a group RRSP to employees at my company. Some parts of the pitch were expected, but others were unexpected.
One expected part of the pitch was that the presenters were pretty and tanned. They definitely looked the parts of successful salespeople. The main unexpected part was that they almost immediately launched into a discussion of the importance of fees and how much could be saved by minimizing fees.
However, I think the real thinking behind this discussion of fees was “the best defense is a good offense.” Instead of trying to avoid fee discussions, they decided to meet the inevitable questions head on. The funds in the plan have fees in the 1.5% to 2% range, and because typical retail investors pay 2% to 2.5%, we were told that the proposed group RRSP would save us 0.5% per year. In one scenario the salespeople calculated that we could get an extra $300 per month in retirement payments due to this seemingly small 0.5% savings.
We weren’t invited to take this thinking to the next level by imagining even lower fees, but I’m not going to let that stop me. My portfolio of ETFs currently costs me 0.21% per year in MER costs. This is about 4 times the savings that the insurance company offered. So, in the scenario they described, I’d end up with about an extra $1200 per month in retirement income compared to a retail investor. That sounds a lot better than just $300 to me.
There are a number of ways to set up an automatic savings plan using index funds and index ETFs that are even simpler than my investing approach. These wouldn’t be quite as cheap as the 0.21% MER that I pay, but they would have much lower costs than the insurance company’s offering. However, these approaches require a little work to set up. Even better would be if my employer offered such a plan to employees. But that doesn’t seem to be how the world works.
I don’t know what the barrier is to an employer setting up much lower cost group RRSP plans. Presumably it has something to do with cost to the employer. Jim Lorenzen describes an interesting case in the U.S. that illustrates some of the complexity involved. I don’t know if anything from this case is relevant to us, but the end result of employees paying high fees seems to be a common denominator.