CRM2:

Uncovering the
hidden fees
behind Canada’s
retirement challenge

As of December 2016
Contents

The Canadian retirement challenge 3

CRM2: an introduction
What is CRM2? 5

What fees am I paying? 6

Why CRM2 is important to your financial future
A better alternative: exchange-traded funds (ETFs) 8

Compound interest… what is it? 9

Compounding returns in your investment account 10

A tale of two portfolios 11

What are my options?

A better option: Questrade Portfolio IQ® 14

Questrade Portfolio IQ vs. mutual fund earnings 15

How does Questrade Portfolio IQ work? 16

Say goodbye to high fees and hello to wealth 17

The next steps 18

Appendix 19

Sources 20

Contact us 22

2
The Canadian retirement challenge
Imagine yourself 20 years from now if all has gone well with your investments.
What does that world look like?

Your house is likely paid-off and you’re escaping Canadian winters with travel.
You have enough to help your children (or grandchildren) with tuition and are
working only if you want to, not because you have to.

Let’s take just 10 more seconds and imagine 20 years from now—only this time
your investments haven’t worked out how you had hoped.

For most Canadians this second image is reality. Over 80% of Canadian
middle-income families haven’t saved enough to support themselves after
government benefits and pension plans. i

We’re glad you humoured us with that little exercise, but it’s the next few
minutes that will truly change your financial fate.

Canadians are facing a retirement challenge. Not only are we not saving
enough, but our investments also aren’t earning the returns we require for a
comfortable retirement.

Some of what you’re about to read will surprise you. It might even make you a
little upset. But we promise you’ll leave both motivated and with a plan that can
help make that dream retirement your reality.

Inside you’ll find,

▶ An introduction to CRM2 and the mutual fund fees you’ve been paying

▶ Why Einstein said, “Compound interest is the eighth wonder of the world”
and how it can make you wealthy

▶ Why Canadians are leaving expensive mutual funds for low fee ETFs and
robo advisors

▶ How Questrade Portfolio IQ can be a solution to your retirement challenge

3
CRM2: an introduction

4
We’re living longer than ever, 82 years to be exact.ii Although living longer is
truly a cause for celebration, there is a common worry—outliving your
retirement savings.

The world of retirement planning has changed. Gone are the days of widespread company pensions, high-yield
bonds, confidence in government assistance, and the dream of retiring at 65. Here are just a few of the worrying
stats that illustrate the retirement challenge Canadians currently face:

▶ 50% of Canadians are not confident they will have enough to retire comfortably.iii
▶ 3 in 5 individuals don’t know how much money they will need to last them through
retirement.iv
▶ 47% of those aged 55-64 have no company-sponsored pension.v
▶ 2 years is how long the average Canadians’ retirement savings will last based on an
average savings of $71,000.vi

The reality of investing for retirement has changed, but the fundamentals of successful investing have not:
start investing early; diversify your investments; don’t try to time the market; and most importantly, reduce
the fees you pay on your investments to experience the power of compounding.

Adjusting your portfolio to these fundamentals is simple, but you can’t fix something you can’t see. With that
said, here is the figure that truly captures the Canadian retirement challenge: $28.6 billion.vii That’s how
much Canadians pay in mutual fund fees each and every year.

You might ask yourself, “How much of my retirement savings are in that $28.6 billion? How many years of
retirement am I losing to fees?”

Thanks to CRM2 you’ll now have a better idea. You won’t like the answer, but we promise there is a solution.

What is CRM2?
July 15th, 2016 marked the third phase of the Client Relationship Model–Phase II (CRM2). To put it simply,
with CRM2, mutual fund companies, mutual fund providers, securities dealers, and advisors now have
to be more transparent with the fees you are being charged. Whether it is $100 or $10,000 you’ve been
quietly charged each year, you’ll now know the exact dollar amount.

Beginning July 15, 2016, registered firms will need to:

Provide an annual report on charges and other compensation that shows, in dollars, what the dealer
or adviser was paid for the products and services it provided.

5
The Canadian Securities Administrators (CSA) introduced the CRM2 regulation to force mutual fund
companies, mutual fund providers, and financial dealers into showing investors exactly what they are
paying in fees each year.

CRM2 provides investors with an unprecedented level of transparency and we say it’s about time Canadians
are able to see and understand how much they are paying in fees every year. Investors will also receive an
annual report that provides a more accurate view of their personal rate of return, but it’s the disclosure of
fees that truly has the mutual fund industry panicking. What fees? We’re glad you asked.

What fees am I paying?

Most of the fees you’re paying are buried in mutual fund fact documents and prospectuses, hidden
behind financial jargon like embedded trailer fees, front-end loads, and deferred sales charges, just to name a
few. Some of these fees, particularly trailer fees, have been banned in countries like the UK and Australia
for years. Yet a report by Investor Economics found that 86% of Canadian equity and balanced mutual
funds paid trailer fees of 1%.viii (If you are curious of the several fees you’re being charged, we
suggest you see appendix item 1 for detailed examples)

Trailer fees are sales commissions that mutual fund managers pay sales representatives for
recommending their mutual fund to you. This practice has drawn criticism for its clear conflict of interest.
It begs the question, “Why are mutual fund companies quietly paying sales reps to sell you their funds,
which just happen to have the highest fees in the world?” The answer is simple, it’s because Canadians
are generally unaware of what takes place behind the scenes with their portfolios, and thus have a hard
time avoiding high fees and hidden costs.

Now that CRM2 regulation has arrived, you’ll be forever aware of the high fees and hidden costs that
currently drain your retirement savings. With your newfound knowledge, it’s the perfect time to take
control of your financial future.

6
Why CRM2 is important to your
financial future

7
CRM2 plays an important role in your quest for financial independence, as it will inspire you to ask
the right questions about your investments. Above all, CRM2 will leave you wondering:

1. What happened to mutual funds being the best investment for retirement?

2. If not mutual funds, then what?

Luckily for Canadian investors, a new type of fund is quickly becoming the first-choice investment for
retirement. Exchange-traded funds (ETFs) offer market exposure similar to a mutual fund, but without
the high fees.

A better alternative: exchange-traded funds (ETFs)

An exchange-traded fund (or ETF) is similar to a mutual fund in that they both hold a wide diversity of
investments in one portfolio to reduce risk. But that’s where the similarities end. ETFs have much lower
fees than Canadian mutual funds for two main reasons:

▶ No trailer fees
These fees, typically 1%, are paid by mutual fund companies to the sales representatives that sell
their mutual funds. Mutual funds then pass these fees along to their investors. ETFs by
comparison have no trailer fees.

▶ Lower operating expenses

Many ETFs simply track an established market benchmark, sector, commodity, or bond type,
trying to recreate the returns generated by that benchmark. Since an ETF’s strategy is mostly
pre-determined there is less need for a research and trading team. ETFs pass these savings on to
investors in the form of much lower fees.

Mutual funds on the other hand actively select investment opportunities as they try to beat their
benchmark. Thus, they require much more resources in terms of management, research, and
trading. Higher costs are then passed on to investors in the form of higher MER fees even if the
fund loses money.

As of December 31, 2015, the Canadian ETF industry held a record-breaking $89.6 billion in assets under
management.ix ETFs are quickly becoming the investment instrument of choice, offering diversification
without the high fees. This small decrease in fees can generate huge growth in your portfolio through the
power of compounding.

To quote Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it
... he who doesn’t … pays it.” Questrade wants you to understand it, so you can earn it. 8
Compound interest… what is it?
Think of compound interest as interest on interest.

Let’s start by explaining simple interest.

Simple interest
Suppose you have $10,000 and your interest rate is 8%, without compounding. If you were to keep your
money in your account indefinitely, you would make $800 in interest the first year, $800 the second, and
$800 the third—a total of $2,400 earned in three years.

If you continue this investment to 30 years, interest remains $800 annually and that $10,000 will have
turned into a respectable $34,000.

Table 1: simple interest payments & total portfolio amounts

Starting amount $10,000

Year 1 2 3 30
Interest earned/yr $800 $800 $800 $800
End of year total $10,800 $11,600 $12,400 $34,000

Compound interest
Now let’s take the same example, a $10,000 starting amount and an interest rate of 8%, but this time
with annual compounding. You would make $800 in interest the first year, $864 the second, and $933 the
third—a total of $2,597 interest earned after 3 years. Where did the extra $197 come from? That’s
compound interest—interest on interest.

If you continue this investment to 30 years, interest earned in year 30 is $7,453 (compared to $800 with
simple interest) and that original $10,000 will have turned into an enormous $100,626.

After 30 years, compound interest over simple interest yields an extra $66,626.

Table 2: compound interest payments & compounded total portfolio

Starting amount $10,000

Year 1 2 3 30
Interest earned/yr $800 $864 $933 $7,453
End of year total $10,800 $11,664 $12,597 $100,626

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Compounding returns in your investment
account

The above example of compound interest is how compounding would work in your cash savings account.
However, investors who invest in ETFs, mutual funds, and stocks can also experience the power of com-
pounding in their investment accounts. These investments typically may pay out a distribution or divi-
dend. An investor who reinvests their gains to buy additional shares, often this can be automatic, is using
the power of compounding.

Therefore, the fees that you pay on your investments can have an equal, but negative effect in reducing
your investment returns. High fees significantly reduce your ability to earn compound returns, because
the fees you are charged lower your balance each year, meaning you have less money to be earning
returns on. The higher the fees and the longer you wait, the more money that is lost.

10
A tale of two portfolios
A famous tale goes that Dutch settlers purchased Manhattan for a mere $24 in 1626. You might think
that’s absurd, given the average rental in Manhattan today goes for over $4,000.x But let’s assume Man-
hattan did sell for $24 and the Native Americans who sold it promptly invested it in an account that prom-
ised returns of 8% per year—that same $24 would be worth about $260.3 trillion today.

That’s the power of compounding.

Now let’s say you have $20,000 to invest and will leave it there for 30 years

Investment A - Mutual fund Investment B - Portfolio of ETFs

40% 60% 40% 60%
fixed equity fixed equity
income income

7.82%
Annual return
7.82%
Annual return

These two investments are almost identical.

The only difference?

The mutual fund has a total fee of The ETF portfolio has a total fee of

2.32% 1.04%
xi xii

After 30 years, these are the balances you’ll see in your account:

Investment A - Mutual Fund Investment B - Portfolio of ETFs

$94,663 $138,824
That’s over $44,161 you’re missing out on because of high fees.

The above example assumes a 7.82% annual rate of return. The rate of return is used only to illustrate the effects fees can have on the
compound growth rate and is not intended to reflect actual client returns or reflect future returns of the mutual fund or the Portfolio of
ETFs.
11
For every dollar you save in fees and reinvest, it compounds your returns to provide a significant increase
in your retirement savings. You might be wondering, “If I’m not earning the extra $44,161, where does
this money go?” Unfortunately, a lot of it goes towards mutual fund providers’ balance sheets.

It’s clear that mutual funds are no longer the royalty of retirement investing. The only question you
should be asking now is, what are my options?

12
What are my options?

13
Maybe you have already thought about switching funds but figured the others would be no different.
Luckily for you, there is an alternative to investing in mutual funds, and it is beginning to disrupt the
financial industry.

A better option: Questrade Portfolio IQ

For over 17 years, Questrade has challenged the high fees and hidden costs of the brokerage industry.
Now we’re bringing that fight to wealth management.

Enter Questrade Portfolio IQ—a low-cost, professionally-managed, online investment service from
Questrade Wealth Management.

Questrade Portfolio IQ can be perfect for those who want a portfolio manager at the wheel, but don’t
want the high costs that come with a traditional professionally-managed portfolio. Our portfolio
managers use the latest in technology to keep our investment costs low, meaning we can offer
significantly lower fees to our clients. Portfolio managers are also there to offer a human perspective on
your investment goals and are constantly monitoring the performance of your portfolio.

Unlike mutual funds, Questrade Portfolio IQ invests exclusively in low-cost ETFs. These ETFs hold assets
such as stocks, bonds, and commodities from a variety of sectors, markets, and countries. Questrade
Portfolio IQ also doesn’t pay trailer commissions to investment sales representatives like mutual funds so
commonly do. This diversified and honest approach to investing translates into lower fees and, with time,
can lead to much better returns for our clients.

Once you add together the operating costs and ETF fees, a Portfolio IQ global balanced portfolio has an
expense ratio of only 1.04% for a $20,000 portfolio. Compare that to a fee of 2.32% for a global balanced
mutual fund, of which 1% is often paid to mutual fund sales representatives as a trailing commission.

Over time, the reinvested savings from lower Questrade Portfolio IQ fees can lead to compounded
returns, helping you retire wealthier. See for yourself on the next page.

14
Questrade Portfolio IQ vs. Mutual Fund Earnings
Look how much wealthier you could be with Portfolio IQ:

Initial investment: $20,000 Portfolio type: global balanced

$
150K Portfolio IQ: $138,824

100K Mutual funds: $94,663

Earn an extra:
50K
$44,161
0K
5 10 15 20 25 30 years

Note: Both portfolios assume a 7.82% annual return over 30 years. The Portfolio IQ Global Balanced portfolio has an expense ratio
of 1.04%, versus 2.32% with comparable mutual funds in the Global Neutral Balanced category. xiii The rate of return is used only
to illustrate the effects fees can have on the compound growth rate and is not intended to reflect actual client returns or reflect
future returns of the mutual fund or of the Portfolio IQ Global Balanced portfolio. The ETFs held within Portfolio IQ accounts
fluctuate in value on a daily basis and past performance is not guaranteed an is not indictive of future performance.

15
How does Questrade Portfolio IQ work?
Investing your hard-earned money for retirement is one of the biggest financial decisions you’ll ever
make. Whether you want to do everything 100% online, or would rather get a human perspective on your
investment goals, our portfolio managers and customer service team are here to make your investing
experience comfortable and easy.

1
Open an account and find your perfect portfolio

No matter what you’re investing for, we have the account type to fit your goals: Cash,
TFSA, RRSP, RESP, LIRA, and more.
Find out what kind of investor you are with our user-friendly investor profile
questionnaire. We’ll walk you through the questionnaire, and listen closely as you tell
us your financial goals and appetite for risk.
Using your questionnaire answers, we match you with a portfolio that fits your wants
and needs. You’ll be placed in one of our five low-cost ETF portfolios:

▶ Aggressive growth portfolio

▶ Growth portfolio
▶ Balanced portfolio
▶ Income portfolio
▶ Conservative income portfolio

Funding your account is easy, from online bill payments to pre-authorized deposits,
there are several simple ways to fund your account. Learn how to fund your account
here.

2
We invest your funds

Once your account is funded, we invest it into your previously selected low-cost ETF
portfolio. Low fees translate into increased savings, so you can take advantage of
compounding and grow your money to new heights.

Remember our example from before? If you start with $20,000 and earn an 7.82%
annual rate of return for 20 years, paying less in fees could earn you an extra $44,161.

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 3
Monitor your portfolio

Monthly statements, 24/7 online access to your balance, and market insights reports
will keep you in the know. At the same time, our portfolio managers are constantly
monitoring your portfolio.

4
Retire wealthier

Relax and watch your investments compound. If your circumstances change, simply
update your profile and your portfolio will change with you.

Say goodbye to high fees and hello to wealth

Forever a disruptor in the Canadian financial world, Questrade cares deeply about helping Canadians
become much more financially successful and secure.

For over 17 years, Questrade has built client trust by championing the interests of hardworking
Canadians and offering a transparency rarely seen in finance.

The way you should invest for retirement may have changed, but the rules for success have not:

▶ Start saving & investing as early as you can to take advantage of compound interest.
▶ Time is your friend, diversify and stay invested through the good times and the bad.
▶ Look for low fee options, as cutting costs is the easiest way to increase your returns.

Our professionally-managed, online investment service–Questrade Portfolio IQ–combines low costs, di-
versification, and the latest in technology, so you can stop worrying if you’ll have enough to retire.

The Canadian retirement challenge is just that, a challenge. With a low-cost investment strategy and a
financial services company you can trust, a comfortable retirement is more than possible, it’s our mission.

There’s a reason hundreds of thousands of Canadians trust Questrade with over $4.5 billion and dreams
of financial freedom.xiv

Join Questrade today and keep more of your money.

17
The next step
No matter where you go from here, be it the mailbox (or recycling bin) to check for you mutual fund
report, the phone for a chat with your mutual fund provider, or Questrade.com to learn more about
Portfolio IQ, thank you for downloading and reading this guide. We hope that it was helpful and sets you
on a path to financial freedom.

To put this guide’s insights into action, please complete the next step and we’ll set you up with a low-cost
portfolio that matches your needs.

Open a Questrade account

At Questrade, getting started is fast, easy, and free. Find out what type of investor you
are by filling out our user-friendly investor profile questionnaire online. It only takes
15-20 minutes to complete your online application. And once your account is funded
you can sit back and relax while your portfolio grows.

Visit the link below to open your Questrade account today:

http://www.questrade.com/account/online

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Appendix
Table 1: Mutual fund related fees
Fee type
Trailer fees (or trailing
commissions)
Front-end loads (sales charges)
Back-end loads (deferred sales
charges or redemption fee)
Switching fees
Administration fee
Management expense ratio
(MER)
Description
An annual fee that mutual fund managers pay to sales repre-
sentatives for providing investment advice and services for their
mutual fund. This fee is paid for as long as you hold shares in
the fund and comes out of the MER (the management fee you
pay). Trailer fees are banned in the UK and Australia.
EXAMPLE: If you invested $50,000 of your portfolio into a fund with a 1% trailer
fee, the individual who sold you the fund would be receiving $500 per year.
A fee you pay when you purchase a front-end loaded mutual
fund.
EXAMPLE: If you invest $10,000 in a mutual fund with a 4% front-end fee, you will
pay $400 just to invest.
A fee you pay when you sell your units or shares in a back-end
loaded mutual fund. The fee decreases the longer you hold the
shares.
EXAMPLE: If you invest $10,000 in a mutual fund with a 5% back-end load that
decreases to 0% in the fifth year. You pay $500 the first year, $400 the fourth,
and so on.
If you are transferring from one fund to another, even if it’s with
the same firm, you may be charged a switching fee.
EXAMPLE: If you transfer $10,000 from fund XYZ to fund QRS, and the switching
fee is 3%, you pay $300 just to switch funds.
A fee may be charged for general administration of your regis-
tered account. Generally you pay an annual fee between $0 and
$100.
EXAMPLE: If you have $2,000 in your RRSP and an annual administration fee of
$75, that fee is equal to 3.75% of your total investments.
This won’t be in the CRM2 report, but is incredibly important to
understand. MER is expressed as an annual percentage and is the
total management and operating expenses of the fund.
19
Sources
http://www.theglobeandmail.com/globe-investor/retirement/re-
i

tire-planning/many-canadians-entering-retirement-with-inadequate-sav-
ings-study-says/article28761394/
ii
http://www.who.int/gho/publications/world_health_statistics/2016/EN_
WHS2016_AnnexB.pdf?ua=1
iii
http://www.ipsos-na.com/news-polls/pressrelease.aspx?id=6768
iv
https://www.blackrock.com/ca/individual/en/literature/brochure/investor-
pulse-en-ca.pdf
v
https://d3n8a8pro7vhmx.cloudfront.net/broadbent/pages/4904/attach-
ments/original/1455216659/An_Analysis_of_the_Economic_Circumstanc-
es_of_Canadian_Seniors.pdf?1455216659
vi
https://www.blackrock.com/ca/individual/en/literature/brochure/investor-
pulse-en-ca.pdf
vii
According to IFIC, as of July 31, 2016, Canadians own $1.30 trillion in mu-
tual funds (https://www.ific.ca/en/info/stats-and-facts/). Also according to
IFIC, the average total cost of ownership of mutual funds for clients using
advice-based distribution channels in Canada was 2.2% at the end of 2014
(https://www.ific.ca/wp-content/uploads/2015/06/2015-Update-Monitoring-
Trends-in-Mutual-Fund-Cost-of-Ownership-and-Expense-Ratios-A-Canada-
U.S.-Perspective.pdf/10813/). Therefore, $1.30 trillion in holdings paired
with an average MER of 2.2%, equals ~$28.6 billion.
viii
http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/the-
growing-unrest-over-hidden-mutual-fund-fees/article29817587/.
ix
http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/good-
times-expected-to-continue-for-etfs/article28025879/
x
http://nypost.com/2015/06/10/its-basically-impossible-to-find-a-rent-
al-in-manhattan/.
xi
2.32% is the average mutual fund fee representing the average MER of 154
Global Neutral Balanced Class A funds offered in Canada.
xii
1.04% represents a Balanced Questrade Portfolio IQ investor profile and
is inclusive of the management fees charged directly to clients and the
blended management expense ratio (MER) charged indirectly by the ETFs
held in the PIQ model. PIQ management fees vary depending on the inves-
tor profile and the amount invested.
xiii
Comparable mutual funds are those in the Global Neutral Balanced cate-
gory which must invest less than 70% of total assets in a combination of
equity securities domiciled in Canada and Canadian dollar-denominated
fixed income securities. In addition, they must invest greater than or equal

20
 to 40% but less than or equal to 60% of their total assets in equity securities.
Only A (advisor) class funds that require less than $1,000 initial investment
are included.
xiv
The assets under administration and the number of accounts are the aggre-
gate total of both Questrade, Inc. and Questrade Wealth Management Inc.

21
 Contact us
Questions? Interested in learning more?

Phone
1.888.873.7866

Email
newaccounts@questrade.com

This information has been provided by Questrade Wealth Management Inc. (QWM) for informational purposes only and may not be reproduced,
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advice and such information should not be relied upon for providing such advice. QWM takes reasonable steps to provide up-to-date, accurate and
reliable information, and believes the information to be so when printed. Due to the possibility of human and mechanical error as well as other factors,
including but not limited to technical or other inaccuracies or typographical errors or omissions, QWM is not responsible for any errors or omissions
contained herein. Any investment and economic outlook information contained in this presentation has been compiled by QWM from various sources.
Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by QWM, its affiliates or
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provided in good faith but without legal responsibility. To the full extent permitted by law, neither QWM nor any of its affiliates nor any other person
accepts any liability whatsoever for any direct or consequential loss arising from any use of the outlook information contained herein.
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