Alison Griffiths

Do you know where your investment portfolio is? If not, you could be losing money by paying higher fees than necessary and having restricted choice.

If you tell me your RRSP, RESP or TFSA is at your bank, that's not good enough.

Here's a typical situation. Rita and Manuela are mid-30s and new parents. They wrote to me after opening RRSPs and an RESP at their local bank branch. Their questions related to what kind of investments suited an RESP and the mechanics of buying bonds and equities for their RRSP.

Here's another typical situation. Leanna and Pierre are 57 and planning to retire at 60. They asked me about adjusting the contents of their RRSP for regular withdrawals between age 60 and 65 until CPP and Old Age Security begin.

I offered simple options for both couples. Not long after, I received emails from them. They had taken my suggestions to their banks and were told that they couldn't buy the investments I suggested.

Hmmm. Back and forth we went. I assumed the two couples were unfamiliar with investing and perhaps hadn't understood me. Or the bank employee might not have had the training or experience to guide them.

Then the light bulb illuminated.

"Where are your investment accounts?" I asked both couples.

"Huh?" were the responses. "At the bank, where else?"

Both couples had opened investment accounts, RRSPs for Leanna and Pierre and RRSPs and RESPs for Rita and Manuela, at their bank branch. The problem was neither couple received complete information.

There are two distinctly different ways to open most investment accounts at the major banks - one is at the branch and the other is at the bank's brokerage.

To understand the difference, compare your average convenience store to a full-service grocery - selection is limited and prices are often higher at the former. The same is true of the banks' "branch level" investment accounts. When you open an RRSP at the branch you will have only a convenience store selection of investments to choose from - generally just GICs and the bank's own mutual funds.

Because selection is severely restricted you can't shop around for the best performing, lowest fee mutual funds or any other investments, for that matter. That means you may have to settle for poorer performance for which you are paying higher annual fees.

This situation troubles me because I frequently hear from readers who were never told that there was difference between an investment account at the branch and one at the brokerage.

It really gets bad if you happen to be at a bank that does a poor job with its mutual fund family. At CIBC, for example, there are relatively few 5-star funds and quite a number of what I'd call portfolio basics - balanced, Canadian equity, US equity and European equity mutual funds - lurk around in the bottom half of the class.

The situation isn't much better at Scotiabank. In fact, in most cases, all the major banks' own funds are a mediocre lot. Sure, they might have a few stellar performers in one sector or another but if you are trying to create a high quality, diversified portfolio over time, it's going to be very tough to do at the branch level.

Even worse, with the exception of TD Canada Trust, you can't hold efficient and low fee Exchange Traded Funds (ETFs) in branch level investment accounts.

BMO and RBC have their own suite of ETFs, but you can't invest in them unless you open an account at the brokerage level, InvestorLine and Direct Investing respectively. BMO, however, does offer third party mutual funds in addition to its own for RRSPs and RESPs opened through the branch.

Frankly, I can't see a single advantage to having an investment account at the branch level any more than I can imagine why I'd do all my grocery shopping at a convenience store.

Those who open branch level accounts are usually not aware there is an option. And even if they did, they might still opt for the branch rather than the brokerage because they want advice.

However, bank advisors can only discuss the funds available for those accounts. You'll get no information or direction about ETFs, stocks, bonds or, in most cases, third party mutual funds.

Of course, you won't get advice at the discount brokerages either, but I'll take full selection and lower fees over limited choice and advice any day.