Alison Griffiths

Last week I explained how easy it is to move your investments (RRSP, RESP, etc.) from one advisor or brokerage to another. It gets tougher when trying to decide what to do with the holdings in the account.

The following three questions are typical for investors who are transferring their investment accounts.

1. Do I sell? The answer depends on your goal. Perhaps you want to invest in low-fee exchange traded funds (ETFs) instead of more expensive and generally far more confusing mutual funds. If so you’ll want to sell your holdings and reinvest. The same is true if you are shifting from stocks and bonds to mutual funds or ETFs and vice versa.

However, you may like some of your holdings. I moved from an advisor many years ago to a discount brokerage. In the first stage of re-organizing my portfolio, I kept all stocks that had a long history of paying and increasing dividends and sold everything else.

I also had some niche mutual funds in technology and healthcare, which had never done much except cost money so out the door they went.

The next phase consisted of pruning where I was too heavily invested. For example, I had a number of companies manufacturing consumer discretionary products (beer, wine, furniture, leather goods), which made me vulnerable to an economic downturn. I bid them adieu.

If you are switching advisors be leery of those who encourage you to sell everything and re-invest, especially in mutual funds. You may indeed have lousy investments deserving the boot. But it might just be a way to generate a fee windfall. Question every decision! Ask to see proof that the new funds are better and cheaper than the ones you already have.

2. Sell all or gradually? If you are cleaning house and have mutual funds you may also be dragging along deferred sales charges (DSCs). These pesky fees are what you pay for the privilege of selling an investment.

In the first year of owning units of a DSC fund you will pay five or six per cent of the value if you sell. The fee declines to zero, usually after six years. There are low-load funds where the DSC fee drops to zero after 3 years. Don’t forget, if you’ve been buying units over time, each purchase will come with a fresh DSC schedule.