If you bank at the Big Green Bank in Canada, as I do, and if you frequent their Automated Teller Machines (ATMs), as I also do, you must by now have seen the offer of $100 the bank will give you to automate your mutual fund savings.
In fact, it took me a few visits to the ATM before I really noticed and read the message, as I’m so used to these bank pitches being of absolutely no interest to me. But once I read the promotion, I thought this might be a good deal. After all, I put money away into savings regularly. I don’t currently have a Pre-Authorized Purchase Plan (PPP) for mutual funds with the Big Green Bank (because the Orange ‘Save Your Money’ Bank savings account offers better interest rates), so I could qualify for this promotion.
I find dealing with banks incurs varying levels of pain – depending on how ‘complex’ the transaction I’m having them perform happens to be.
Further investigation revealed that to gain the maximum $100 bonus, you need to set up a PPP for $400 per month, to be continued for at least three additional months, with the bonus then being paid out within a month or two afterward, so long as the mutual fund account was still active. Okay, that’s quite a few conditions, but the upside is a guaranteed return of 6.25% ($100 on an investment of $1600) over the four months, which is a lot better than any high interest savings account in Canada is currently paying. And if I were being completely safe, I could simply put the money into a money market mutual fund (with its abysmal return) so as to be pretty much guaranteed no loss on my investment due to market turmoil. That’s not my investing style however, so I decided to go pure couch potato portfolio with this investment – using the lowest-cost Big Green Bank index funds possible. Therefore, 25% (or $100 per month) each into the Canadian Equity Index Fund, US Equity Index Fund (currency neutral), International Equity Index Fund and the Canadian Bond Index Fund. My intent is to buy and then hold the funds for the requisite period, and then transfer the whole lot into my Big Green Bank discount broker arm, where I can then convert them to the much less expensive e-series mutual funds (where the MERs are only about one-third of the regular mutual funds).
Why did I choose these four index funds? Because that gives me 25% exposure to each of the Canadian, U.S. and International stock markets, plus 25% in a reasonably stable bond index fund, all at the lowest Management Expense Ratios (MERs) possible with big bank mutual funds. In fact, the average MER I will be paying across the four funds is 0.9975. Just under 1%, which is pretty good compared to the non-index mutual funds which generally have MERs upwards of 2.25%. If you still aren’t aware of why high MERs are to avoided at all cost, there are many online articles that will explain the dangers to you. Essentially, every point of MER you pay is a reduction on the return the mutual fund will pay to you.
The decision-making, as you can imagine, was the least painful part of the process. I find dealing with banks incurs varying levels of pain – depending on how ‘complex’ the transaction I’m having them perform happens to be. Nonetheless, I thought this was a fairly straightforward transaction. After all, wasn’t the Big Green Bank pushing this promotion on its customers at every ATM and whenever you enter a bank? Shouldn’t their financial expert staff be fully familiar with not only the promotion but also how to set up the mutual fund account? One would think so. One would be wrong.
I probably could have set up the account by downloading the forms online, filling them out, and mailing them in to the customer service centre for the Big Green Bank. However, to take advantage of the promotion the PPP needed to be set up before 1 November, and it was nearly mid-October by the time I noticed the promotion. So I thought to make sure I didn’t miss the deadline, I would just make an appointment and go in to my local branch to set this up with their financial expert. I had no problems setting up the appointment.
The first hint I received that this might all not be as straightforward as one would expect, was when I mentioned the $100 promotion deal to the financial expert, only to be met by a blank look. Okay, regardless of his lack of awareness, I knew if I met all the conditions the bank would honour the promotion and give me my $100, even if I have to phone them and harass them about it at the end. I’m willing to do that for $100.
The financial expert took me through the standard Big Green Bank ‘Know Your Customer (KYC) Questionnaire.’ I’m aware this is a requirement for setting up an investment account and I’m good with it. I’m also aware of how to answer the questions so that I will be able to select whatever investment I like without the financial expert telling me my choice is too volatile for my risk profile. I’ve done my homework.
We arrived at the end of the questionnaire, with the result showing I could invest up to 100% in equities, and the Big Green Bank’s computer system had a recommended ‘comfort portfolio’ it was suggesting I invest in. Of course it did. The MER on this recommended comfort portfolio is 2.24%. Which means the bank was planning to keep 1.24% more of my money annually than the portfolio I was planning to invest in (assuming I planned to leave my money invested in this mutual fund account). No thanks, not interested.
I explained clearly to the financial expert that I was rejecting the Big Green Bank’s recommended comfort portfolio and that I wanted to invest 25% ($100 each) into the four index funds I have planned. He began to argue with me, but then stopped, realizing that I actually knew what I was talking about. At which point he asked me where I had gained my investing knowledge. I told him it’s a bit of a personal hobby of mine, which seemed to satisfy his curiousity.
The expert then went through the process of setting up the purchase plan for each of the four index funds. At the end of this seemingly endless process, he told me he needed to put a specific note on my file stating that “Client would like to invest into the 4 index funds…” and he listed the four funds I had specified. He explained he needed to do this so the back-end investing staff activating the PPP wouldn’t reject the order due to it not being what the computer had recommended. The financial expert then printed out enough forms to eliminate a small forest, and asked me to sign one copy of each, with the other copy being mine to retain. I scanned through the forms quickly, saw the note on my file about the four funds I wanted to purchase, and assumed all was well. I assumed incorrectly.
A few days before my planned PPP date, something strange happened. $400 was taken out of my account and invested into my specified four index funds. Okay, I thought, they messed up on the date, no big deal. Could have been a big deal if I didn’t have funds to cover the unexpected purchase, but I did. And I really gave it no more thought than that.
However, on the scheduled PPP date, another $400 was invested in my mutual fund account in – wait for it – the Big Green Bank’s computer recommended comfort portfolio. And since this second purchase was really not expected, I had a slight shortfall in the account and thus was charged a $45 NSF fee. Argh! What had the financial expert done?
I pulled out the reams of paper I had walked away with from my appointment, and carefully reviewed them page by page. And sure enough, buried in the midst of interminable banking mumbo-jumbo language, there was a listing for a single purchase of the four index funds on a specific date, with a separate PPP purchase on my intended date, for the comfort portfolio recommended by the computer.
Sure, I take responsibility for the fact that I didn’t force the financial expert to sit and wait as I went through and read every one of the many pages of documentation he had provided me to find this mistake before I left his office. But come on, we went through it on the computer on his screen, with me double-checking his understanding of what I had told him to purchase and even repeat it back to me. As I said previously, one would expect that the bank’s own financial expert would understand how to set up this kind of account and PPP. One would be wrong.
To their credit, when I called the customer service for the Big Green Bank, and explained (more than once) what I had intended versus what the financial expert had actually input into the computer, they did finally agree to reverse both the purchase and the NSF charge. I should hope so! That note on my file specifying what I had asked for undoubtedly helped too. So at least the Big Green Bank has some safety nets built in to their flawed process. Lesson learned on my part though. Even if you’ve been sitting with the bank’s financial expert for an hour, setting up an account and PPP that should in reality take only a few moments to arrange, take those extra few minutes to review every bit of the documentation that expert hands you to take away with you. You are very likely to catch an error. I wish I had taken that time.