Investing with your bank
What to expect if you invest through your bank branch
You've got some cash in your savings account, TFSA or RRSP. You want to get this money working for you, earning something. But it doesn’t feel easy. You're not sure where to go, who to talk to, and who you can trust. It all feels like a giant hassle so you procrastinate and your money continues to sit there being eroded by inflation.
If you need help sorting through your options, read on. There are four ways that you can get your money invested: talking to someone at your bank, working with a financial advisor, doing it yourself online, or by using a robo-advisor. I’m tempted to rank these methods in order of best to worst, but the thing is that the order is different for different people. Using a bank branch is my least favourite, but is it better than doing nothing? Definitely. I’m a huge fan of do-it-yourself investing with an online broker, but is it right for everyone? Definitely not.
To help you decide which of these is best for you and what you can expect, I’m writing a series of blog posts on ways to get invested.
Let’s start with your bank branch. Walking into your bank branch is the easiest avenue for investing. It's accessible and it's friendly. However, bank branch investing is limited, expensive and impersonal.
Easy, accessible, friendly
It’s really easy to get invested with your bank branch. You make an appointment, sit across from a nicely-dressed employee, fill out a short questionnaire, accept the slick and colourful “explainer” they slide across the desk at you, and walk out. Accessible? For sure. Your bank will have a branch close to your home or work and hey, you’ve been in a bank before. It’s not that scary! Upbeat images of smiling people beaming out at you, kids with cute piggy banks…yup, you can do that. And friendly. In my experience, employees in bank branches are friendly – whether it's sincere or for the sake of their bosses watching them from the corner of this eye is debatable.* All-in-all, it's an easy and pleasant experience that gets the job done.
Limited, expensive, impersonal
The downside though is less obvious.
The person in the branch will be happy to provide you with investment options. The problem is that the options are very limited. You’ll pretty much be offered GICs and mutual funds. Not only that, in most cases the mutual funds are the ones managed by the bank itself. If you go to a TD branch, you’ll get a TD fund. You can’t get a Fidelity, RBC or AGF mutual fund. Just TD. You also can’t get exchange-traded funds, which to me is a huge downside to investing with your bank branch.
Which leads me to the next downside: expensive. The mutual fund marketing brochure that made its way to you across the shiny desk will tell you this. Look at the management expense ratio, or MER. It will look something like this:
The MER of 2.13% tells you how much you will pay in fees every year to own that fund. It’s a percentage of the amount you invest. So if you invest $10,000, you will pay $213 every year to own that fund. You won’t be writing a cheque for that amount – it comes off your investment automatically, so usually it goes unnoticed. Now that you know, it will no longer fly under your radar the way my son’s Microsoft gaming spending does. (I really need to be more on top of that.)
Lastly, the bank branch is impersonal. I don’t mean you won’t get a nice “Hello, how are you today?” I mean that the advice you get will not be tailored to you the way you probably need it to be. I recently read a story about a woman who owed CRA $1,900 in penalties for over-contributing to her TFSA. The person at the bank told her to make this contribution based on incorrect information: the bank person didn’t know that the woman had been a non-resident for three years, which lowered her contribution room. Without knowing enough about you and your personal situation, you might get advice that doesn’t actually work for you or you can get advice that is sub-optimal. The more a financial professional knows about you, the better the advice will be.
The person working at your bank branch is probably a good person with good intentions. But they are limited in what they can offer you and limited in the time they can spend with you – they have sales goals to meet. Finally, bank branches have high turnover rates so it can be hard to find an experienced person who will be there next year when you need them.**
Doing something is better than doing nothing
With all that said, if you have cash sitting in your TFSA or RRSP doing nothing, getting it invested in a GIC or a bank mutual fund is better than doing nothing. Paying 2% to earn 6% is better than paying 0% to earn 0%. Just know that there are limitations. One approach that some of my client take is after having a conversation with their bank person, they come back to me to see what I think. Based on what I know about my client, I can tell them the good and the bad about the options presented to them.
If you are looking for the easiest and fastest way to start investing, the bank branch could work for you. Perhaps there will come a time when you have more brain space, time and interest in pursuing a different option. Investing is a two-way door decision - you can always change course later on. It's better to do something than nothing.
*I speak from experience. I worked in a bank branch for two years doing exactly that.
**See above. One's career is a bit limited in the branch.