Q – Following the death of my husband in 2005, I invested for income with Phillips, Hager & North…most of it in mutual funds.  Since then, I have come to regret my decision because of the distributions associated with the portfolio.

I live modestly and withdraw the minimum from my RRIF. My income would be well below the claw back of $72K per year except that I must declare capital gains distributions and dividends (T3 and T5 slips) and it means I must pay more in taxes.

My question is do ETFs (which have a much lower MER) have the same distributions? I am seriously considering whether it makes sense to withdraw all my money from PHN and invest it instead in ETFs.  My total returns are in the area of 5%….not stellar.  It does mean that I have a capital gain in total of $300K+, half of which is taxable. It would cost me a lot in taxes but may be worth it going forward. I would appreciate your comments. – Frances B.

A – Like mutual funds, most ETFs pay distributions. The amount varies from one ETF to another, as with mutual funds. But I would expect if you invested in ETFs that are similar to the PHN funds you now own, you’d receive similar distributions. You’d be taking a big tax hit and end up no farther ahead.

I suggest you talk to a financial advisor at PHN, explain your concern, and ask for advice. For example, you have not mentioned Tax-Free Savings Accounts. It may be possible to move some money each year into a TFSA at a minimal tax rate. When you make such a move it’s considered a deemed disposition and is taxable, but perhaps some of your funds have a small capital gain that would attract little tax. If you have some bond funds, they may even be showing a capital loss. If so, sell them first to qualify for the loss for tax purposes.

The financial advisor can be more specific, as he/she will have access to all the facts. Please do not incur huge capital gains by selling everything at once. – G.P.