Since I make my living dispensing this type of advice and have a couple of financial planning and other designations, please allow me to offer a primer.
ETF's verses Mutual funds
The theory behind mutual funds it twofold. One is they offer you diversity in one investment and the second, more contentious issue is that most offer active management on the premise that they can beat the stock market. The bottom line, is they charge what is now (since etf's have come along) considered a premium for these services.
The first one is true, but what you may own at a particular point in time is often unknown. For example if you believe you own an equity fund, it's conceivable that a fair amount of that fund may be in cash, depending on various objectives and market conditions. Similarly you believe an income fund, implies safety and bond type instruments, when in fact it could be income trusts, which are essentially stocks that offer income and a return on capital.
As for the premise that they can beat the market, by and large this has been disproven. This can be disproven logically or empirically.
Logically if you knew one mutual fund could bet the market, common sense dictates you would own it, as would everyone else. You wouldn't buy other mutual funds which can't beat the market, so you'd own only the ones that could. Now if everyone did that, guess what, these funds would in fact become the market and therefore since they couldn't beat themselves, the expected return would the market less the MER's of the fund. Empirically there is strong evidence from economic and financial professors at various universities who have researched this issue, that one of the most important predictors of returns is the costs of a particular fund. The lower the cost the better. Essentially for the most part the evidence shows that while many active funds can marginally beat the market, they can't do so enough to cover their fees, which usually run around 2% for equities and 1% for fixed income. (or 25% of the expected return, if you think a fixed income product is going to give you a 4% rate of return)
ETF"s on the other hand say this. We too are divisified, because if you buy say the S&P/TSX 60 you're getting a market cap weight of all of these 60 stocks, and the ongoing cost isn't going to be in excess of 2% like some mutual funds, it's going to be .17. Why so low? Because we're not in the game of trying to beat the market. It is what it is, no cash holdings, no market timing, no betting on a particular stock, no betting on a particular sector. You're buying the market cheap, period end of story.
But they've branched out from this approach in terms of what they own and so you can now be in bonds, in dividend paying stocks, in financials (where obviously you are betting on a particular sector but this is a different etf), corporate bonds, and you can also get international exposure.
Where mutual funds, may still work are in some sectors, such as small cap, perhaps corporate bonds, (if the risk of default is high) and in emerging markets, where owning just the stock market stocks themselves may not be optimal. But costs matter, as does performance, so companies such as Phillips, Hager & North (PH&N) and Mawer, usually stand out because their ongoing costs (MER's) are lower than traditional mutual funds.
And currently there is a debate in the financial advisory business, about mutual funds, to the extent that advisors should be compensated for their expertise and trails, which form a part of the ongoing expense of a mutual fund, have traditionally been the method of payment. Other method of payment under scrutiny is that of deferred sales charge (DSC) funds. In this situation, which was common but is becoming less so, an advisor would take say $100,000 you have, put the money in a basket of mutual funds, and recieve about $5,000. However, this basically means these funds are locked in for a period of time (ie 5-6 years) and if they are withdrawn prior to that, YOU could be charged a redemption fee.
The problem with trailers, and other related amounts of payment, is that they are hidden and may have absolutely no bearing on the level of service you are receiving. In other words an advisor may be receiving far more money for the services they provide than is warranted, if say you went to see a lawyer, accountant or someone else who charges for their time.
So the industry, or profession, as some of us like to call it, is gravitating towards charging a fee for assets under management and then selling the type of products that are more aligned with the clients best long term interest.
As to the TFSA/RRSP issue and what you should hold in these accounts. It depends what your objectives are, If you're saving up for a downpayment, stick to safe investments, ie corporate/government bonds etc. If you're beyond that, then as part of a diversified portfolio, you'd likely keep your fixed income products in RRSP's to reduce your interest income, and your stocks outside your RRSP to take advantage of the lower capital gains income inclussion rate of 50%, and to offset any gains with capital losses.
Naturally I could go on and on about this topic, but one word of caution is that one should always invest with a purpose in mind and within the context of one's comfort zone, long term objectives, and risk tolerance, which for most people means a balanced portfolio.
