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InvestmentsBig Fees? Lack of Service?


This article was reviewed by Chris Singer, CFP®.

Know what you’re getting from your Financial Advisor

Do you know how much you are paying your financial advisor? Are they doing a good job for you? Those both seem like reasonable questions, but most people cannot answer them. Can you?

One of the services that financial advisors provide is to manage your investments. When it comes to the world of investments, there are many different types you can choose from as well as many different people that offer them. So it’s no wonder that it can leave consumers with their head spinning. Here’s some information to help you make sure that you are receiving the best service for your situation.

For example, in an investment such as a mutual fund there is a MER (management expense ratio), this covers the cost of the management of the fund but it also typically includes the commission for the advisor. Since the two are tied together and are embedded in the fund, people do not know what their advisor receives on an annual basis. As a rough estimate usually it is 1% based on the assets that are invested. For an example, if you have a $500,000 portfolio, the advisor would receive $5,000 per year to manage your account. The question is, what are you receiving for the fee you are paying?

Five crucial details to know

  1. Economies of Scale: As your portfolio grows you can decrease your management costs based on the size of your investments. Usually this happens when you reach $250,000, $500,000, and the $1 million mark in family assets. As your portfolio grows it should be reviewed to make sure that you are not overpaying for services you are receiving. You could save $6,000 annually or $79,241 (money saved over 10 years at 5%). This is based on an example of a $600,000 portfolio receiving a 1% reduction in the management fee.
  2. Services: What are the services that you receive from your financial advisor? Is it a good value? Ask yourself this, if your advisor gave you a bill for the annual amount separate from the investments, would you pay it? Do you have an engagement letter with the advisor outlining how they get paid and what services they offer?
  3. Quality of Advice: What is the quality of advice that you are receiving? The bottom line is that what you are paying for is advice. What experience do they have in the financial services industry? What education and certification do they have? Do they have a team of advisors to assist you or are they work on their own? What investments do they work with?
  4. Consolidation: Do you have investments with multiple advisors and/or financial institutions? This alone could be losing you both money and service. If you have investments spread out, you most likely do not benefit from economies of scale. With your fees being spread among different advisors you will typically receive less service than if it was pooled together.
  5. Tax Structure: How is your portfolio structured? Is it tax efficient? Small oversights can cost you thousands of dollars potentially. If you have non-registered investments, is your advisor fee deductible? Are all of your portfolios structured the same or has your advisor made sure that higher taxed investments are held in your tax sheltered accounts such as RRSPs or TFSAs?

We can provide a third party portfolio review on a fee basis for approx. $300 – $450 depending on the portfolio size. Reach out today to set up your assessment.