What Are You Paying For Financial Advice?

In a world of lower returns, one way to ensure that you are keeping the growth that you do get, is to take a close look at what that growth is costing you.

If you are paying on a per transaction basis, best do the math to make sure there is not a better way.

If you are buying DSC mutual funds, best look into the MER's (Management Expense Ratio's) and penalties for selling to see what the fund company is charging you.

"Fee-based" is the direction that many advisors have been taking recently: usually you pay a % of the assets that the advisor has "under administration".

This makes sense if you are getting good advice:

1. If your advisor grows your assets, you both benefit.
2. The advisor will be doing trades that benefit your portfolio and not necessarily his/her commissions.
3. Hopefully, there is some planning included in the fee which requires regular communication and monitoring.
4. For a non-registered (not for RRSP, RRIF, RESP or TFSA accounts) account, the fees are tax deductible.

However and where you need to be attentive:

1. Is your advisor using outside managers to manage your portfolio?
2. If so, what are they taking as their fee (that is likely embedded in their fund or Separately Managed Account, SMA). This can add significantly to your total cost, is not tax-deductible and may not be completely clear.
3. Even ETF's have embedded costs and you want to understand those: they can range from .05% (for an index ETF) to .75% or higher depending on the degree of "management" involved.
4. It can all add considerably to your costs and over time can make a significant difference in your long-term returns.

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Vanguard’s ETF-mutual funds comparison started with an advice fee of 1.25 per cent, which is on the low side if you don’t have an account that is well into six figures. The company’s own research on costs in fee-based accounts shows a range of well below 1 per cent for very large accounts to 2 per cent for accounts on the small side.

On top of that advice fee is an average management expense ratio of 1.36 per cent for F-class mutual funds. Once again, just to be clear, F-class funds are cheaper than regular mutual funds because they have embedded compensation for advisers (trailing commissions) removed. These commissions are redundant in a fee-based account, where you pay your adviser directly.

http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/etfs-a-frugal-choice-for-fee-based-accounts/article21510270/

It can be a difference maker!