Fees
Investors large and small deserve to be treated with respect.
When the mutual fund management industry pays advisors to sell their funds, investors deserve to be told exactly what the costs are that they are bearing and what they are paying for.
When the mutual fund management industry pays advisors to sell their funds, investors deserve to be told exactly what the costs are that they are bearing and what they are paying for.
Perhaps the advisor should also have to justify the portion of what he gets paid to sell that particular fund (known as the "trailer" fee) as well.
A fee-based advisor does not receive a trailer fee. The client will pay the firm that he works for a % of the total of the client's assets under administration (based on a preset %) and the firm will then pay a commission to the advisor (usually in the vicinity of 40-50%).
Nonetheless, as a client, you should still know what you are paying and exactly what you are paying for.
I just sat through a very interesting webinar with the Ontario Securities Commission folks about the Consultation on the Option of Discontinuing Embedded Commissions (CSA Consultation Paper 81-408). CSA is the Canadian Securities Administrators who are charged with coordinating regulation among the various provincial and territorial securities commissions.
The general premise is that what are known as MER's (or management expense ratios, i.e. the "embedded" or hidden cost of mutual fund fees) have inherent conflicts of interest when a portion of this is paid back (from the fund company who collects them) to the advisor who sold them in the first place.
The problem is that the advisor is not required to share this information up-front. It is usually buried in the prospectus or information memorandum or the tiny print on what is called a Fund Fact document.
Even ETF MER's are not required to be disclosed. If you have a "low cost" portfolio of ETF's you could easily be paying an additional 35-50 basis points or more on ETF MER's above and beyond your advisor's fee. Unless you do the background research, you may not know this at all, because your advisor is not required to tell you.
If you are working with an adviser (there is quite a difference between a financial or investment advisor with no fiduciary responsibility and a licensed portfolio management company and advising representative or adviser, with fiduciary responsibility), all of this would have to be disclosed.
Key words in the above link: Title Trickery. It is worth a read.
We are adamant about disclosing all of our fees/costs to our High Rock clients.
But we are only in the category of 3% of advice givers required to provide that kind of transparency.
So the CSA is exploring the option of ending embedded fees because they have potential conflicts of interest. They have been doing so since 2012. The financial advice industry is fighting this. They claim that if investors knew the costs that they may not seek advice. They call that a potential "advice gap".
Well there is no "advice gap" at High Rock's Private Client Division:
You pay a fee of 1%. With that you get a financial plan (prepared by a CFP professional): your Wealth Forecast that shows you (with some general assumptions) what you can expect to save, grow and have for your future and your estate. You get some of the best portfolio management available (where we actually manage the money "in-house") that focuses on risk and long-term returns to compliment all of your financial goals that are revealed through your Wealth Forecast. You get regular monitoring of your progress and guidance with changes that may come about as time progresses.
You pay an additional 0.15% for the custodial (account maintenance and back-office) services and safety (Canadian Investor Protection Fund, CIPF) of Raymond James Correspondent Services.
You may pay between 0.05% and 0.10% in ETF MER's (as a percentage of your total portfolio), depending on the structure of your asset allocation.
Total cost = approx. 1.25%
As a comparison, the RBC Balanced A fund (with $5.2B under management) has an MER of 2.16%. And what do you get for that fee?
Just asking.
There is an alternative and we have been leading the financial industry in a different direction for two years:
http://business.financialpost.com/news/fp-street/high-rock-capital-management-leads-the-charge-on-fee-disclosure
http://business.financialpost.com/news/fp-street/high-rock-capital-management-leads-the-charge-on-fee-disclosure
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1 comment:
Will I have any control over the account after the child reaches the age of majority? See more here: custodial accounts .
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