Am I Getting Good Value for My Investment Fees?

Posted on January 22, 2015 by djb | Posted in Wealth Management

We all pay our bills and most often know what value we’re getting for our money. We know what our cell phone bills are and what we get in exchange every month. We know what we get for our insurance premiums and our utility payments, but do most of us really know what we’re getting for the fees we’re paying to our investment companies, brokers, advisors or mutual fund companies? According to an article in Investment Executive, Bill Rice, Chair of the CSA and Chair and CEO of the Alberta Securities Commission (ASC), says “Research shows that investors across Canada lack vital information about the cost and performance of their investments”.

In total last year, Canadians paid approximately twenty-five million dollars in fees to Canadian mutual fund companies alone. The average mutual fund management fee in Canada is approximately 2.2%. That’s not including management fees paid for segregated funds, exchange traded funds, education scholarship plans or other investment instruments used by Canadians. That means if you had a $100,000 mutual fund portfolio last year, you could have paid $2,200 in fees. How much of that was paid to your Advisor and how much was for the actual management of your investment portfolio? Did your Advisor get paid up front when you purchased your investments or do they receive annual compensation based on the value of your investment? These are all fair questions to ask.

The Canadian Securities Administrators, who are responsible for all securities regulations across Canada, are rolling out the new Client Relationship Model II, which will enhance the disclosure of fees that Canadians are paying for their investments. The regulators say that the amendments “ensure that all investors receive the same information about the cost and performance of their investments and that the same standard to disclose this information is applied to all firms registered to deal in securities or act as portfolio managers.” These new requirements will be implemented over the next few years and will help us understand how much we’re paying, which should lead all of us to then ask if we’re getting value for the money that we’re paying? That being said, you don’t have to wait until the regulators force the industry to disclose how much they’re charging you. Pick up the phone and call the company or Advisor that’s investing your money and ask them exactly how much you’re paying, in dollars and cents, not percentages or complex calculations, but in actual dollars and cents. Then ask yourself if you’re Investment Company and/or Advisor is providing adequate service for the amount you’re paying them? Are they managing your money well and providing you with a satisfactory rate of return, commensurate with the risk you’re taking? Are they sending you regular statements to keep you up to date on how your investments are performing? Are they providing other services such as retirement income planning, cash flow planning, estate planning, risk management planning, tax advice or business succession planning? If working with an Advisor, have they engaged with you sufficiently to understand your situation, your business, your goals and objectives and are they assisting you with achieving these goals through well thought out, objective, written plans? Are they working with a team of people to provide you with a higher level of service or are they acting alone? Is your Advisor a professional who collaborates with your advisory team of other professionals, such as your Lawyer, Accountants or Financial Planner, to ensure their advice is aligned with the planning being done with your other trusted Advisors? Fees are not inherently bad, as long as you understand exactly how much they are and determine whether you’re getting good value for the amount that you’re paying.

Don’t be afraid to ask, after all it’s your money.

 

Article written by:  Brad Giroux, CFP, CHS, PFP

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