Meet Natalie Jamison of RBC Dominion Securities Every month
she writes a newsletter for women on various investment topics. By clicking the link, you will find lots of useful
information for your family, or to pass on to freinds.
FEE-BASED VS. COMMISSIONS
Transparency is important!
Transparency of fees is vital to a trusting relationship
with your advisor. Unfortunately, a lot of investors misunderstand how we get paid and what they should expect in exchange.
With this article, I will try to clarify
the various ways that you can operate an account and the corresponding services you receive.
There are various options and we always work with clients to arrive at the right
solution. As needs change, we sometimes change the solution as well.
Pros of Fee-Based Accounts
No commissions charged for stock trades No annual administration fees Higher interest paid fixed income investments Special low fee "F class" mutual funds available Option to have your portfolio handled by a discretionary manager Fees for non-registered investments
are tax deductible More transparent - you see what you pay More predictable - payments are made
quarterly, based on asset size Gives more flexibility for frequent rebalancing Advisor is on your
side - recommendations are made for the benefit of the portfolio, NOT to earn a commission Advisor only
earns more if the account grows in value
Pros of Fee-Based Accounts
No commissions charged for stock trades
No annual administration fees Higher interest paid fixed income investments Special low fee
"F class" mutual funds available Option to have your portfolio handled by a discretionary manager
Fees for non-registered investments are tax deductible More transparent - you see what you pay
More predictable - payments are made quarterly, based on asset size Gives more flexibility for
frequent rebalancing Advisor is on your side - recommendations are made for the benefit of the portfolio, NOT
to earn a commission Advisor only earns more if the account grows in value
Cons of Fee-Based Accounts
Fees charged on registered accounts (RRSP, RRIF, TFSA) are NOT tax
deductible You will overpay if all you own is fixed income investments You pay the fee even
if investment performance is negative
Pros
of Commission Accounts
A-la-carte payments. Only pay for the transactions you do. Great for low-turnover portfolios or those with
lots of fixed income (bonds and GICs) Can cost less than mutual funds if you "Buy and Hold" a stock
portfolio for many years
Cons of Commission
Accounts
Cost of transactions
prohibits regular rebalancing of portfolio - which may increase risk and reduce performance Perception (often
false) that the Advisor is recommending a trade, simply to earn a commission Annual administration fees apply
Mutual funds carry a higher management fee
Typical Fees for Managed Accounts
Typical Commissions
What's included?
When you pay fees or commissions, you always get MORE than just a transaction.
You also get comprehensive wealth management services, such as:
Discovery - finding out about your current situation, investment objectives and risk tolerance
Strategy - building a customized portfolio,
providing a wide range of research reports, keeping on top of trends
Enhanced Wealth Management - access to experts such as tax, estate, and insurance
specialists
Comprehensive Financial
Planning - includes retirement planning, net worth calculations, cash flow projections, tax planning, and estate
planning
Investment Solutions - stocks,
bonds, preferred shares, income trusts, bonds, GICs, mutual funds, socially responsible investments, etc.
Insurance - access to the best quotes for life,
disability, critical illness, long-term care insurance, and annuities. We deal with all the major life insurance companies
in Canada.
Portfolio Services -
monitoring, rebalancing, safekeeping, multi-currency, automatic contributions, electronic funds transfers, tax reporting,
online statements, performance reports, and more.
Personal
Service - ongoing advice, buy / sell recommendations, educational information, regular communication and portfolio
reviews.
A word about Mutual Funds
Some people think that they don't pay anything to hold mutual
funds. However that couldn't be further from the truth. Everyone who holds a mutual fund is basically paying a fee...but it's
hidden. The fee is called a Management Expense Ration (MER). On average, Canadian equity mutual funds charge between 2.30%
to 2.50% MER. This (hidden) fee is taken off the top. So if your mutual fund returned 6.5% and the MER is 2.5%, then all you
see on your statement is a 4.00% gain.
The
MER goes to the mutual fund company...and then a portion of it is returned to the Advisor, in the form of quarterly payments
- called trailer fees. So that's how we get paid on mutual funds, even though you never pay us directly.
Final words
Relationships are based on trust and open communication. Just like in
a marriage, you need both to make it work. I encourage you to ask questions. It is important to understand what you are
paying and what you are getting in return. A great advisor never shies away from answering you truthfully.
