Invest Well. Live Well: Am I paying too much?

Recently, an excellent client brought in a family member to see if we could review and analyze their portfolio.

This investor was motivated by two triggers. First, they had experienced a low rate of return over the last few years. Second, they were surprised to discover they were paying more than 3.4 per cent in fees — well in excess of the industry averages.  

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What do investors typically pay? In 2014, PriceMetrix collected fee data on more than seven-million North American investors and $3.5 trillion in investment assets and found the average fee investors are paying for advice and services was:

• $250,000 to $499,999: 1.4 per cent;

• $500,000 to $999,999: 1.3 per cent;

• $1 million to $1.999 million: 1.2 per cent;

• $2 million-plus: 0.8 per cent.

I will be among the first to say that cheaper does not always mean better. I am sure most of us have purchased a product or service because of the low cost only to have it break or fail shortly afterwards. On the other hand, consumers want to know they are paying a fair price for the feature and benefits of the service or product.

A few points to consider:

1. Am I paying a fair price? Your fee should help you to avoid mistakes, make more money or save time. Ideally, you would benefit from a combination of all three. 

2. What does the fee include? Transactions costs, administration, service, tax planning, estate planning, insurance reviews, retirement planning and investment advice?

3. Are there any potential conflicts of interests? Does the advisor receive bonuses or additional pay to sell their firm's products?

4. Are there other hidden fees that are not obvious? This is still an area of confusion for many. 

A lot of investors are out of their comfort zone and want help managing their wealth. We try to educate clients so they can make an informed decision. Admittedly, the investment industry has been murky with respect to costs. Regulators now require all investment firms to provide a clear annual summary of how much clients pay. This improvement in transparency, which we feel is much needed, is helping investors determine if they are receiving sufficient value for the fees paid.  

The majority of our clients operate under a fee-based model. Clients pay a flat fee based on the size of their account. This fee includes all our services and goes directly to TD Wealth. From there, we receive a portion ,which pays for our expenses: advertising, research, supplies, staffing and our livelihood.

Fees charged to non-registered investment accounts may be tax-deductible. Please consult your tax advisor to see how this relates to your personal situation. Because there are no commissions and every investment pays an equal amount, we are unbiased and product-neutral. 

Our goal is to provide all investors with a quick understandable overview so they can determine if they are receiving value for the service they pay for. As always, we are here to help if ever you want to review your costs and services. 

Until next time, invest Well. Live Well.

This document was prepared by Eric Davis, vice-president, portfolio manager and investment advisor, and Keith Davis, investment advisor, for informational purposes only and is subject to change. The contents of this document are not endorsed by TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc.-Member of the Canadian Investor Protection Fund. All insurance products and services are offered by life licensed advisors of TD Waterhouse Insurance Services Inc., a member of TD Bank Group. For more information, call 250-314-5124 or email Keith.davis@td.com.

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