In my past, I often bought the cheapest product or service; however, I quickly learnt the old adage of "You get what you pay for."
Often, additional costs would accumulate, leading in a more expensive and time-consuming result. Certainly for larger purchases, we have learned to ask more questions and rely on referrals from friends and family.
Many investors want help managing their wealth. We try to help 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 (excluding insurance companies) to provide a clear annual summary of their charges to clients and performance of client's investments. This improvement in transparency was overdue and leading competitors to cut costs.
The majority of our clients operate under a fee-based service model. Clients pay a fee based on the size of their portfolio. Larger accounts pay a lower percentage overall. Because there are no commissions and fees are distributed among the investments held in the portfolio equally, we are unbiased and product neutral. For example, despite being TD employees, we have less than five per cent of our clients' holdings invested in products offered by TD as of Dec. 31, 2020.
What do investors typically pay? Recently, PriceMetrix collected fee data on more than-seven million North American investors and found the average fees that investors are paying their investment firms are distributed as follows:
$499,000 and under: 1.4% fee
$500,000 to $999,999: 1.3 % fee
$1 million to $1.999 million: 1.2%
$2 million and over: $0.8%
Fees can also vary depending on your chosen strategy. For instance, a stock portfolio generally requires more expertise and effort than a conservative portfolio dominated with bonds. Fees on non-registered accounts are typically tax deductible. For example if you paid one per cent on your portfolio and you were in a 40 per cent tax bracket, your effective costs would be 0.6 per cent overall. These fees include all our services and goes directly to TD Wealth. From there, we receive a portion which pays for our business expenses and livelihood.
A few points to consider:
1. Am I paying a fair price? Your fee should help you avoid mistakes, make more money and/or save time. Ideally, you would benefit from a combination of all three.
2. Does the advisor get any incentives to sell their firm's products? Furthermore, does the advisor have the duty to act in your best interest and to avoid all conflicts of interests?
3. What is included: administration, transactions, alternative investment strategies, strategies related to insurance, tax, estate and retirement planning?
4. Are there embedded (hidden) fees that are not obvious? This is still an area of confusion and requires greater transparency.
Our goal is to provide investors a quick and easy-to-understand 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.
Written by Eric Davis. 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.firstname.lastname@example.org.