In the past, I often bought the cheapest product or service; however, I quickly learned the old adage that “you get what you pay for."
Often, additional costs would accumulate, resulting in a more expensive and time-consuming result. Certainly, for larger purchases, I 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 the performance of clients' investments. This improvement in transparency was overdue and led 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 because 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, 2022.
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 go directly to TD Wealth Private Investment Advice. From there, we receive a portion, which pays for our business expenses and livelihood.
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:
A few points to consider:
• 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.
• Does the advisor get any incentives to sell their firm's products? Furthermore, is your advisor acting in your best interest and avoiding all conflicts of interest?
• What is included: administration, transactions, alternative investment strategies, strategies related to insurance, tax, estate and retirement planning?
• 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 with 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.
Written by Eric
The views expressed are those of Eric Davis, Senior Portfolio Manager and Senior Investment Advisor, and Keith Davis, Associate Investment Advisor, TD Wealth Private Investment Advice, as of February 22, 2023 and are subject to change based on market and other conditions. Davis Wealth Management Team is part of TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc. which is a subsidiary of The Toronto-Dominion Bank. For more information: 250-314-5124 or keith.davis@td.com.
