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Hi, I’m Alex McVean, for McVean Wealth.
When it comes to investing, there is a lot of confusion around the fees that we pay. So we’re going to take a closer look to what exactly you’re paying for your investments.
TYPES OF FEES
For most investors, there’s 2 fees that you are paying for your investments:
The first is Fund Management Fees.
And the second is Advice or Service Fees.
These 2 fees are combined to give you your total fee – or MER – Management Expense Ratio.
FUND MANAGEMENT FEES
The fund management fees are the fees associated with the cost to certain investments including mutual funds and ETFs.
These fees include paying the portfolio managers, the cost to buy and sell holdings, administration fees, and HST.
These fees typically range from .05% per year for a passively managed US or Canadian index ETF, all the way up to 1.5% per year for an actively managed emerging market mutual fund.
Whether you work with an advisor, or you manage your portfolio on your own, these fees are unavoidable if you want to work with these types of products.
ADVICE/SERVICE FEES
The Advice or Service fees are the fees that you pay to your advisor for his advice and services.
These services can cover a wide range, but typically these services cover:
Goal based Financial planning
Risk Assessment
Portfolio Building and Management
Tax-minimization strategies
Estate and Succession Planning
Advice Service fees typically range from 1-2% based on the size of your portfolio.
HIDDEN FEES
Be aware that some advisors hide their service fee in the form of “trailers” or embedded commissions, where the Advice or Service Fee is hidden in the form of a higher MER.
Despite recent changes to the law forcing advisors to be more open about their fees, you may be unknowingly paying for advisor services that you may not be benefitting from.
It is also important to be aware that some advisors earn transactional commissions from buying and selling you investment products.
This can create a conflict of interest, where the advisor tries to incurr higher transactions to generate more commissions.
Advisors in financial institutions often make finding their commissions difficult. Don’t be afraid to ask your advisor about the fees that you pay.
For McVean Wealth, I’m Alex McVean.