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rob carrick

What do you make of an adviser who provides friendly service and good returns, but talks complete garbage when asked about fees?

I ask in the context of a note from a reader who simply wants to know what she's paying her adviser and firm in investment-management fees.

"We've asked them many times about their fees and we never get a straight answer, and a few times have been told that it is too complicated to explain," she wrote.

"Overall we've been happy with the return rates and friendly service. But what can we do to insist that they disclose their fees?"

While the investing world slowly marches into a world of improving disclosure and transparency, some advisers cling to old ways.

Fortunately, securities regulations introduced new rules on fee disclosure that should help in this case. Starting in January, investment firms have been showing clients the annual amount they're paying in advice fees in dollar terms. This reader should check her statements from the first half of the year for details on fees paid. If the information hasn't appeared yet, it will shortly.

But there's a larger issue here – the adviser who blows smoke when asked about fees. It's hard to reconcile this behaviour with the friendly service and good returns. When an adviser won't talk about fees, it suggests a lack of respect and an attitude that the relationship is about generating fee revenue more than client service. Fees are not complicated, by the way. Clients for the most part pay advisers and their firms according to one of these three models:

  • Commissions built into the cost of owning mutual funds;
  • An advice fee of 1 per cent to 2 per cent of the value of the account, depending on size;
  • Commissions for trading stocks and bonds.

Good advisers are open about fees because they provide valuable services that naturally come at a cost. It's easy to say "I charge this much" when you can also say "I provide this much." In this reader's case, calling a meeting with the adviser seems in order. She should explain that she's happy with the service, but would like to have a discussion about fees. She should ask how the fees are set and for a complete list of services provided. If the service is as friendly as this reader says, such a request should be no problem.