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portfolio strategy

Only on Bay Street would they push something called fee-based investment advice and then treat actual fees like classified information.

In fee-based accounts, investors pay a percentage of the value of their account to cover the cost of advice. Sit down with a fee-based adviser and you will certainly be told what fees you'll pay. But finding out what other firms charge so you can assess the competitiveness of your own fees is pretty much impossible. You'll sooner crack the Caramilk secret, or turn the Toronto Maple Leafs around.

Fortunately, the information gap on fees is partly addressed in the latest edition of the annual State of Retail Wealth Management report from PriceMetrix, a consulting firm that works with wealth-management companies. The report shows the average fees paid by investors with household assets ranging from less than $250,000 to $2-million and more. You're looking at an average of 1.43 per cent for smaller accounts, and 0.79 per cent for the largest ones. PriceMetrix's data mixes numbers from both Canada and the United States, which traditionally has significantly lower fees for investors. However, the firm said there's not a significant difference between the two markets on fees.

PriceMetrix's fee data is much-needed context for investors at a time when fee-based advice is on the rise. For one thing, PriceMetrix calls 2014 a "breakthrough year" for the fee-based model. Also, securities regulators are considering changes in advisory fees that would have the effect of making fee-based the default model for most people in paying for investment advice. Without greater clarity on fees, a fee-based world would be tilted to the adviser's advantage.

In addition to fee-based accounts, the investment industry offers transaction-based pricing, where you pay for trades of stocks and other products, and a mutual-fund model where fees are included in the cost of owning funds. Fund companies scoop their fees off the top of the returns their products generate, and pay advisers from that money. Investors see net returns after fees.

Fee-based advice is where the momentum is in the investment industry today. PriceMetrix says the percentage of fee-based assets rose to 35 per cent in 2014 from 31 per cent in 2013, while the percentage of total fee revenue from fee-based accounts rose to 53 per cent from 47 per cent. "More and more advisers are realizing that operating on a fee-for-service basis is simply a more productive way to grow your business," said Patrick Kennedy, co-founder and chief customer officer at Toronto-based PriceMetrix.

Mr. Kennedy said fee-based advice has higher levels of client retention, and it gives advisers flexibility in matching services provided to fees charged. He said it's also good for clients because it removes conflicts where investments are recommended to clients because of the fees and commissions they pay. With fee-based advice, the fee is transparently based on the assets in the account. When those assets grow, both advisers and clients benefit.

The general unavailability of fee information is a problem, though. Try this: Google the name of an investment firm you know and see if there's a "fees" or "pricing" tab on their website. Outside of some online robo-adviser firms, I couldn't find a single example of a company doing this. The Investment Industry Regulatory Organization of Canada, the self-regulating body for investment dealers, says there are no rules to prevent firms and advisers from posting fee information online. The Mutual Fund Dealers Association of Canada says likewise for its members.

Fee secrecy is good for business. Clients are told what the costs are and they have no context to judge them. They can negotiate, but without the knowledge that there may be other firms doing the same kind of work for half a percentage point less. On a $500,000 portfolio, that difference amounts to $2,500 per year.

Beneath the PriceMetrix average fee data is a wide variance on costs charged to investors. "Fees can range a fair bit from adviser to adviser, even within the same branch, let alone across the country," Mr. Kennedy said.

Portfolio mix has a big influence on fees, he said. A portfolio heavy on bonds or guaranteed investment certificates may not need as much tending as one based on stocks or funds, and thus the fee would be lower. Simple math also argues for low fees on bond and GIC-heavy portfolios. After fees, there isn't much left over for investors in this low interest-rate world.

PriceMetrix's data shows that fees on average declined to 0.99 per cent from 1.14 per cent from 2011 to 2013, then edged a little higher last year. High-net-worth investors always pay the lowest fees, and yet costs for this category are largely responsible for the overall increase. For portfolios of $2-million and up, the average rose to 0.79 per cent from 0.75 per cent.

Mr. Kennedy said these price increases are about advisers reacting to a competitive marketplace by doing more for their high-net-worth clients and charging more. "Also, advisers are choosing to work with fewer clients," he said. "So clients are getting access to more of their adviser's time and expertise than they have historically."

At the low end, specifically portfolios valued at $250,000 and less, prices went down very slightly in 2014 to 1.43 per cent from 1.44 per cent. Mr. Kennedy suggested that competition from robo-advisers may account for this marginal decline.

Robo-advisers offer a mostly online service where clients are set up with a portfolio of exchange-traded funds based on how they fill out a questionnaire about themselves. Robo-advisers are mainly portfolio-builders, not financial planners, so they're not directly comparable to the best advisers out there. But they do offer fees that are comparatively low and made available to the public. A quick check of three different robo-firms found that each had a "pricing" link on their websites.

When comparing fees, remember to consider value as well. The higher-fee adviser who does financial and estate planning may be a better value than the 1-per-cent adviser who simply maintains your portfolio with annual reviews. "If you're evaluating fees as an investor, you have to think about all the things your adviser is doing for you," Mr. Kennedy said. "Financial planning is obviously a big one."

We're developing a Globe and Mail database on advisory fees that should be ready this fall. Contact me if you have any thoughts or data to share at