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Guard yourself against outrageous banking fees

Here's one of those moments where the financial industry gets caught with its greed showing.

Picture an elderly investor moving three registered retirement income fund accounts from one advisory firm to another. The cost of the transfer as charged by the trust company acting on behalf of his old firm: $1,305.15, including HST.

Fees are part of life as investor. You try to control them on one hand, but on the other you recognize that financial companies have to make a buck. Otherwise, we don't have any financial companies.

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Never turn your back on the financial industry, though. Make it a point from here on to ask about the fees that apply to whatever financial business you want to transact. Then, ask whether anything can be done to reduce or avoid them.

Memo to the financial industry: Excessive fees like the ones charged to our elderly investor make you look greedy and untrustworthy. Cut it out.

This investor's new advisory firm was so blown away by the transfer charge that it sent me documentation with names and other personal details scrubbed off. Let's for a moment ignore the fact that the elderly investor owned a lot of trendy, aggressive high-fee equity funds and focus instead on the steep cost of saying so long to his old firm.

Applied to each of the three accounts was a transfer-out fee of $282.50 and an "account fee" of $152.55 (both fees include HST). Charged three times each, we arrive at a total cost of just over $1,305 to a person who is well into retirement.

"Those are the highest fees that I've ever seen, and we get transfers from all kinds of companies," said Anton Tucker, vice-president of TriDelta Financial, the elderly investor's new firm.

The fees were levied by the trust company that acted as custodian for this investor's account on behalf of his old adviser's firm. Mr. Tucker called this company about the fees, but didn't get far. "I said this is ridiculous, it's astronomical. They said they weren't prepared to discuss it at all."

TriDelta ended up covering half the transfer cost. As for the trust company that charged the fee, a spokesman offered this background: "...The amount charged and collected in this specific case appears consistent with the current fee schedule which is mailed to investors when they open an account."

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The spokesperson noted that it's unusual for an investor to have three different accounts with the trust company, and that an account consolidation at some point in the past may have saved some money. That's a fair point. What's less fair is a policy that requires annual admin fees for registered accounts to be paid in full when a client leaves.

If someone leaves 12 months after paying their last annual account fee, that's acceptable. But if they leave before that point, the fee should be pro-rated.

It's not just investments where you have to be wary of fees. In a recent exchange on my Facebook page one reader talked about discovering that she was paying a 14-per-cent surcharge on her life insurance premium for the privilege of paying monthly. Another reader said a surcharge of 8 per cent is common. If at all possible, pay your insurance bills (life and property) annually.

The story of that elderly investor contains some other lessons about paying attention to fees. This person's three RRIF accounts were laced with high-cost aggressive mutual funds, a few of them with fees of 3 per cent or more.

A senior owning tech and emerging market funds? Makes no sense to me, but the back story here is that this person has ample pension income and wanted to grow the money in the RRIF accounts. Bulletin: Money grows faster if you're not losing 3 per cent off the top.

Mr. Tucker said he talked to his new client about these fees and the response was: What fees? The client had the erroneous impression that since the funds were bought with a deferred sales charge, there were no costs involved (you most certainly pay to own funds).

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Whether you're paying your insurance bill in monthly instalments or investing your retirement money, there are always costs involved. Find out what they are, minimize them where possible and complain if you think you're being unfairly charged.

Got an example of outrageous fees? Nail it to the wall of my Facebook page. Forewarned is forearmed.

No more fees, please

How to minimize the fees that apply when you move an account from an investment firm:

  • Ask your new firm to cover all or part of the transfer fees levied: Some online brokers will kick in $100 or so to offset your transfer fees, and advisers will sometimes kick in as well (especially to reel in a big new account).
  • Try to time transfers just after you’ve paid the annual administration fee for registered accounts.
  • Always check the exit fees before you open an account. Fees of up to $100 or so are more or less normal, any more than that is high.

Follow me on Facebook. I'm at Rob Carrick – Personal Finance.

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About the Author
Personal Finance Columnist

Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998. Rob's personal finance columns appear in The Globe on Tuesday and Thursday, and his Portfolio Strategy column for investors appears on Saturday. More

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