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There has been a lot more attention focused on mutual fund costs over the last month. For the most part, people making the cost argument are scratching their heads about the slow uptake by investors that costs really matter.

Two main reasons come to mind as to why this persists: insufficient financial literacy, and that most advisers cannot or will not use index funds. This is above and beyond the obvious grand conflict of them all, that financial services companies answer to their shareholders first. They are in the business of making as much money as they can. They can still do that if fees drop, but they won't drop prices unless there is a bigger demand from investors who can exercise that demand by voting with their wallets. And so far, the demand is not big enough.

While many investors understand that higher fees eat into their long-term returns, they don't want to jump ship and go it alone. The vast majority of Canadians still need the guidance of an adviser. However, that does not mean we have to drop the pursuit of lower costs. You can still try to lower your fees while working with an adviser. Here are a few ways:

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Incorporate passive management

We'll forgo the standard active versus passive discussion points because there's no shortage of material and views, but the fact of the matter is that broad, passive index funds can be very cheap. More and more mutual fund companies are now offering index fund options that include trailing commissions to advisers. So the cost of advice is still there, but the cost of investment management might be lower. There's also no requirement to convert to 100 per cent passive which might be too much of a psychological leap for an investor and even for some advisers. But reducing the costs on at least part of your portfolio is a step in the right direction, fee wise.

Ask about lower cost actively managed funds

We all know that some advisers will never let the actively managed philosophy be challenged, no matter how much academic and practical evidence is presented. But there are active funds with lower costs. Have a discussion with your adviser and weigh the pros and cons of switching.

Change how you pay your adviser

Once your portfolio gets larger, you have more options. Some fund companies have different classes of the same fund that charge a lower MER for hitting a certain threshold. Some companies call these Class H funds, for High Net Worth.

You can also switch to a fee-based account which provides more transparency and the fees are negotiable. This involves the use of F-class funds, which are stripped of embedded adviser commissions. Instead a clear fee is agreed to and deducted from your portfolio on a regular basis. You also receive an annual letter or receipt detailing the cost over the year as this fee may also be tax deductible for non-registered accounts.

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A fee-only adviser sends you a bill directly. They may or may not help you with executing your portfolio transactions but can provide advice on a financial plan or an investment policy statement and ideally both. Dan Hallett, director of asset management with HighView Financial Group, recalls a recent example of how this might work. "I spoke with a bright young professional recently that called me looking for an adviser. She's young and single and so used some of her free time to read up on money matters. She's accumulated a nice sum simply in TD's e-series index funds. She saves regularly and has a simple portfolio structure that sounded appropriate at first glance. So, I suggested to her that perhaps she doesn't need much help on the investment side of things. Instead, I suggested she consider paying an adviser hourly for pure financial planning. She was able to leverage her strength – which was the discipline to set up and stick to something simple and cheap – while perhaps considering paying only for the advice she needed. That will go a long way toward keeping her long-term costs low while still having the guidance of an adviser."

The "costs matter" dictum is an important one. But investing success is more than just about costs. Another equally important part of that equation is value. Obviously if you can handle your own portfolio, there are far more opportunities to drive down cost. But for the time being, the vast majority of investors in Canada need the guidance of an adviser. You should feel free to talk to your adviser about costs. The more transparent they are, the better. "Transparency makes the client more informed and makes the adviser more accountable" says Mr. Hallett.

Preet Banerjee, BSc, FMA, DMS, FCSI is a W Network Money Expert, and blogs at . You can also follow him on twitter at @PreetBanerjee

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