Though they should be paying the lowest possible fees, high-net-worth investors have the same insecurity as everyone else about the cost of investment advice.
As well they should. While the grids that investment firms use to set client fees apply lower charges for larger accounts, the overall level of transparency for all clients is generally weak. And so, a doctor with a seven-figure investment portfolio asked me not too long ago about whether he’s paying a fair cost for the investment advice he’s getting.
He has a fairly complex portfolio: The asset allocation is approx 25 per cent Canadian equity, 10 per cent U.S. equity, 10 per cent international equity, 22 per cent ‘alternative’ investments, 3 per cent emerging markets and 28 per cent fixed income. Alternative investments may include exposure to various non-traditional strategies for investing in stocks, plus exposure to commodities and currencies.
His fee: 0.9 per cent plus a custodial fee of 0.16 per cent plus HST. To get some perspective on whether that’s fair or not, I consulted Jason Pereira, who has the chartered financial analyst (CFA) designation, among many others, and is senior financial consultant at Woodgate & IPC Securities Corp. In an e-mail, Mr. Pereira offered a provisional yes as an answer about the fairness of the doctor’s fees. “That price actually looks lower than what I normally see.”
However, Mr. Pereira offered a warning on fees like this. He sees firms in the investment advice world using varying levels of fee disclosure – some showing all fees clients pay and others leaving things out. Examples:
- Mutual funds and ETFs in a portfolio that carry their own MERS
- Trading costs or trading expense ratios on funds.
- Account fees (almost never included in these disclosures)
- HST (rarely mentioned)
Mr. Pereira’s firm provides annual disclosure letters with a total fee and a breakdown of the components. He said the fee paid by the doctor with the seven-figure portfolio is fair, but only if the cost includes everything and there are no hidden extras. Next steps for this reader and all other investors wondering if they fees they’re shown are all-inclusive: Ask your adviser for a full accounting.
– Rob Carrick, Globe personal finance columnist
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