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Inside the Market A conservative investor with lots of cash and bonds wonders if she’s overpaying her adviser

The fee-based investment advice trend can be problematic for conservative investors with portfolios full of safe investments that require minimal advisory oversight.

Fee-based advice means paying a percentage of the value of your account assets to your adviser and his or her firm. Figure on roughly 1 per cent or so for high net worth investors on an annualized basis and as much as 1.5 per cent or more for smaller accounts. For that, you get advice on portfolio building and other services, possibly financial planning, plus any trades required to maintain your investments. Note: Additional fees apply for exchange-traded funds and mutual funds held in advisory accounts.

The issue for conservative investors is that their holdings don’t need a lot of handling. This situation was highlighted in a recent inquiry from a reader who has an account in the high six-figure range with a big investment firm. The account is about 35 per cent cash right now (she recently did some profit-taking), 35 per cent fixed income, 15 per cent preferred shares and 15 per cent other stocks. Her fee: Approximately 0.5 per cent.

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“My question is - am I paying too much, or am I getting a good deal?”

This sounds like a good deal, and it’s not just because the fee seems in line with a portfolio that is mostly made up of low-maintenance investments. This reader says she regularly contacts her adviser for what she describes as an “insider’s perspective” on various matters. Having an adviser who acts as a financial sounding board definitely has value.

Almost all investor portfolios should have some weighting in bonds, guaranteed investment certificates and cash, possibly a significant one. Let’s define a conservative portfolio as have a weighting of 60 per cent or more in any combination of cash, bonds or GICs. If this sounds like your portfolio, find out if the fee you’re paying has been adjusted to reflect your tilt toward low-maintenance holdings. If not, there may be room to negotiate a small reduction in your advice fee.

How can an adviser is earn fees in running a portfolio of conservative investments? One way is to find clients the best possible yield while maintaining a high level of safety. For example, are you holding GICs issued by big players that offer middling or low rates, or are you benefiting from the higher rates offered by alternative banks and trust companies that are members of deposit insurance plans?

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