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The rise of fee-based investment advice is bad news for people who pay their adviser through commissions on stock and bond trades.

Commission-based advice is on the road to extinction. A Globe and Mail reader found this out recently when his adviser explained he would no longer be compensated with commissions as of the end of the year. The current fee model: 2 per cent of the cost of a stock purchase or sale with a minimum charge of $200.

The adviser is switching to a fee-based pricing model, which in his case amounts to 1 per cent on the first $1-million in assets and 0.7 per cent on additional holdings. “I ran the numbers, and even in this last year, when we did a greater number of transactions than normal, this still amounts to almost doubling our annual fees,” this reader says.

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Fee-based advice is steadily taking over because it creates a steady stream of fee revenue for advisers and their firms. The advice business points out that fee-based accounts are transparent, predictable and a win-win in that advisers get additional fee revenue when client accounts increase in value. Also, the risk of conflicted investment advice is minimized. If an adviser is paid via a fee set as a percentage of assets, the incentive to generate stock trades or recommend investments with generous compensation to advisers is minimized. But rest assured – fee-based is very much about the fees.

This Globe reader’s story is about the down side of fee-based advice. Basically, this person would be getting the same advisory package of services while paying much more in fees.

It’s important to note that the client in this situation is happy. His portfolio has done well, a written financial plan was done two years ago and the adviser is accessible and helpful. But a question remains – is this advisory relationship worth keeping at more than twice the price?

I say it is, providing something can be worked out on the account fee. This reader’s portfolio is just shy of $1-million, which is enough for the adviser to consider a fee break. Getting the whole portfolio down to 0.7 per cent might be a stretch, but there should be some middle ground.

Another way to square the higher account fee would be to see about getting some additional services from the adviser and his firm. Tax and estate planning, for example.

Finding a new adviser is another possibility, but one to be avoided if possible. This client and his current adviser are clearly a fit – a new adviser could be less compatible. Also, it’s going to take a lot of legwork to find cheaper fee-based advisers or someone who still works for stock-trading commissions. Advisers like this are out there, but there’s no central data source to find them. Lots of web searching and phone calls will be needed.

Let’s face it – commission-based advice was a great deal for investors who didn’t trade a ton. But a good adviser is worth keeping, even if the cost of a fee-based account is higher.

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