Over the past few years, Canadian regulators have been working on implementing new rules to spell out, in plain language, the fees that investors pay and the compensation that investment firms collect. These new rules will provide more clarity around how much your investments cost you, but they do not require that the adviser's earnings – or how the adviser is paid – be disclosed.
Advisers typically earn their income in one of three ways:
Commissioned advisers are paid a commission when you buy or sell an investment. If you own a mutual fund, these advisers are also paid a trailing commission for as long as you hold the fund. The trailing commission pays for researching and recommending the fund, as well as the ongoing service, advice and reporting.
Salaried advisers are paid a salary by their firm for providing initial and ongoing advice. Their firm may also offer incentives, like bonuses tied to business performance objectives (e.g., bringing new business to the firm).
Fee-for-service advisers are paid by you directly for the service they provide. This could be a flat fee for creating your financial plan or a fee charged as a percentage of your assets for managing your portfolio.
Once you understand how your financial adviser is paid, you might wonder which type of pay structure aligns best with your interests. How can you tell if your adviser is recommending something because it is what you need?
Compared with most Canadians, Canadian physicians and their families have an advantage: they have access to a service model that is not focused on maximizing corporate profits.
More than 45 years ago, the Canadian Medical Association (CMA) – a national, voluntary association of physicians – created a financial services firm, MD Financial Management (MD), for its members to serve them exclusively. The primary objective of MD is to ensure that Canadian physicians – who are generally self-employed with no pension plans – have the advice and solutions they need to meet their financial goals.
MD's advisers are salaried employees. Their compensation is not tied to specific products, and they do not get paid on revenue or profit generated. That means that a CMA member – whether a medical student with debt, a resident with limited assets, an incorporated physician building wealth, or a retired practitioner – will always be served by an adviser whose mandate is to help them achieve their financial goals. This is not only through investments, but also through full financial planning, which includes budgeting, insurance, tax planning, retirement planning and estate planning.
As an investor, it's essential to know how your adviser is paid and how your investment returns are affected by adviser compensation – and whether the advice you receive is worth it.
Contact an MD Adviser to discuss your financial planning and investment needs. Call 1-800-267-2332 or visit md.cma.ca. If you are interested in joining MD's team of professionals, visit mdm.ca/about-md/careers.
MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. For a detailed list of these companies, visit md.cma.ca.
This content was produced by Randall Anthony Communications, in partnership with The Globe and Mail's advertising department. The Globe's editorial department was not involved in its creation