To fee or not to fee?

Dawn Luhning |

So whether you knew this or not, there is a movement a foot in our industry about full disclosure. In particular, fees that you pay to your financial advisor to invest your money. Mutual funds with all companies including banks are the biggest target. Starting this calendar year, your annual, quarterly and basically all statements that include mutual funds will now show how much money you've paid to your advisor over the year or quarter. Our industry calls this CRM2. You as a client should see it as clear transparency as to the commissions your financial advisor is earning.

This is where our value should be considered. How often do you see your financial advisor? Would you like to see your advisor more often? Should your advisor be helping you with more financial aspects of your life?

These are all questions that I'm sure clients are going to be starting to ask once they see the amounts their advisors have earned from their hard-earned money.

Mutual funds consist of three basic types of fees: load commissions, management expense ratios (MER) and trailer fees. There is also a movement in our industry to eliminate the embedded trailer fees paid to advisors. Arguments can be made to move clients to fee-based accounts, where fees are negotiated up front with a client on mutual funds and then the underlying MER is also paid by that client.

Here is how the fees on mutual funds work. Trailer fees are paid on a percentage basis yearly, calculated on the amounts of assets held with each fund company, but paid to your advisor monthly. They range from 0%-1% annually on the value of your investment. These can be considered almost like a monthly salary to your advisor. All clients will pay an MER on a mutual fund and on the legal documents that you receive, called fund facts, the MER is listed and returns listed on that document for the fund are net of the MER.

Then there are load commissions - 5% paid up front to your advisor that sells you a Deferred Sales Charge (DSC) fund; 2-3% paid up front to an advisor that sells you a Low Load Sales Charge (LL) fund; and 0-5% negotiated fee up front on a Front End Load fund. With a DSC fund, you can't redeem within 7-8 years otherwise you'll incur another fee (declining) to do so. For a Low Load fund, you have to hold for between 2-3 years, before having 0 fee to redeem. On Front End Load funds, there is no fee to redeem and no time frame. I personally have never used DSC funds very much only because I believe 7-8 years is a long time to wait if you want to sell the fund and move into something else. They have their place in my opinion in locked-in retirement accounts and when clients indicate they don't need the funds and are saving for retirement AND have other savings to dip into when life happens. I use LL in some instances and FEL in many. 

So if you want to know what the fees are for buying mutual funds, you have a right to know. These should always be disclosed to you before purchasing your fund/s.

If you have questions about any of your statements over the next few months, I'd be happy to help you maneuver through them. I would also be happy to give you a second opinion on any investments that you hold. For bank mutual funds, I can hold RBC, BMO and TD Funds here with me. Because I'm a broker, I can hold almost all mutual fund companies funds. I'd be happy to take a look and see how your investments are performing for you.

Book a meeting here and we can discuss. Have a great Tuesday!