Fee-based advisors are addressing the negative optics of a two-tiered fee structure where a low rate is applied to larger AUM clients and a higher, less favourable rate to others.
“I think our (fee) structure is very fair and it’s really a simple formula,” said John DeGoey, a portfolio manager at Burgeonvest Bick Securities Ltd. “I charge 1.2 per cent on the (first) $125,000 and 0.8 per cent for amounts above that. If it was $500,000, it (would make for an effective rate of ) 1.1 per cent and at $1-million, it’d be 0.95 per cent. It’s all based on scalability so I don’t think it’s unfair at all.”
DeGoey’s comments are part of the ongoing debate about whether fee-based compensation should wholly replace embedded commission and if it would penalize some clients. His type of formula, not unlike that of other veterans of the fee-based model, has some advisors concerned it would reward the wealthiest and force more-vulnerable investors – in terms of retirement savings – to pay more.
DeGoey argues his calculations based on AUM are progressive. Ironically, they were, in fact, highlighted in a recent Globe and Mail article weighing the pros and cons of embedded commissions.
The battle lines between supporters of that more-pervasive formula and those on the fee-based side are starting to form.
De Goey is in the latter camp, adding that he discloses the formula to his clients and they are well aware of what they’re paying in fees. That hasn’t historically been the case with those batting for the other team, he said, pointing to commission-based advisors, or salespeople.
“You hear it all the time,” he told WealthProfessional.ca. “Some clients haven’t heard from their advisors in years and have no idea what they’re paying in commissions.