A recent example from the UK puts the spotlight on fee-based accounts and how Canadian clients might be in for the same experience should this country do away with trailer fees.
London’s Telegraph newspaper runs an online Q&A where readers ask specific investment questions that are answered by qualified financial advisors. In this particular instance the reader was looking to hire a financial advisor; a friend recommended their own advisor and the reader wondered if the fees charged were typical for the amount of money involved.
The advisor proposed that the client pay 3% annually on £81,000 in individual savings accounts (ISA), a tax-efficient savings vehicle in the UK. The client had an additional £600,000 in several accounts, including a self-invested personal pension (Sipp) and several other ISAs invested in fixed income securities. On those funds, the advisor proposed a 0.50% annual fee.
So, on an annual basis, the client would pay £5,400 to have their £681,000 invested plus any fees paid for the underlying funds which could be considerable based on recommendations by the advisor.
The reader’s biggest concern was the 3% charged for the £81,000 investment.
One advisor writing in an opinion expressed support for the fees.
“Charging 3% is not untypical for this type of service - there is a lot of work and time involved by the advisor at the outset of a relationship in establishing the client's goals, attitude to risk, capacity for loss and then devising and implementing a suitable investment strategy,” wrote Jenette Greenwood from financial consultancy The Lang Cat.
How does this compare to fee-based advisors in Canada?
Portfolio manager John De Goey of Burgeonvest Bick Securities Ltd. charges 1.2% on the first $125,000 and 0.80% on amounts above that. Converting this example to Canadian dollars, De Goey would charge his client 0.84% for the same amount of investable assets.
“I think our (fee) structure is very fair and it’s really a simple formula,” said DeGoey.