Fee-based compensation raises concerns for investors

Fee-based compensation raises concerns for investors

Fee-based compensation raises concerns for investors 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.
  • Russ 2015-08-31 11:20:25 AM
    Either this article is incomplete or it is deliberately left without a concluding paragraph. Regardless, it is inadequate. The headline seeks to strike fear in the hearts of would-be investors (or give ammunition to advisors who want to maintain embedded commissions) but your last paragraph undermines the tone of the headline. You ask commenters to be professional but this article strikes me as lacking in professionalism.
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