It is the year of the “great reveal” for Canadian investors. Long have consumer advocacy groups been pushing the investment industry to pull down its pants, and the time has finally come where CRM2 (Client Relationship Model version 2) is fully implemented and live. CRM2 is essentially the industry’s fashionable acronym for complete and total “fee disclosure“. In essence, how much does it cost to manage my money?
Most Canadians invest their money in mutual funds either through their bank or through an investment advisor or full service investment dealer, yet few know how much it actually costs to manage that money? Alarmingly, up until recently these fee’s were mostly hidden from the consumer and buried deep down in a prospectus document (the document that you SHOULD be reading before you invest in a fund!)
If you have a mutual fund you will now see the fee’s that are charged to you show up in your statement. These fee’s are based on the principal plus any returns that have accumulated in your account, either positive or negative. They are represented by what is called a management expense ratio (or, MER). That fee goes to pay for the fund manager, the advisor, and the company that issues you the contract. They can range anywhere from about .05% – 3.5% annually depending on the type of product you have.
In the following example, we will assume you have invested $1,000 in a bank mutual fund with an MER of 2% on January 1st. On December 31st of that year the market has returned a total of 8% on your investment, therefore you should have $1080 in your account – right? Well, not really.. Don’t forget about that pesky MER.. In reality, you would have earned a 6% return (net of fees).
So what is the big deal then?
Well, consumer studies have found that most Canadian investors do not mind paying a fee for the service that is provided to them as long as they feel their advisor is EARNING the fee they are charging.
Think about this. In 2008 when the equities markets dropped 25-35%, how did your advisor react? Were they on the phone with you coaching you and reallocating your portfolio, or were they nowhere to be seen?
- Does your advisor regularly contact you and ask for an appointment to update your accounts and make sure your plan is on track?
- Is your advisor readily available through email, text, or telephone after hours when most people finally have time to start thinking about their finances?
- Do you even know who your investment advisor is!?
If you can’t answer this question, then MAYBE it is time to start thinking about what you are paying your advisor for!
We think CRM2 and the fee disclosure that has surfaced is a great thing for consumers. Too long has the fund industry kept us in the dark about how our money is being managed. Do we think Canadians are going to stop investing their money just because they find out how much it costs to manage it? No! Do we think Canadians are going to start demanding MORE of their financial advisors.. You bet!
One of the first things we talk to our clients about is fees. We want to educate our clients on how to manage their total financial plan, and not just their investments. We invest a lot of money back into technology, continuing education and client tools – so we know know there is a tremendous value-proposition to being a client of Precision. We are not the cheapest and we are certainly not the most expensive, but we can say for certain you will have an outstanding client experience and always feel like you are important and be treated with respect. It what you have hired us to do!
Precision Financial is Saskatoons TRUSTED financial advisor.