How much do you pay for Financial Advice?

If you’ve been reading the Vancouver Sun, The Province, The Globe and Mail, the National Post or merely glimpsed at that little screen in the elevator, you may have seen a reference to a very significant change in the Financial Industry called the Client Relationship Model, Phase 2 or CRM2. These upcoming changes do not increase what you are paying for advice, but you will now have a few more numbers on the statement showing investment performance and cost in actual dollar figures.

When you invest in a Mutual Fund, you pay a Management Expense Ratio (MER) based on the amount of money you have invested. For instance, if you have $100,000 invested in a Mutual Fund with a 2.50% MER, you are paying $2,500 per year in overall fees. In many cases, this Mutual Fund Company will pay the Investment Advisors Company 1% or $1,000 per year in annual revenue. This $1,000 will be disclosed on your statement if you work with an Investment Advisor. If you work with a Bank Sales Representative or any Advisor that is only able to offer their firm's own products, this will not necessarily be disclosed.

Think of it as a Manufacturing Cost (Mutual Fund) and Distribution Cost (Investment Advisor) for any product. The Manufacturing Company takes a 2.5% annual charge for the product. They pay 1% of this cost to the Distribution Company to sell the product. The Distribution Cost will show on your bill, but the manufacturing cost will not. If Manufacturing and Distribution is owned by the same company, it is possible that there will be no additional disclosure on the statement.

Though it is a step in the right direction, as increased transparency for investors is always a good thing, not all of the fees will be disclosed. It all depends on how your Advisor or Bank Sales Representative is compensated. To find out exactly what you are paying, just ask. The information is available to you.

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