Becoming A Client
Let's get to know each other and if it's a fit, we will handle the heavy lifting.
The Process
Making decisions on where and how to invest one’s savings can be quite stressful. Some people are so overwhelmed by inertia that they are unable to act, even when troubled by holding investments in companies that their values do not support.
Recognizing this, becoming our client is a methodical, multi-stage process. We take as much time as needed to ensure that your goals are fleshed out and clarified and that your concerns are completely addressed.
It is vital to evaluate your attitudes towards the markets and investing, to understand your personal values and ethics so that your investments are not in conflict, to establish realistic expectations for the performance and risk inherent in your personalized investment plan, and to ensure that you are aware of all the direct or indirect costs you might incur.
To achieve all of this normally entails three meetings:
- The first is a general discussion and fact-finding meeting where we get a chance to assess whether we have a mutual basis for working together to achieve your financial goals. For clients who do not live on Vancouver Island, or In Vancouver, this meeting can be held via Skype, Zoom or FaceTime.
- If we agree to proceed, the second meeting involves opening accounts and transferring any existing investments into those accounts. There is usually a small pile of paperwork to be completed.
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The third meeting is normally when specific investments are purchased, in accordance with discussions about investment policy that we have already had.
As required, we are able to open RRSPs, TFSAs, RESPs, Locked-In Retirement Accounts, or Canadian and US $ Investment Accounts.
We can refer you to legal representation should you need to prepare a will or power of attorney.
Every step of this process involves integrating the investments recommended with your concern for the environment, and the social benefits that might accrue through your ownership of publicly-traded company shares.
What Can Our Clients Expect?
Much fuss has been made over how advisors get paid, how much they get paid, and whether their services justify the costs borne either directly or indirectly by the client. This brings to mind the saying that cost is only an issue in the absence of value.
If an advisor is earning commissions or a fee for his services, then the client should expect to hear from this advisor on a regular basis, which we would suggest be quarterly in the first year and at least semi-annually thereafter, or as extenuating circumstances warrant.
We prefer these meetings to be face-to-face, addressing issues that are material to the client’s affairs, which may include but are not limited to:
- Changes to the client’s personal circumstances (job, housing, debt, health, etc.)
- Changes in the client’s family affairs (children’s schooling, parent’s health, etc.)
- Changes to the client’s future aspirations, goals, financial objectives, etc.
- A review of investment portfolio performance across all client accounts
- Review of estate, taxation, banking, mortgage, and insurance requirements
- Review of client’s current cash flow experience
- Review of workplace benefits and government entitlements
In terms of value received, my clients should know that we are independent advisors, thus able to shop the market for the best performing and most cost-effective solutions.
Our clients enjoy a long-lasting, stable relationship with us, being able to easily contact or meet with us even outside of normal business hours.
A concern many clients have with bank-based advisors is that their contact is temporary, as the bank often rotates staff through various positions. Unless your account is of sufficient size, you are not likely to be in contact with a seasoned advisor. In addition, many bank branches work on a quota basis and a bonus structure. It’s possible that the advice you receive may be geared towards purchasing bank-sponsored products and not be truly independent.
We believe that when this discussion is all said and done, clients want to be satisfied that their advisors are listening and responding to the client’s own unique financial challenges and aspirations, that the advisor is knowledgeable in the many considerations that impact the client’s financial affairs, and that the advisor is competitive, fair and honest when it comes to charging the client for these various services
What Does It Cost?
What You Should Know About Fees
We want our clients to not only understand but to be able to explain the fees on their accounts in a couple of simple, plain-English sentences. We want them to know that these fees are competitive, fair, and offer great value.
If you wouldn’t make a home or vehicle purchase without doing some major research into cost and quality then why in the world would you invest your retirement savings without a full understanding of the costs involved and value received
Unfortunately, despite new initiatives aimed at clarifying investment fees, the industry in general does an awful job of cost disclosure. Making sense of fees can be nearly as challenging as understanding a textbook on quantum physics. This should not be the case, and we would love the opportunity to clarify.
Our clients pay fees in one of two ways: either an annual fee based upon the assets they bring under our administration, or through direct and/or indirect commissions charged on the sale of investment products. The first way provides great clarity that allows clients to measure the costs they are paying versus the value they are receiving. The second way is considerably more complex and difficult to measure, but may be more suitable for smaller accounts.
Fee-Based Summary
A client with $300,000 in an account and being charged 1.2% for its management would pay a fee of $3,600 a year, normally billed monthly or quarterly. As the account changes in value, so does the fee. There may be some additional cost disclosed for the underlying investment funds, but there would be no additional trading commissions, trustee fees or trailing commissions. Just the annual fee, clean and simple and easy to understand. Banks and investment dealers are moving in this direction with the encouragement of regulators, who see this as clarifying the exact amount that clients are being charged for the services that they receive.
Clients should expect that accounts heavily-tilted towards cash, GICs and bonds would incur a lower fee, while those heavy on stocks might have a higher fee. An additional perk to this arrangement is that some or all of the fee can be tax-deductible for non-registered accounts.
So what is a fair fee? Have a look at this survey conducted by the Globe and Mail to get an answer to that question. Here is a good review of investment fees by one of Canada’s best known financial authors, Jonathan Chevreau.
Even more detail can be found here, Find The Perfect Financial Planner from Money Sense Magazine, and republished in Macleans Magazine. It is one of the best pieces that we have seen on the subject, and includes a very good analysis on how to measure costs and value received. It’s a bit lengthy, but it might save you tens of thousands of dollars in fees. Is that worth 10 minutes of your time?
HERE'S AN EXCERPT FROM THE ARTICLE:
“Fee-based on assets: The asset-based fee model is set as a percentage of a client portfolio. If you had a $500,000 portfolio with an annual 1.0% fee, each year $5,000 is deducted from your account for advice and execution. The charge is transparent, so clients see this figure in writing. Clients will have fees deducted from portfolio cash balances. Product costs are separated. Individual stock and bond transactions are covered by the advisory fee, but ETFs retain their product cost (they can’t be stripped out). Mutual funds used are ‘F-Class’ with compensation stripped out. A commission-model version of a fund may have a 2.5% MER, but clones in a class designed for asset-based accounts may have an MER of just 1.5%. This means no payment from the product manufacturers goes to the adviser or firm, reducing potential conflicts of interest and raising transparency. This may or may not lower costs. This advice model has increased tremendously in popularity over the last 10 years.
A focus on fee reduction is important, all other things being equal, but all other things are not equal. The end goal of fee reduction is greater financial well-being. That may be measured primarily by potential portfolio size. But greater financial well-being encompasses more than that. It includes security today as well as tomorrow. The degree of assistance a consumer requires must be factored into the analysis of which advice model works best for an individual. For some investors, opting for the lowest fees may be a costly mistake.”
Commission-Based Summary
On occasions, we may decide it is in our mutual interest to charge a commission for the sale of investment products. Client confusion here often stems from the fact that commissions are charged differently for mutual funds and stocks, bonds and exchange traded funds (ETFs).
Mutual funds are bought and sold on either a no load, low load, or deferred sales charge basis. Under this model, the advisor earns a commission at the time of sale (between 0 and 5%), and an ongoing commission (0.25 – 1.0%) that depends on the type of fund and the load structure. This commission is not paid directly by the client, but indirectly through the management fee that is levied by the fund company yearly (typically 1.0 – 2.5%). The fee is deducted from the assets in the fund, thus lowering the returns of the fund. Returns are then published and reported after all fees have been charged.
Under the no-load model (or zero front load), the advisor earns a higher ongoing (yearly) commission recovered from the fund’s management fee, but no commission is paid at the time of purchase or sale.
Stocks, bonds and ETFs are bought and sold with a specific commission charged directly to the client at the time the transaction takes place. Typically, if a client purchases $4,000 worth of stock in a company and a $100 commission is charged, then $4,100 will be required to make the stock purchase. While individual stocks are much riskier to own than a diversified mutual fund, the cost is generally lower to the client because there is no annual management fee charged, just the commission at the time of purchase or sale.
Commissions are also charged for transactions of ETFs, which provide much of the same diversity found in mutual funds. There are two basic categories of ETFs. Most are not actively managed, but designed to replicate the movement of the index upon which they are based, such as the whole Toronto Stock Exchange. As such they often have significantly lower annual management fees than mutual funds. One can also find actively managed ETFs, which act much more like mutual funds but trade as a security, enabling the client to buy or sell them at any time during the trading day.
To make matters even more difficult, new disclosure requirements to investors still do not fully quantify the fees paid to the mutual fund companies or ETF advisors, and this information must be obtained through other sources like the Funds Facts documents you may have seen or received. All in all, quantifying these fees is a challenge, and one often has to lean heavily on your investment advisor for full disclosure.
When all is said and done, clients and advisors would be well served to adopt the ‘fee based on assets’ model in order to ensure they aren’t paying exorbitant costs. And don’t forget to ask about the cost of the underlying investment when adding things up.
Here’s how you might do the math on a fee-based portfolio being charged 1.2% a year:
- 60% stocks and bonds with no charge to purchase or sell
- 20% mutual funds, ‘F’ class with 1.0% annual management fee
- 20% Exchange Traded Funds with 0.2% annual management fee
- No annual admin or trustee fee
- Annual Cost = 1.2% + (60% x 0) + (20% x 1.0%) + (20% x 0.2%) = 1.44%
Then you might compare this to holding a portfolio comprised of nothing but mutual funds, with management fees of 2% or more, plus commissions to buy stocks and bonds, plus annual RRSP trustee fees, etc.
If you would like help with the math then please give us a call.
This is important to your investing success.
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