BY FAZAAD BACCHUS
Your advisor and portfolio manager are responsible for managing your money and they are expected to produce a positive return, so they expect to be paid for it. Fees will always have to be paid for service, the same way you pay a doctor, lawyer, real estate agent or your accountant. The most important question is: are you getting value, are you being serviced properly and are you happy with your returns?
MER/ Management Expense Ratio: This fee is charged to pay everyone involved in the process of trying to grow your money. Every investor is concerned with this number as it reduces the net amount of return you can make. For example, if one fund has earned X amount of dollars before expenses and another fund has earned the identical amount, you will receive less if you were in the fund that charges a higher MER.
Advisor sales fees: Your advisor also receives sales fees upon the transaction and retention of your account. There are typically four fee structures that an advisor can put you in and that will depend on the amount you are investing, your time horizon and the value that he is providing to you by way of advice and service.
Front load or front end fees: This fee is paid to your advisor and the dealer he represents and it is taken directly from your deposit. These fees can range anywhere from 1% to 5 % of your deposit. So, let’s take for example you invest $15,000 in a mutual fund and the advisor charges your 5% then it’s only $14,250 that’s going into your account. The remainder $750 is split between the advisor and dealer. These fees are negotiable; meaning that if you have a larger amount of money to invest, an advisor may choose to charge you less.
Deferred sales charge: Some clients do not wish to pay fees upfront; so many advisors propose a DSC schedule. This means when you invest there is no initial charge or debit on your account, the full amount is invested, the dealer and advisor receives a commission, however if you choose to surrender your account you will pay heavy fees on the amount. These surrender fees can range as high as 7% of your principal, however recently regulators have been frowning on these hefty deferred sales charges even though the charges reduce every year.
Low-load fees: A softer version of the DSC schedule is LSC or low sales charge. Typically, you don’t pay any fees upfront, however if you were to surrender or withdraw you would have to pay a 3% fee on your principal. This schedule runs for three years as opposed to the DSC schedule which runs a reducing scale of six years.
No load fees: The fund itself doesn’t charge you any money, but the advisor charges you a fee for advice, placement and recommendation of your monies. If you get little or no advice, the fees are still payable as long as you retain the services of the advisor.
Trailer fees: Every year your dealer and advisor receives a commission known as trailer fee, this ranges from 0.5% to 1% of your principal. You don’t pay these directly as they are embedded commissions and are net of your returns. This means when you see that you have earned 7% last year, the trailer fees were already taken out.
Find a good advisor who understands your objectives, can provide you value and compensate you for these fees.
