10 October, 2023 Financial Planning

Planner’s Corner: Fees are important, other considerations.

With the impact of inflation on our finances, it’s timely to review all spending including investment fees.

For GIC and high interest account investors, the rate you receive is your rate. Behind the scenes, the advisor receives a portion of the commission paid to the investment dealer or in the case of a bank or credit union, the advisor is paid a salary.

For investors willing to take on risk to potentially earn a higher rate of return, fees are usually automatically deducted from the investments. In the case of mutual funds, this is known as Management Expense Ratio (MER). The MER is paid to the fund company, investment dealer and government in the form of GST or HST. The fund company uses their share to pay fund managers, cover operating expenses and provide a return to its’ shareholders. After deducting amounts for operations and compliance, the investment dealer pays the advisor. The advisor uses his share to pay for expenses such as rent, office expenses and staff salaries.

Do It Yourself (DIY) is a way to reduce fees. According to Rob Carrick, Globe & Mail columnist, An Exchange Trading Fund portfolio can be assembled with fees as low as .08% plus trading commissions to buy and sell funds (Carrick, Globe & Mail, May 25, 2023). That’s significant as most investors pay around 2%. Before firing your financial advisor to lower your fees, consider the following:

Good advisors base their investments for clients on a financial plan that maps out how life planning goals will be achieved. Rehoboth Golf Hole Signage imageKey points covered include how much you need to invest and the return needed to reach your goals combined with how much risk you need to take and your comfort level.

Diversification might be difficult. With less money to invest, your portfolio might be more concentrated overexposing a DIY investor to a downturn. Recent examples of bubbles include cannabis, cryptocurrency and the ups and downs of the technology sector.

PICS Golf Signage image

Analysis paralysis may lead to sitting on the sidelines. Overwhelmed by information, some DIY investors let cash sit idle. Worse is to lose interest in investing once the initial excitement wears off.

Outsmarting the market is difficult. Market-timing traps include going to cash because of concerns about a recession or some other event that could impact investments negatively and then waiting too long to get back into the market.

 Reviewing and rebalancing portfolios to take advantage of market lows and maintain risk tolerance may not occur as often as recommended.

It is easy to get lost in the acronyms (RRSP,TFSA, RESP, FHSA, etc.) and not realize which investment vehicles fit best to achieve life planning goals and minimize tax.ECS Family Carnival image

Often, you get what you pay for. The fees paid at Lighthouse Financial & IPC Investment Corporation are competitive with advice. I will continue to discuss fees during annual reviews. In the meantime, if you would like a further analysis of the fees you are paying, please let me know.


Jim Hummel, CFP® CKA®

ECS Family Carnival image