Q. How do I know if my advisor is charging me too much in fees? How do I know if he is giving me the best advice? Should I leave what I have invested with him at Sun Life (about $75,000) and start putting the rest of my future savings with someone else? I am 61 years old and will retire at 65 with a full pension from a provincial police service. Any advice would be appreciated.
A.You know, Carol, it may be the fund fee is too expensive and not your advisor’s fee.
A mutual fund advisor/dealer generally makes about 1% on the amount invested. A fee-based advisor/dealer makes 1% to 1.5%, and yet the all-in-cost working with a fee-based advisor is often less expensive than the mutual fund advisor. This is due to product selection.
Here is a breakdown of the fees on a mutual fund with a 2.5% combined MER/TER:
- $637/yr. to the advisor ($75,000 x 1%) x 85%
- $113/yr. to the dealer, Sun Life ($75,000 x 1%) x 15%
- $1,125/yr. to the product manufacturer, Sun Life $75,000 x 1.5%
- Your total annual fee is $75,000 x 2.5% = $1,875/yr.
Do you feel the services your advisor provides you with Sun Life are worth $750/yr. ($637 + $113)? A Robo advisor would charge you $375/yr. ($75,000 x .5% = $375) + their product cost of $150 ($75,000 x .2% = $150), and what do they do? They set up your investment portfolio for you over the phone or your computer.
Is it worth the extra $375/yr. to be able to see your advisor face to face, and to have someone you can build a relationship with?
Only you can judge if you’re getting good advice from your advisor. What are your expectations and does he know your expectations? Does he keep in touch, and do you contact him when you’re faced with a financial decision? It’s a two-way street, and you should both be working together.
When you work with a company like Sun Life, you are likely going to get a Sun Life product, and there may be nothing wrong with that. It’s a little like looking for the best car for you. If you go to a Ford dealership you’ll get the best Ford for you, but is that the best vehicle for you?
Should you keep your investments there? If you’re happy with his service and you feel you’re getting good advice then you should stay. If you’re concerned about fees ask if there is a suitable investment option with a lower fee.
Don’t assume that just because the fees are lower on a different product you’ll earn more, there’s too much luck involved. There’s certainly a higher probability you’ll earn more but no guarantee. My expectation is that over time the lower priced fund will win out.
Having more than one advisor is okay if you’re just accumulating money. However, an exception may be if you are with a fee-based advisor that reduces fees as your investments grow. If you’re engaged in a planning process, all of your investments should be with one planner. This is especially true once you’ve retired and you’re planning a tax-efficient income.
So is your advisor overcharging? No, not from an industry perspective. Can you save on fees? Yes! Should you move? Only if you don’t have a comfortable working relationship with your advisor, and you don’t feel you’re getting proper advice.
Allan Norman, M.Sc., CFP, CIM, Atlantis Financial/IPC Investment Corp
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