Earlier this year, changes were made to industry regulations—investors now have full transparency around fees for account performance and advice and services from investment professionals. As an investor, by having full knowledge of these fees, you now have an excellent opportunity to better understand the real value-to-fee ratio from your relationship with your investment professional.
According to David Francilia, senior wealth advisor for Envision Financial, a division of First West Credit Union, by simply considering these five fundamental aspects of a client/investment advisor relationship, you will be able to assess the value of your current relationship and know if it’s time to make a change.
After all, who doesn’t want to get the most out of a dollar?
Evaluate your returns, not the fees
It’s only human nature to focus on the cost of something rather than the return it’s going to provide. However, it’s much more efficient to evaluate the return on your investment to understand the benefit of your portfolio. From there, you can take a hard look at the fees you’re paying to determine if they’re worth it.
For example, assume these are two investment portfolios:
- Portfolio A generated a return of 5 per cent and had fees of 1 per cent (net return is 4 per cent)
- Portfolio B produced a return of 7 per cent and had fees of 1.5 per cent (net return is 5.5 per cent)
It’s clear which portfolio is more profitable; however, if you would have made the decision based on fees alone, it’s possible you could have minimized your earnings.
Understand how your portfolio is being managed
Not every investment is the same; there are some fundamental differences between passive and active investing. S ome advisors will purchase funds that mirror the entire market while others will strategically build a portfolio of f undamentally strong companies.
Although the markets have performed well in recent years, it’s important to understand how your investment portfolio will do during a downturn in the market. Many investment products are purposely built or managed to reduce volatility. If this is important to you, ensure you discuss this with your advisor.
Measure how often your portfolio is being reviewed
A well-managed portfolio will be reviewed once per a year at a minimum. Ideally, your investment advisor should be reaching out to you every six months to review any changes to your investing objectives—such as a change in your life stage—or changes to the timing of when you’re ready to withdraw the funds. It’s also a great touch point to assess your risk tolerance, especially during market fluctuations.
Assess the expertise you’re receiving beyond investments
The fees you pay shouldn’t only be singled out to your investments. You should also have access to other services and expert advice—things like life insurance and estate planning. Your investment advisor should have connections to a field of experts who can provide you with the necessary guidance you require.
Determine your investment comfort level
It’s important to understand your unique comfort level when it comes to investing; not every investor needs the high standard of service provided by an investment advisor. If you consider yourself to be a financially savvy investor and you have the time to commit to managing your portfolio, there are some solutions available for you to do so, which often result in much lower fees. Whatever you choose, be sure your investment portfolio is designed to help you reach your financial goals.
*Securities and securities related financial planning services are offered through Qtrade Advisor, a division of Qtrade Securities Inc., Member of the Canadian Investor Protection Fund. Mutual funds and securities related financial planning services are offered through Qtrade Asset Management Inc., Member MFDA.