Hello,

The client is being charged a 1% fee. As with all products and services, the fee charged should be in line with the value received. I don't know what value the client is receiving, so I can't comment much on that, except to say that my own firm's guideline on a fee-based account over $1.5M is 0.5% per year.

You should check to make sure there is no "double dipping". In a fee-based account, the client should not be charged for trades, nor be in funds that pay any commissions. The funds should be in "F" class units or exchange traded funds; or individual securities.

My own bias is that banks are evil institutions bent on extracting maximum revenue from every client; but there are many competent and ethical individuals within even the most dastardly firms. It may appear that the client is being taken to the cleaners, but without more info, neither you nor I can know for certain.

In general, you are correct that the capital value of a bond decreases as interest rates rise. The degree of sensitivity will depend on the average duration. Longer duration will give a higher sensitivity. A short term bond fund can behave somewhat like a GIC ladder, such that interest rate fluctuations are not a great concern. A long term goverment bond will get creamed if (when) interest rates rise.

The exception to this generality is high yield corporate bonds, which behave more like equities. In general, if the economy improves, the capacity for corporate issuers to pay interest and maturity values goes up; therefore the market value of a high yield bond can go up, even in the face of rising interest rates. If the economy (sector, specific business) goes in the dumper, the value of the bond can go down, despite falling interest rates.

Probably the best advice you could give this gentleman is to seek a second opinion from a CFP with good references.