be-prepared

Step 1. At the first meeting…

  • Have an open discussion where you lay out the facts before anyone makes commitments, says Doug*, a Calgary-based advisor.
  • Tell your client she’ll be charged X% of all assets she has at your firm, and stress this sum is charged every year.
  • Or, if you’re paid using trailers, explain that part of the MER goes towards your commission.
  • Break down how that covers fees for third parties (i.e., portfolio managers), as well as the firm.
  • Explain that the percent amount also includes your compensation for services rendered.
  • Don’t forget to outline commission structures for any insurance you sell (see “Life, term and living-benefits insurance” ).

*last name withheld

If a client asks about hidden fees, tell her the management fees are all inclusive, says Sybil Verch, vice president, branch manager, Raymond James. The fees include trading costs and pay for overhead, the management team and your compensation. She adds there is one exception. “In some cases we may own a mutual fund or ETF in a fee-based account, where other small fees apply. If so, it’s clearly explained to the client.”

Step 2. If your client is surprised…

  • Ask what her concerns are.
  • Go over the fee structure again, including who is paid what (e.g., firm and portfolio manager fees).
  • Suggest less expensive alternatives—perhaps that she should switch to a passive portfolio, which requires less management and, therefore, reduces costs.
  • If moving to passive management isn’t suitable due to the client’s stated growth needs, then re-explain why she has been placed in those funds.

Use these sample scripts

For investment advisors

I’m an advisor with X firm. I understand you’d like to look at ways to grow your portfolio. And, based on what we’ve discussed, I’ve structured this investment proposal for you. It includes: [List items such as portfolio summary, opportunities to diversify, risks and potential rewards].

The total cost of all services provided will be X% of your total assets at this firm, or trailer X. This is your annual fee [$X]. This amount pays me for my work. Included in your fees may be:

  • financial planning;
  • tax planning;
  • investment research and advice;
  • portfolio management;
  • banking services (i.e., arranging loans);
  • charitable/philanthropic endowments;
  • intergenerational wealth transfer strategies;
  • corporate executorships;
  • goal/objective monitoring and reporting;
  • performance reporting;
  • education funds planning; and
  • cash flow and income management.

The fee also covers a variety of costs, both for third-party fund managers and my firm. These include: administrative fees for maintaining the account, such as custodial, reporting and trading expenses; CRA tax filing obligations; and research on securities and portfolio managers. It also includes business costs such as rent and administrative assistance.

Note that you aren’t surcharged for any of these services—they’re embedded within the total cost. My clients pay me, not my firm.

Let me know if you have any concerns [If that’s the case, offer some less expensive alternatives, including switching to a more passive portfolio. But also explain the client won’t be able to choose his/her investments].

Source: Doug (last name withheld), a Calgary-based advisor

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