When explaining compensation, follow these three simple steps to ensure you cover all bases.

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

System 1 in action

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.

3.At the annual review

  • Discuss how the portfolio has performed, where her assets stand and, as a result, what her total costs are.

System 1 in action

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