Research completed by the Investment Funds Institute of Canada (IFIC) shows that investors with advice are found to accumulate 3.9x more assets after 15 years than comparable non-advised investors¹.

Beyond investment returns, investors with advice from a full-service investment brokerage team also benefit from a wide range of integrated wealth services – including Private Banking, Financial and Estate Planning, and Trust professionals.

When considering the value of this comprehensive advice, fees are an important discussion point.

This week, we wanted to take time to further explain the three types of fees that are important to our clients: advisory fees, MERs, and bundled fees in separately managed accounts.

Every investor is different, and the relevance of the fees outlined below will vary by client.

Advisory fees (fee-based accounts)

For traditional investment advisory accounts, assets can be held in either transactional accounts, or fee-based accounts. The industry has made a shift toward the latter, as paying an annual fee, instead of commissions on each transaction, means investment advisors and their clients can make decisions without being concerned with individual transaction costs on each trade.

The advisory fee is calculated based on a percentage of the market value of assets, and would be charged at pre-determined intervals, typically monthly. The appropriate taxes are also charged.

A benefit of this structure is that fees paid to your advisor are tax-deductible in non-registered accounts, whereas transactional account commissions are not.

Management Expense Ratios (MERs)

When a client holds a mutual fund in either a transactional or fee-based account, they also pay a Management Expense Ratio (MER). MERs are made up of three parts: management fees, operating expenses, and taxes. The management fee portion pertains to investment management, and the due diligence portfolio managers and their teams do to make informed investment decisions. A portion of the management fee, called a “trailing commission”, can be attributed to your Investment Advisory team for the communication about the strategy that they provide. Operating expenses include reporting, tax slips, statements, accounting, fund valuation, and the cost to hold investors’ assets. Taxes are both GST and HST.

In the majority of cases, transactional accounts hold Series A funds, whereas fee-based accounts hold Series F funds. Series F funds typically have a lower MER than their Series A counterparts, as the investor pays a fee to their advisor through the account and not through a trailing commission included in the MER.

Bundled fees (separately managed accounts)

With an investment advisory team, clients can also access separately managed accounts (SMAs), which are managed on a discretionary basis by professional investment managers. The difference between an SMA and a mutual fund, is that all securities are held in the account holders name. This is to the benefit of larger asset sizes, and fees are charged at reduced, institutional rates.

In a separately managed account,  With the fee, the appropriate taxes are also charged.

Similar to advisory fees, a benefit of this structure is that the bundled fee is tax-deductible in non-registered accounts.

Conclusion

In understanding your investment objectives, Smith Falconer Financial Group (SFFG) is able to present you with a custom strategy, that is monitored and reviewed for years to come, to achieve long-term growth and peace of mind. These customized investment strategies typically include actively managed equity funds, in both the mutual fund and separately managed account models, where expectation of realizing pleasing results is higher with patience and time.

1https://www.ific.ca/en/articles/canadian-investors-value-advice/#:~:text=Helping%20investors%20achieve%20their%20financial,compared%20to%20non%2Dadvised%20investors