Investment fee transparency: Are you paying too much?

Investment fee transparency: Are you paying too much?

The Canadian Securities Administrators (CSA) introduced new requirements in 2013 to ensure that investors receive specific information about investment costs and how their investments have performed. These requirements were phased in over a 3-year transition period from July 2014 to July 2016. Known as phase 2 of the Client Relationship Model, or CRM2, these rules apply to all dealers and advisors licensed to trade.

Three key affected areas include:

  1. More information about transactions.
  2. More information about commissions, like what you pay to a broker or agent for their services (often called a “sales commission”). For example, you may pay a fee to someone who buys or sell stocks or mutual funds for you.
  3. More information about the performance of your investments.

So, how are we doing?

Credo Consulting is an independent research consulting company. They interviewed 5,000 investors, and asked the following question:

“As a result of the implementation of new standards for reporting to investors, are investors more knowledgeable with respect to the costs associated with their investing?”

Before the introduction of CRM2’s new reporting requirements, 67% of investors indicated that they felt their advisor didn’t charge them a fee for their services – that they effectively worked for free. Now, after the implementation of the new standards, people are seeing the new form of reporting that is required to disclose the cost of investment products.

There are now only 62% who think investment advice is free. Despite all the CSA’s work to improve disclosure on the cost of investment advice, Credo’s findings represent only a 5% improvement. Only 38% of retail investors are aware that they are paying for the advice they receive.

Therefore, as much as the statistics show that the implementation of CRM2 has likely had a positive effect, research also reveals that there is still room for improvement.

So, how do advisors actually get paid?

Commission-based accounts: clients pay their advisers through commissions associated with investments. These commissions are generally a percentage of the investment bought or sold. Commissions may be paid up front or may be buried in the cost of owning the investments. This type of account is becoming less common.

Fee-based accounts: clients pay fees based on a fixed percentage of the value of their portfolio. This type of account is becoming more popular. Fees are often paid on a monthly or quarterly basis.

But that’s not the end of the story if you hold mutual funds in a fee-based or commission-based account. Why?

Mutual funds: Mutual funds have internal fees that come out of your returns called management expense ratios (MERs). These fees typically range between 1.5% to 3.5% depending on the fund. The client pays these fees in addition to either fee structure listed above.

The advisor receives a trailer fee from the mutual fund company, which means that a portion of the fee, often 0.75%-1% of the MER, is paid to the advisor. And while some client investment statements list these trailer fees, this fee does not represent the entire fee paid by the client. The client is paying the full MER for each fund (1.5-3.5%), not just the portion that goes to the advisor (the 0.75-1% that is reported on your statement).

For example, let’s say John and Sue Smith have a fee based account with their advisor, for which they pay 1.5% of $300,000 – (the value of their portfolio). In addition, they hold 4 mutual funds for about half the value of their portfolio, or $150,000. These funds carry an average MER of 2%.

What are they paying in total on an annual basis?

  • $300,000 x 1.5% = $4,500
  • $150,000 x 2% = $3,000

Total is $7,500, which represents 2.5% per year on a $300,000 portfolio

If John and Sue are aware and comfortable with the fees they are paying, then all is well. Regardless, John and Sue Smith should know that lower fee options may exist for their portfolio.

From my experience in dealing with clients, many are still unaware of exactly what fees are being charged in their portfolio.

This kind of fee ambiguity would not be acceptable in any other industry, so why should it be acceptable in the financial industry? Imagine going to the grocery store and just handing over your wallet to the cashier and telling them to take whatever they feel is appropriate for your groceries. Unthinkable.

So what is a reasonable fee?

It depends on a variety of factors, including portfolio size, management strategy and whether or not you are working with an advisor.

Steadyhand, a low-fee mutual fund company, has assembled a great “Fee Tree” guide to what you should reasonably expect to pay for investment fees. I think the guide is pretty accurate based on my experience. For portfolios under $500,000, if you are working with an advisor and have an actively managed portfolio, you can typically expect to pay between 2% and 2.5%.

For portfolios over $500,000, fees would are typically between 1.5% to 2% and for portfolios over $1,000,000, fees generally fall within the 1% to 1.5% range. Passive or indexed portfolio fees may be lower, particularly those offered by robo-advisers, and may be in the 0.5% to 0.75% range (including exchange-traded fund embedded fees).

For Globe & Mail subscribers, check out Rob Carrick’s fee disclosure tool.You can disclose your investment fees – if you know them! – and see how your answer compares to others.

Of course, fees are certainly not the only consideration when analyzing your investment portfolio. As with all other areas of financial planning, individual elements need to be examined, such as:

  • How does your current portfolio harmonize with your financial planning goals and objectives?
  • Is your portfolio generally tax efficient?
  • Is your portfolio properly diversified? By sector and geographic location?
  • How has your portfolio performed relative to a benchmark?

Many clients I speak with say that they are pleased because their accounts have produced “good” or “positive” returns. That’s good to hear. But keep in mind that the S&P/TSX total return index was up 21% in 2016 and 9% in 2017. The S&P 500 was up 9% in 2016 and 19% in 2017, so… I really hope your accounts were up, too.

A better assessment might be how have your accounts have performed, net of fees, relative to an appropriate benchmark? If your portfolio includes bonds, Canadian stocks, U.S. stocks, international stocks, etc., you can’t compare the entire portfolio to a single stock exchange. You need to try to come up with a reasonable personal benchmark.

A comprehensive financial and investment plan will bring together all of the moving parts of your financial life and help you build a portfolio that is fully harmonized with your retirement and life goals and objectives.

In summary, CRM2 is a great start toward fee transparency and awareness, but clearly there is more work to be done. Next, it’s not all about the fees. At the end of the day, your goal should be to have a properly diversified, tax-efficient portfolio for a reasonable fee that is compatible with your overall financial plan.


  1. Bill Silverberg

    I am in a fee based arrangement with my investment advisor
    I am 81 years of age and still working. My wife is 75 and retired
    I am not happy with the performance of my investments (75% fixed 25% equity) as well as the fee based costs to manage my portfolio
    I would like to hear your thoughts on what alternatives there are to
    my present situation

    • Bryce Medd

      from my perspective, it is no surprise that your unhappy with your investment performance. With 75% of your portfolio in fixed income investments, your portfolio is neutered to create returns. It appears that you’ve structured your portfolio in the manner often recommended to older people. Who designed your portfolio? Was it you? Did you pay for the advice? What does your financial plan call for? It seems the retirement income planning strategy is poorly developed and needs help.

    • Nancy Grouni

      Thank you for your comment, Bill. I’m sorry to hear you are unhappy with your current investment strategy.

      You might find this summary of investment planning services helpful. If you wish, I am also happy to assess your specific investment planning needs during an introductory phone call.

  2. Steve Bridge

    Great article Nancy! Always good to have a fee conversation.

    One of the rarely discussed points is the compounding effect of fees. That $7500 per year in fees on John and Sue’s $300,000 investment will grow to $371,000 lost in fees over 25 years.

    The Ontario Securities Commission has a great fee calculator here –


    • Nancy Grouni

      Thank you, Steve! Yes, this is another good fee calculator. Indeed the compounding effect of fees is sobering to say the least.

  3. Dan Anders CFP, TEP

    Good article and well-represented. Fees are not the only consideration for investors, if they were everyone would do their investing themselves. Most are not suited for that challenge. It is purely academic to focus only on fees, and a fool’s game as the race to zero fees increases yearly. Eventually, banks will control all portfolios and people will really feel the lack of performance then! We believe in fair fees but investment structures that meet the client’s needs, especially as they age and retire.

    • Nancy Grouni

      Thank you, Dan. Agreed – it’s certainly not all about the fees. Many other planning considerations need to be evaluated when assessing the suitability of a client’s investment strategy.

  4. Trevor Wright

    Great article Nancy! We definitley need to get people to realize that they are paying fees, even though they don’t see them.

    One quick question,and I have recently left the mutual fund industry because I believe there is some conflicts that neither CRM1, 2 or even 3 will help to fix.

    The portfolio above you say has $150 000 in addition to the $300 000 invested with the fee for service advisor. Would that not make the portfolio value $450 000 in which case the actual fee % would be 1.67%?

    If the $150 000 is included in the total $300 000, then I find it abhorrent that the ‘fee-only’ advisor would be charging their fee on top of the trailing fee that they are receiving, which unfortunately is something that we see in the industry a lot.

    • Nancy Grouni

      Thank you, Trevor. Yes, the $150,000 mentioned above is included in the $300,000 sample portfolio I discuss – and you’re right, trailer fees in addition to adviser fees are not uncommon unfortunately.

  5. Jeff Conron

    Great article, Nancy. It’s shocking that with CRM2 legislation in effect for two years now that 62% of respondents still believe the advice they receive for their investments is free. I think the lack of awareness is partially due to the intangible aspect of investing in securities. An individual may be making regular purchases into an investment product (upon a recommendation from an advisor) and then generally don’t think or worry about it as the products have no physical quality to them (excluding any statements being received in the mean time). Retirement or a rainy day comes along and the money is now needed and all those years have passed (and fees have been paid). Financial planners have creative ways of educating clients on the fees paid and what services are being offered in exchange for said fees. It’s easy to quantify how fees paid place a drag on investment returns but what’s not so easy is attaching a value on, for example, creating a personalized budget or constructing a personalized retirement model, and the peace of mind (or wake up call) these services provide.

    • Nancy Grouni

      Thank you, Jeff! You make a good point – though more difficult to quantify than fees paid, it is very important to also assess the value a client is receiving for the fees paid.

  6. Pauline


  7. Gord

    How can the “Fee Tree” guide indicate that if you are in a DSC structure, you’re paying too much and should consider changing your relationship? If DSC’s are used properly, you shouldn’t have to pay any additional fees. The problem exists when advisors use DSC and then a few years down the road, suggest the client moves their investments to another fund and incur DSC charges. Pick a well diversified investment mix, with a fund company that is reputable and you should never have to pay DSC.

    • Nancy Grouni

      Thank you, Gord. Of course, there are other reasons a client may need to change their investment strategy along with way, before the DSC schedule matures. DSC fund holders would be penalized – and this is unfortunate and unnecessary since other non-DSC fund options do exist.

    • Margaret

      I had $175,000. In the TD Bank in 2014 and hoped to earn as much as possible in order to retire. My funds were transferred to CIBC on the advice of a family member. It is now 2022 and I am 77 years of age and continue to work as a nurse In this time of Covid as I am unable to afford to retire. My adviser invested all my portfolio in mutual funds. I would expect this was intended to line her pockets with fees but it did not help me. She left the CIBC branch this year and moved to another branch. She did not bother to tell me she was leaving! I now have approximately $203,000. In investments and have paid over $40,000. In fees and I am certain that is not the total amount she has earned. I have no idea what I am going to do!!! Thanks a lot CIBC. Any suggestions what I should do? I have no debt and own a condo worth approximately $240,000.

      • Gord McLeod

        See a fee only financial planner. Invest in ETF’s (Exchange Traded Funds) with low management fees, index funds for example. Follow the plan. Educate yourself.

  8. John

    Is there anyone in Canada who would charge an hourly fee to look over a portfolio and make suggestions to balance it and guide as to what to buy and/or avoid. I would like to pay a fee rather than give someone an ongoing percentage of my investments.

    • Nancy Grouni

      Hi John, thank you for your comment. Fee only, advice only, financial planning and investment planning services do exist. These services are strictly unbiased, since no product is sold. Therefore, normally, specific securities recommendations cannot be made. Asset allocation, product type, tax implications and rebalancing strategy are all discussed within the scope of a customized investment portfolio review.

  9. KM

    Having investing skill is very similar to having driving skill.
    Can you imagine what life would be like if one cannot drive in North America:
    a) Costly if you have to rely on a cab to drive you anywhere
    b) Frustrating if you have to rely on public transport (which may not be reliable) to get you to your destination on time

    The experience will be similar if you do not have investing skill and have to rely on someone to invest for you – costly and frustrating

  10. Peter

    There are so many comments I could make about this article. Some good, some bad. But one comment I will make is that people forget that whatever fee advisors make (double dipping is obviously a problem, but the percentage is low. Double dipping is having a trailer fee and a fee for fee structure on top…it should be one or the other, not both!)is based on a percentage. Why would the advisor build something bad. If the advisor doubles the clients money (KYC and risk tolerance is very important)then they double their income. For many that is incentive to do the best job they can. The client wins as does the advisors. What’s wrong with that!

    • Brian

      > Why would the advisor build something bad?

      Because the “advisor” (sales person as I call them) is not advising their client to buy securities that are actually best for the client, but rather having them buy whatever brings them in the most money in “secret” trailing fees.

      Trailing fees (and the resulting increase in MER to pay them) should be outlawed entirely in Canada, IMHO.

  11. Jim Hunter

    These companies have to report to you a number of items such as their Fees. Is there an actual reporting method they are supposed to use? I have received conflicting information from the company I use as to what my actual fees are.

    • Pedro

      Jim, I can tell you the following facts:
      Distribution fee for most mutual funds is 1%.This fee is included into the funds MER.(called A/B/advisor series)

      You can find the funds’MERs in the Fund Facts document which is available in every fund company’s website.

      Fee-based accounts just charge you a separate distribution fee (F series)

      So for example ABC Equity fund:
      Series A: 2.3% MER (distribution already included)
      Series F: 1.3% MER + 1% fee paid to your advisor.

      In both cases you are paying the same (2.3%) but the media tells people that they should have a fee-based account.

      You should also take into account that fund facts show the AFTER-FEES returns.

      Meaning that in A series, it will show you your return after all fees. So what you see is what you get.

      In the F series example, your fee will be deducted after the funds return. So your over the long term, your fund will say that it has a higher return that what you actually get in your account.

  12. K M D

    I am paying my financial advisor a 1% annual fee to manage my mutual funds PLUS a $25- per trade fee. Is this customary? And is the1% his share of the MER’s I am paying, or in addition? . (Note I am in Canada)

  13. R W W

    I have a fee based account with a lot of mutual funds. I also have preferred shares, common shares, GIC’S and bank notes My adviser only makes two or three sales per year. My adviser told me that my mutual funds will benefit if I have a fee based account. In this case do you think a fee based account is a good choice for me.

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