Investment fees used to be hidden from view, but recent competition has made them more transparent and lowered costs—great news for investors!
For years, Canada’s major banks dominated retail investing, introducing professional investment management to the public. But now, with new entrants and innovative technology, investors have more choices than ever. Not only has this improved transparency but it’s also reduced costs, allowing you to see the true impact of fees on your investments.
Asset Allocation: The Key to Returns
While fees matter, asset allocation—the mix of investments in your portfolio—is the most important factor driving returns. A well-structured portfolio can outperform, even with slightly higher fees. For example, the difference between a 100% equity portfolio and a 60% equity/40% bond portfolio is much larger than the difference caused by a 1% fee between two similarly balanced portfolios. Getting the right asset mix should always come first.
A 2018 study by the Investment Funds Institute of Canada showed that investors who work with an advisor accumulate 3.9 times more wealth after 15 years than those who are not advised. Why? Advisors don’t just help with asset allocation—they bring significant added value by offering:
- Personalized financial planning tailored to your unique needs and life goals, giving you a clear roadmap and a framework for handling the financial events that occur throughout your lifetime.
- Tax optimization strategies to minimize the loss of return to annual taxation.
- Behavioral coaching to help you avoid emotional investment decisions, especially during periods of market volatility.
- Retirement income planning to ensure you have a sustainable income in retirement, optimize taxes, and know the best time to withdraw from accounts.
- Portfolio rebalancing, to take advantage of relative performance.
- Continuous monitoring, and ongoing proactive advice, to ensure the investments held are best for your overall plan and current economic conditions
The Value of Financial Advice
While low-cost index funds (with fees as low as 0.20%) may seem attractive, they don’t provide the personalized advice you need for critical decisions like asset allocation or tax planning. Fintech platforms like WealthSimple and Questrade offer automated solutions for asset allocation for an extra 0.30% to 0.50% in fees, but they stop short of delivering the full value that an advisor can provide.
At Protect Financial, we prioritize balancing low fees with personalized advice. Because of our independence and the size of our combined asset base with our parent company, Capcorp, we can offer fees that are lower than typical retail investment options, such as those from banks. Our clients receive comprehensive financial advice from our wealth advisor, Cory Wilson, including retirement and tax planning, all at a low cost that decreases as your assets exceed $500K, $1M, and $3M.
Finding the Right Fee Structure
Investment fees can come in many forms, with the most common being:
- Brokerage fees: Flat fees per trade or cost per security, typically $0-$10.
- Investment Management fees: A percentage of assets expressed as an annual fee. Sometimes these fees are charged overtly and sometimes they are embedded by deducting the cost before returns are credited to investors. In recent years, many companies have switched to showing the fee charged by the advisor overtly, while the fee from the fund manager or fund management company is embedded by deducting the cost before returns are credited to investors. These can vary widely depending on the investment vehicle.
We are pleased to see increased fee-transparency for Canadian consumers. While the chartered banks did bring professional portfolio management to the Canadian marketplace, they charge too much. Those that flaunt low-fee index fees are ignoring the fact that fees aren’t the first determinant of long-term rates of return. If you have the ability to properly determine your asset-allocation among investment types and geographies, properly rebalance, properly plan ahead into the future to reduce and defer taxes, and maintain discipline during all types of economic conditions, 0.20% may be the right cost for you.
Reach Out for Your Free Consultation
At Protect Financial, we believe fees should be low, but advice should never be compromised. We offer some of the most cost-effective solutions in the market while ensuring you receive the financial planning and wealth management support you need to achieve your goals.
Contact us for a free consultation and personalized retirement plan!