Canadians confused about fees, survey suggests

(September 8, 2005) Nearly half of Canadians say they have only a vague idea of how much they are paying in fees to those who are managing their money, a new survey indicates. But at the same time, two-thirds say their advisor or firm has provided information on fees, suggesting that what’s being provided might be inadequate.

Of those who said they did understand fee structures, 43% guessed they were shelling out around 3% of their total investment portfolio in fees. And 6% believed fees amounted to more than 10%.

Fees can fluctuate dramatically depending on the product, but management expense ratios for mutual funds combined with brokerage commission fees average around 3%, analysts have said.

The survey also found that 48% of Canadian investors believe they are paying too much in fees, 40% were comfortable with the fees they were paying and 12% didn’t know one way or the other.

Further, 43% said they believed the investment industry lacks clarity and transparency in disclosing the fees investors pay.

The survey was commissioned by Stratos Wealth Management, a new firm launched today by CMA Holdings, which also owns MD Management.

Although some of the findings appear contradictory, CMA Holdings chief operation officer Sandy Wilson says it’s pretty clear that Canadians are at the very least, concerned about fees. “Just as clear, there is a segment that is confused about what they are paying,” he adds. “We saw some numbers that were hard to believe, so it’s likely they are confused.”

“When we receive this kind of feedback, we try to respond by trying to be straightforward and provide clarity on the fees that we charge,” Wilson adds.

Stratos senior vice president Gord Robinson says the new Toronto-based firm will offer a menu of pricing choices for investors, depending on the level of service.

“The top level is relationship rich and involves regular face-to-face meetings with the advisor,” he says. “At the bottom level, the client makes the decisions in terms of the portfolio and we provide reporting based on that information. There’s also a middle level, where face-to-face contact is reduced, but telephone and electronic messaging is at a higher level.”

In all cases, Robinson says Stratos will separate product pricing from the incremental service component, so the client knows exactly what they are paying for. “There’s an additional option if a client wants a pure financial plan, in which case we will charge a one-time fee.”

MD Management has been providing financial planning for physicians and their families for more than 35 years, Wilson notes, and has received many requests for a similar model outside the medical community.

“It’s not exactly the same as MD, but it has a lot of the same elements and philosophy and we think it will be quite successful. We’re looking for professionals and small business owners who have reached a certain level of assets and are looking for an organization that can help them plan their future.”

The Decima Research survey questioned a relatively small sample of investors, 376, between the ages of 25 and 64 between August 18 and August 21. It’s considered accurate within 3.1 percentage points, 19 times out of 20.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com