According to Advocis®, "people who receive financial advice accumulate significantly more financial wealth, are better protected, and are better prepared for retirement and unexpected events than people who do not receive advice."
There is a lot of research on the benefits and value of financial advice, but it also makes intuitive sense. Below is quick 2 minute video about the value that working with an experienced and qualified advisor brings you.
The Cost of Advice
It is our philosophy that every good advisor-client relationship starts with an open and honest discussion about fees.
Every mutual fund, whether you buy it from a bank, credit union, a group plan at work or from your financial advisor, will always have a management fee built into it. The operating costs of running the fund and the management fee are taken out of your fund on a fractional basis every day. These costs as a percentage of your investment are called the Management Expense Ratio or MER.
There are many criteria on which to evaluate a mutual fund, but the MER is important because the lower the MER the more you are left with in your pocket. You do not see the MER gradually being taken from the fund over the course of the year. All you see is your net return after fees.
For example, the RBC Canadian Dividend Fund has an MER of 1.76%. As of October 31st, 2022, the average annual return on this fund for investors has been 7.98% for the last ten years. Any time you see a return for a mutual fund, it will always be reported after fees. This means that the return of the fund was really 9.74% less an MER of 1.76%, which is 7.98%.
Whether you bought the RBC Canadian Dividend Fund through us at Manulife Securities Incorporated or your bought it from the RBC bank branch, it would have an MER of 1.76% and you will still end up with the same return of 7.98%. This is worth repeating because a lot of people assume that it will cost them more to deal with us than with their bank branch. Despite the value-added advice, buying a mutual fund through our office does not cost more.
The difference is that when you buy a mutual fund in an account with our office, part of that MER goes to Manulife Securities Incorporated. In this case, 1% of the 1.76% MER goes to Manulife Securities Incorporated. This 1% is called a "trailer fee". Our head office, in turn pays us a percentage of this trailer fee. That is income dedicated to our staff and expenses. Therefore, our compensation comes indirectly from the fees that are normally built into the funds.
When you buy the fund from the bank branch, you still pay the 1.76%, but you do not get the value-added advice and service our team provides.
Note: Some advisors charge fees to buy, sell or switch mutual funds. Some advisors put clients into funds with Deferred Sales Charge (DSC) or back-end charges. We do not believe that these benefit the clients in any way, and we do not recommend any of these funds or charge any of these fees. It does not cost fees to buy or sell funds through our office.
The commissions around stocks are a lot more straightforward.
If it is determined that buying a stock is appropriate for the clients account, a commission of 1% is charged to buy the stock and then if the stock is sold in the future 1% will be charged at that point. There is a minimum commission of $100. Although, you are allowed to buy small quantities of stocks, the $100 minimum makes it more economical and fee-efficient to buy at least $10,000 of a stock at a time. This also lends itself to buying stocks only in larger portfolios where a single stock purchase does not cause the account to lack diversification or expose too much risk to one holding.
In most cases, we believe in buying and holding good quality companies (stocks) for the long-term, which has the benefit of lower costs.