Fees, value and smoke and mirrors

Living in the ebb and flow of being a financial advisor you develop a relentless, yet intriguing, awareness to everything going on. Some experiences flow by, recognized but dismissed, while others resonate and cause further thought.

One of the areas that I wake up at night to ponder is how individuals and organizations can mislead. I am not saying they lie, they simply let you conclude something that may not be correct.

“Marketing departments in the financial industry will feed on whatever crumb of emotion they can find that aids their goal, regardless of what that goal may be and what the cost is to the client.”

So, let’s talk about fees. Would you hire an engineer that was the cheapest to design your roof? I would imagine you would hire the best engineer at the fairest price. I don’t know about you but sleeping through the night is conditional upon not having the thought of my roof collapsing on me while I slumber.

About the only network TV you can find me watching is hockey. Even then I will try to PVR the first hour so I can fast forward the commercials. Sometimes I don’t succeed at this task and must persevere. Most of the time I find the commercials around wealth management a little entertaining because I think no one believes this, right?

Wealth management is not easy. It is constantly bombarded with new, complex and emotionally driven messages. When a TV commercial says you can “retire up to 30% wealthier” because of low fees what are they truly saying?

They are implying that, all things being equal, having a 1% lower fee over time will provide you with 30% more funds in retirement (30 years later). Seems straight forward. We did some quick comparisons of very similar mandates and found that our investment partners outperform this low-cost advisor by between 1.25% - 2.75% per annum. So much for the 1%.

Even more important are the more qualitative aspects of wealth management. Let’s consider a just a fraction of the questions clients should consider:

• What type of accounts should I be saving for my goal in?
• How do I coordinate my insurance planning with this?
• How do I spend my retirement income in the most tax effective way?
• How do I build a portfolio to get the return I need with the lowest volatility?
• Who do I call when the stock market drops by 30%?
• Who is helping me with my estate planning for me and my parents?

It has been argued that a full service and highly skilled wealth management advisor/team could be worth north of 3% per annum. I will not get carried away and say that is always the case, but I know that we can add up to 1% per annum in portfolio tax planning alone.

What brought me to this article was a recent comment from a client. They had been told by another advisor that the costs imbedded in a mutual fund (MER) were not tax deductible. I have heard this many times before and as touched on above, this is a statement completely taken out of context and possibly repeated to feed a client’s false concern. If you truly want to know the answer to this, please reach out and I will happily walk you through the correct analysis.

Les Consenheim is a portfolio manager with Raymond James Ltd -Consenheim Wealth Management and can be reached at 372-8117 or les.consenheim@raymondjames.ca Raymond James Ltd. is a member CIPF.

This article is for general information purposes only. Individuals should seek professional advice prior to acting on any information referred to herein.