What are the Average Financial Advisor Fees in Canada?
When people are comparing financial advisors they often ask, what are the average financial advisor fees in Canada? This question ties directly into one of the core investment principles that we believe in; “Use low-cost investment vehicles and minimize transaction costs.” The fees that you pay for your investments and planning directly impacts the performance you receive. There is no better way to increase return than to pay less in fees. Two major components make up investment fees in Canada: the fund level expense and the firm level expense. For this article, we are going to focus on the firm-level expense, which is often referred to as a commission fee, trailer fee, or advisory fee. If you want to learn more about the overall investment fees then you can watch our video here.
A handful of years ago the financial industry reached out to investors and promised them an olive branch when it came to fee transparency. This program is known as CRM2. The multi-phase program only had one goal when it was created, help Canadians gain a better understanding of the fees that they pay to their financial advisor. According to the Morningstar Global Investor Experience Study: Fees and Expenses, Canadians pay some of the highest investment fees in the world.[i] This is in part due to general blindness towards fees as well as an overall misunderstanding of them.
Many people wrongly assume that they do not pay commission fees, trailer fees, or advisory fees when they do. To make matters worse when Canadians were polled about the advisory fees that they pay, 58% of them claimed that they did not pay them at all, while another 25% were unsure.[ii] This only leaves about 17% of Canadians who are aware that they pay their advisor through a trailer or advisory fee. We want to make it clear that the vast majority of Canadian investors do pay trailer fees, commission fees, or advisory fees although they might not be aware. This massive disconnect between Canadian investors and the financial industry has been a major point of contention and although CRM2 did help bring some awareness and transparency to this problem, it did little to force firms to disclose all of the fees you pay for your investments; the worst of which is the partial disclosure of advisory fees.
In Canada, getting a clear understanding of this fee is quite complicated. Every firm has a different structure and everyone chooses to report it in their own way; even when writing this article we had to compile the numbers that follow from many different sources to provide you with the most accurate information possible. It is important to note that financial institutions will either bundle this fee into the Management Expense Ratio (MER) of a fund or they will charge it separately. If it is bundled within an MER then figuring out what portion of the total cost is represented by the advisory fee becomes even more complicated. According to Morningstar, the average MER on an equity fund in Canada is 2.28%.[iii] The problem with this number is that it does not break out the components of an MER fee any further, it is just reported as a whole number. It also includes both passively and actively managed investment options as well as mutual funds and ETFs.
As a general rule advisory fees are almost always on a decreasing scale based on how much money you have to invest. This is known as the percentage of asset method. According to AdvisoryHQ for a $1,000,000 portfolio, the average financial advisor fee is 1.02% per year.[iv] This means that you would pay $10,200 per year in advisory fees on that $1,000,000 portfolio. As your assets get bigger this fee drops. At $5,000,000 the average financial advisor fee is 0.84%, which equates to $42,000 a year in fees. Every firm has a different scale and with that scale comes different service offerings.
The cheapest and most basic offering is a do-it-yourself (DIY) option. This offering can be free if you choose to use a platform such as Wealth Simple Trade, but in most cases, will cost you $10 per trade. You should also note that DIY solutions do not provide you with any planning or investment support. The next step up from there is to use a robo advisor. In Canada, robo advisors are fairly new to the market but do offer several positive features including automatic rebalancing, risk ratings, and research based portfolios. In most cases, a robo advisor will cost you 0.40% per year in advisory fees.[v] So, what do you do if you want advice on things like reducing your taxes or saving for retirement?
Financial advisors come in many different forms and have varying specialties. Finding the right financial planner can be challenging. We recommend that you look for a planner that provides you with full financial planning and considers your unique situation. A thorough financial planner will design strategies that provide you with value in areas such as tax, estate, and peace of mind.
Now that you are more aware of what advisory fees should cost and are able to understand what you want to get for those fees we encourage you to put your advisor to the test. If you do not know, ask them what you pay in fees and ensure that they tell you each component and where it goes. If you are not receiving the level of planning you desire or feel that you do not need the planning at all, then it might be time to reconsider if you should be paying these fees.
At Camber, transparency about fees is very important. We want our client’s to know how much they pay and what they receive. Our advisory fees can be found on the services tab of our website and are on a sliding scale that ranges from 0.95% to 0.30%. Overall, we believe that advisory fees should be earned not expected or hidden. A trusted financial advisor should focus more on gaining an understanding of your money rather than trying to pick a hot stock. At Camber, we provide comprehensive solutions that are backed by data and are designed specifically for your situation. We hope that you enjoyed this comprehensive look into the average financial advisor fees in Canada and can gain a better understanding of what you are paying, how much you are paying, and what you are getting.
[i] Kennaway, Grant, Jonathan Miller, & Christina West. “Global Investor Experience Study: Fees and Expenses.” Morningstar. September 17, 2019
[ii] Credo Consulting. “How Trailer Fees Affect The Value of Financial Advice.” July 13, 2017. https://credo.ca/how-trailer-fees-affect-the-value-of-financial-advice/
[iii] Kennaway, Grant, Jonathan Miller, & Christina West. “Global Investor Experience Study: Fees and Expenses.” Morningstar. September 17, 2019
[iv] Advisory HQ. “What are the Average Financial Advisor Fees & Investment Fees Being Charged in 2020?” https://www.advisoryhq.com/articles/financial-advisor-fees-wealth-managers-planners-and-fee-only-advisors/
[v] Wealthsimple. “Why Should I Pay a 0.5% Fee?” Wealthsimple Magazine. April 17, 2018. https://www.wealthsimple.com/en-ca/magazine/wealthsimple-fees