Working with a Financial Advisor: How Do the Fees Work?

When hiring a financial advisor, it's important to understand how they're being paid. There are a number of different ways advisors get compensated for their work, but the main thing you need to know is whether or not those fees are being passed onto you in some way—either by charging higher management fees or through trailer fees (which charge based on the size of your account).

If your advisor doesn't make it clear which type(s) of fee they're using then don't hire them. You simply don't want someone who's trying to keep things murky, especially when it comes to your hard-earned money! That’s why being upfront about everything is our policy at Founders Wealth.

Financial Services Fees: Explained

There’s a lot of misconceptions in the current media about financial advisors fees, so we wanted to provide some context and clarity around how we earn a living. There are lots of different kinds of fees involved in how we're compensated, and understanding what each one means can help you make an informed decision about which kind of advisor would be best for you.

Let's start with the biggest ones: Management Ratio (or MER) and Trailers. The management ratio refers to the percentage of your investment that gets paid out in fees; for example, if your investment is worth $100K and the MER is 1%, then you'll pay $1K every year in fees. Trailers are similar, but instead they're based on how much money you've put into the account; so if your account has $200K total, but only $100K came from you then only those funds would be eligible for trailers.

Now let's talk about some smaller ones: Commissions and DSC or Deferred Sales Charges (DSC fees have been banned by the Canadian Securities Administrators effective June 1st, 2022). These apply when you sell your investments before they're supposed to be sold (for example, if you pull all your money out early); typically these are higher than normal fees because they're meant as an incentive to keep your money invested long-term rather than withdrawing funds prematurely.

Lastly, there’s Direct Stock Purchase Plans (DSP), which are exactly what they sound like—if you want to buy stocks directly from the company instead of through a middleman, then this is how it can be facilitated.

Types of Financial Advisor Fees

When looking for a financial advisor, it's important to know how they get paid. The fees can vary depending on the type of financial product you're investing in, so it's important to understand which ones apply to your situation.

The main categories of fees associated with financial advisors include:

Management Ratio (MER): This fee is charged based on how much money you have invested with the investment company. It covers the costs associated with running their business (e.g., office space, staff salaries, etc.). As your assets grow, so will the amount you pay in management ratio fees.

Trailers: These are payments made by mutual fund companies every time an investor makes a purchase or sale through them (similar to how commissions work when buying or selling stocks). They are intended to cover the cost associated with managing these transactions between fund companies and advisors' businesses.

Commissions: These are payments made by investment companies when an investor makes a purchase or sale through them (similar to how commissions work when buying or selling stocks). They are intended to cover the cost associated with managing these transactions between fund companies and advisors' businesses. Depending on the company offering this type of product, they may be labeled differently.

Fees for Service: In this case, the advisor charges a set rate and does not collect commissions.

More Questions?

We’re happy to help clarify the fees being charged to you on your current financial statements and answer any concerns you may have. Don’t hesitate to reach out!

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