Am I Paying Too Much?
Published: October 1, 2024
In my past, I often bought the cheapest product or service; however, I quickly learnt the old adage "You get what you pay for.". Often, additional costs would accumulate resulting in a more expensive and time-consuming result or my experience was notably sub par. Certainly, for larger purchases, I have learned to ask more questions and rely on referrals from friends and family.
Many investors want help managing their wealth. We try to help educate and guide clients so they can make an informed decision. Admittedly, the investment industry has been “murky” with respect to costs. Regulators now require all investment firms (excluding insurance companies) to provide a clear annual summary of their charges to clients and performance of clients' investments. This improvement in transparency was overdue and led competitors to cut costs.
Most of our clients operate under a fee-based service model. Clients pay a fee based on the size of their portfolio. Larger accounts pay a lower percentage overall. Because there are no commissions, and the fees are distributed among the investments held in the portfolio equally, we are unbiased and product neutral. For example, despite being TD employees, we have less than 5% of our clients' holdings invested in products offered by TD as of June 30, 2024.
Fees may also vary depending on your chosen strategy. For instance, a stock portfolio generally requires more expertise, effort, and transactions than a conservative portfolio dominated by bonds. Typically, fees on non-registered accounts are tax deductible. For example, if you paid 1.0% on your portfolio and you were in a 40% tax bracket, your effective cost would be 0.6% overall. These fees include all of our services and goes directly to TD Wealth Private Investment Advice. From there, we receive a portion which pays for our business expenses and livelihood.
What do investors typically pay? In 2014, PriceMetrix collected fee data on over seven million North American investors and published the average fees that investors are paying their investment firms are distributed as follows:
In my past, I often bought the cheapest product or service; however, I quickly learnt the old adage "You get what you pay for.". Often, additional costs would accumulate resulting in a more expensive and time-consuming result or my experience was notably sub par. Certainly, for larger purchases, I have learned to ask more questions and rely on referrals from friends and family.
Many investors want help managing their wealth. We try to help educate and guide clients so they can make an informed decision. Admittedly, the investment industry has been “murky” with respect to costs. Regulators now require all investment firms (excluding insurance companies) to provide a clear annual summary of their charges to clients and performance of clients' investments. This improvement in transparency was overdue and led competitors to cut costs.
Most of our clients operate under a fee-based service model. Clients pay a fee based on the size of their portfolio. Larger accounts pay a lower percentage overall. Because there are no commissions, and the fees are distributed among the investments held in the portfolio equally, we are unbiased and product neutral. For example, despite being TD employees, we have less than 5% of our clients' holdings invested in products offered by TD as of June 30, 2024.
Fees may also vary depending on your chosen strategy. For instance, a stock portfolio generally requires more expertise, effort, and transactions than a conservative portfolio dominated by bonds. Typically, fees on non-registered accounts are tax deductible. For example, if you paid 1.0% on your portfolio and you were in a 40% tax bracket, your effective cost would be 0.6% overall. These fees include all of our services and goes directly to TD Wealth Private Investment Advice. From there, we receive a portion which pays for our business expenses and livelihood.
What do investors typically pay? In 2014, PriceMetrix collected fee data on over seven million North American investors and published the average fees that investors are paying their investment firms are distributed as follows:
Investment Portfolio Fee%
< $499,999 1.4%
$500,000 - $999,999 1.3%
$1,000,000 - $1,999,999 1.2%
$2,000,000 + 0.8%
A few points to consider:
- Am I paying a fair price? You should feel your fee provides value by helping you avoid mistakes, make more money and/or save time. Ideally, you would benefit from a combination of all three.
- Does the advisor get any incentives to sell their firm's products? Furthermore, is your advisor continually acting in your best interest and avoiding all possible conflicts of interests?
- What is included in your fee? Administration, transactions, alternative investment strategies, strategies related to insurance, tax, estate and retirement planning are all things commonly included.
- Are there embedded (hidden) fees that are not obvious? This is still an area of confusion and requires greater transparency.
Our goal is to ensure our clients know what fees they are paying provide investors a quick and easy-to-understand overview so they can determine if they are receiving value for the service they pay for. As always, we are here to help if ever you want to review your costs and services.
**The views expressed are those of Eric Davis, Senior Portfolio Manager and Senior Investment Advisor, and Keith Davis, Associate Investment Advisor, TD Wealth Private Investment Advice, as of February 22, 2023 and are subject to change based on market and other conditions. Davis Wealth Management Team is part of TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc. which is a subsidiary of The Toronto-Dominion Bank. For more information: 250-314-5124 or keith.davis@td.com.
Until next time… Invest Well. Live Well
Written by Eric Davis
**The views expressed are those of Eric Davis, Senior Portfolio Manager and Senior Investment Advisor, and Keith Davis, Associate Investment Advisor, TD Wealth Private Investment Advice, as of February 22, 2023 and are subject to change based on market and other conditions. Davis Wealth Management Team is part of TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc. which is a subsidiary of The Toronto-Dominion Bank. For more information: 250-314-5124 or keith.davis@td.com.
