A Globe reader and her husband are happy with their investment adviser, but there's a problem.
They're not sure the fees they're paying are reasonable.
This couple, aged 65 and 61, have about $500,000 invested in mutual funds through their adviser. "We really like him - and want to keep the relationship positive and transparent," they said in an e-mail.
Here are some steps that all investors can take to see if the fees they're paying are a good value:
1.) Separate fees paid for advice and those charged to own your investments: This couple own mutual funds, so advice and investment fees are blended together and reflected in the management expense ratio (MER) for each fund in their portfolio.
2.) Assess the MER: This is easy to do – just use the mutual fund profiles on Globeinvestor.com to see how your fund returns compare both to the category average and the appropriate benchmark index. Funds that compare poorly over the medium and long term suggest an adviser who isn't paying attention to your portfolio. Don't put too much emphasis on one-year returns – they're not that significant.
3.) Assess the advice fees you're paying: The advice component of the MER is called the trailing commission and it usually amounts to 1 percentage point for equity funds and 0.5 of a point for bond funds. Advisers and their firms earn this money by providing ongoing service to clients that might include annual meetings and regular rebalancing, as well as broader financial planning.
4.) Mind the financial plan: The most effective financial advice starts with some analysis of your financial needs and goals. Your investments are simply a means to an end. If the services from your adviser include some form of planning – detailed discussions and possibly a written document – then that suggests you're getting some value.
5.) Is your adviser available? Do you speak at least once per year, and does she or he return calls or e-mails without fobbing you off on an assistant? Does your adviser ask you questions and encourage a dialogue?
Finally, schedule a meeting with your adviser to discuss fees and value. Let your adviser state his or her case before you make a final decision.
Rob Carrick