Does Your Advisor Add Value?

January 18th, 2017

Several years ago, I wanted to find out how much I was paying my investment advisor. After several months of research, I concluded that it was just about impossible to determine what I was paying my advisor based on the information provided to me by the financial institution.

I feel very strongly that if I do not know what a service is costing me, I cannot determine the value that the service is providing me.

As of January 1, 2017, this problem has largely disappeared. Under new regulations called “Customer Relation Model 2”, financial advisors must inform you of the amount that they charged you in the last calendar year and the rate of return on the investments that they recommended to you.

The Mutual Fund Dealers Association has published an informative brochure that explains these reports in detail.

The new Charges and Compensation Report show three sets of charges:

  1. “Amounts paid for general administration” – Examples include admin fees, transfer fees and trust fees.
  2. “Amounts you paid to us for specific transitions” – In plain English, these are front-end sales charges.
  3. “Amounts we received from others” – Examples include commissions from deferred sales charges and trailing commissions.

The brochure is very well done and includes a glossary that clearly explains what the different terms mean. I encourage you to read it so you’ll be able to understand your report when it arrives at your door or in your inbox.

At the same time, it is very important to understand what is NOT included in the reports.

The fund company management expenses are not reported. These are composed of the fund management fee and the fund operating expenses. To find out what these fees are you need to obtain a copy of the Fund Facts sheet for your mutual fund.

For purchases after May 30, 2016, your advisor was required to give you this document. Otherwise, ask your advisor for the Fund Fact sheet for the funds and the series that you purchased. The Fund Fact Sheet is a detailed document that is very clearly explained at

Every dollar you pay your financial institution in charges and compensation comes out of your pocket. Over time, these payments can amount to tens of thousands of dollars that otherwise could have funded your lifestyle in retirement. Instead, they fund your advisor’s lifestyle in retirement.

The other new report, the Investment Performance Report shows the changes in the value of your account. It includes the opening balance, the deposits you made, any withdrawals taken together with any changes in the market value of the assets in the account. All these are totaled to give you your closing balance.

The report also shows the rates of return that you earned, based on the activity in the account. Ask your advisor for a benchmark to compare returns with.
In summary, these two reports help you understand what you paid and what you got. A logical next step is to determine whether your advisor is delivering value.

Rob Carrick published the 18-question “Am I Getting Value from My Advisor Checklist” in the January 7, 2017 Report on Business. His questions include:

  • My advisor has gone through some sort of financial planning process with me.
  • My spouse’s views and goals are addressed.
  • My advisor has talked me out of panic selling in a down market.

At the end of the article, you can rate your advisor’s performance by comparing the number of your Yes answers with a rating scale which he includes.
I feel strongly that this is a very useful exercise and that you and your spouse owe it to yourselves to spend some time on this issue.

I will conclude this post with an offer. I suspect that some people are going to find the new reports and the Fund Fact Sheets a little overwhelming because of the volume of information.

If that happens to you and you feel like you’re “drinking from a fire hose”, I will be happy to spend up to an hour with you going through your reports. Just  send me an email or call me at 416-815-7200.

Speak to you soon!