The first question that comes to mind when one decides to invest is how much will I pay as an expense. Today we will educate you on the numerous kinds of advisory fees so you walk in confident in your first-ever investment meeting. Good luck!
Management expense ratio
The management expense ratio is a significant expense that the financial advisor will charge when investing in mutual funds. MER is charged on an annual basis. The final figure is based on portfolio analysis and combines management fees, operating and security expenses, and commission.
If you are wondering where the advisor fee is mentioned, go straight to the prospectus section of the agreement on the contract. MER costs are paid directly from the amount you wish to invest. Thus, they reduce the investment amount. The MER expense is charged regardless of whether the fund is doing well or poorly.
The amount an investor earns off of the mutual fund is the final figure after MER deductions. The more the fund does well, the higher the MER will be.
The intention behind charging the MER is to pay the managers, legal, administrative, marketing, and tax expenses related to the fund. It is calculated as:
MER= Annual Fees + (Annual Expenses/ Net Assets)
Sales Load
The sales load is often called the sales commission. It is a payment to the dealers associated with purchasing or selling the fund.
Initial Sales Charge
The first form of the sales commission is paid upfront and received by the investment firm. The percentage can sometimes be up to five per cent, and that money goes to the financial firm you have hired. However, the charge is not fixed and is entirely negotiable.
Let’s learn how the initial sales charge works through an example. When you decide to hire a firm for a $100,000 investment at a two per cent initial sales charge, the amount invested is $98,000, with $2000 going to the firm.
However, you will experience that the front charges are no longer practiced. The reason is competitiveness. Upon hearing the high initial sales charge, many investors take the investment to a different firm with no or minimal initial charge.
Deferred Sales Charge
In layman’s terms, deferred means over a certain period of time. Making the definition related to the topic at hand, the investment firm will charge the deferred sales charge over the number of years you stay with them. Some firms will decide to waive the fee if you continue investing with them for an extended amount of time.
Low-load sales charge
With the modern financial business practice in place, most investment and advisory firms are not even charging the two types of commission mentioned above. The new practice claims to be straightforward.
You are asked to pay a commission when you sign with the firm. The contract will mention no fee will be charged if you decide to say with them for two years. For the initial two years, the fee is usually around two per cent.
The average financial advisor fee in Canada
The financial fees charged by firms are mostly inversely proportional to the amount being invested. If you are investing one million dollars, the fee percentage is likely to be around one per cent. However, as we move on the investment scale, an investment of five million dollars will result in a 0.8% advisory fee, which translates to $42,000 a year. The advisory fee depends entirely on the contract terms or based on a competitor’s analysis for marketing reasons.
About Us
Merrick Financial Inc.( Fee only Financial Planner) offers you competitive market-relevant commission rates based on high investment returns and minimal gearing. We protect your investment like it is ours, so call us at 416-822-1702 and let’s schedule a meeting today.