How much do you pay for your investment advice?

Canadian investors pay the highest investment fees of any developed country in the world – on average 2.4% of assets under management. That has massive implications for our long-term wealth and well-being, yet few of us actually understand the fees we pay.

The good news is that we’re in for a big change. 2015 will be a watershed year as the Client Relationship Model 2 (CRM2) reforms are implemented, requiring investment managers to clearly disclose fees to their clients… get ready to be shocked. [1]

CRM2 will make fees easier for you to understand
Investment fees are confusing. In addition to investment management fees, most advisors charge trailers (sales commissions), operating costs (e.g., custody, trading, and admin), and HST. They are often charged at different times and sometimes by different institutions, making it difficult to understand your total costs and compare across various options. After July 2015, CRM2 will require Canadian investment managers to disclose all fees in one standard, easy-to-understand number called MER (“Management Expense Ratio”), expressed as a percentage of assets under management [2].

Smart investors know that small changes in fees lead to big differences in wealth in the long run
Fees matter. Even small differences in fees can lead to meaningful changes in long-run portfolio values.

Take the real-life example of John, a 32-year-old Wealthsimple client who works as a lawyer in Toronto (we’ve changed John’s name to protect his identity). When John approached Wealthsimple, he believed that he was paying 1.0% in fees on his $50,000 portfolio with another firm. When the Wealthsimple team investigated, we identified that the 1.0% fee was only the trailer commission. John’s portfolio also had a management fee of 1.4%, making his total MER 2.4% - just above the Canadian average (and ridiculously high).

While it may not seem like much, the implications are huge. By the time John retires (let’s assume at 65), his investment portfolio would grow to $148,303.66. If he had been paying only 1% in fees like he believed, it would have grown to $233,928.92 - a staggering $85,626.26 difference in his long-term net worth from fees alone.

Wealthsimple believes in fee transparency and goes beyond CRM2
We believe in transparency and go well beyond CRM2 requirements to help our clients understand their investments.  We disclose all fees as a simple MER on our pricing page plus we show how much you pay in fees directly on your dashboard. You can sign-in from anywhere to see the numbers you care about: how much you put in, how much you’re up, what you paid in fees (yup, fees too!), and what your portfolio is worth today.

We believe you should always know how you’re doing and what you’re paying for. We’re excited to know that CRM2 will bring greater transparency to Canadian investors.  Wealthsimple is at the cutting edge and we plan to make it easier than ever for Canadians to invest with complete transparency.

With Wealthsimple, you can create a sophisticated investment portfolio, with complete transparency, at one of the lowest fees in Canada.  Invest with Wealthsimple today and join our community that believes in smarter investing.

Sources

  1. The Ontario Securities Commision has provided a CRM2 FAQ sheet explaining all three phases effective July 15, 2013.
  2. Check out the Globe and Mails article to better understand MERs here.
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