You may have to click on the above to enlarge it, but in the lower right hand corner, you will see the Management Expense Ratio (MER) for the iShares S&P/TSX Canadian Preferred Share Index ETF (CPD) or just click on the link to get a full preview. The point is, there is a cost, above and beyond what your Advisor's Fee is, that is not listed on your monthly statement (although there is a debate as to whether or not it should be, for complete transparency). In this case the MER is 0.51%. iShares (Blackrock) charges this for the Management of the ETF.
In the fine print: "MER: As reported in the fund's most recent Annual Management Report of Fund Performance. MER includes all management fees and GST/HST paid by the fund for the period, and includes any fees paid in the fund's holdings of other ETF's".
Your Advisor's Fee is tax deductible. The MER is not. So if you are paying your advisor a 1 to 1.5% fee and you have a portfolio of ETF's, your all in costs could be significantly different.
I just reviewed a prospective client's portfolio, all ETF's, that had a weighted average MER cost of an additional (approximate) .35%.
That is where a portfolio management company, like High Rock can give you an advantage. With our institutional division getting us wholesale prices for a number of the securities that we use in our client models (see Paul's blogs from last week) we rely less on ETF's and as a result are able to whittle ETF MER's (on a weighted average basis) down to somewhere between .05 - .08% (depending on the composition of your portfolio) of a total portfolio.
So we charge a 1% management fee, plus a .15% fee that our custodian levies on us (including trading costs) that are all tax deductible. Include our .08% MER fees and all in it is 1.23% (with 1.15% tax deductible)
That is a much better deal than paying 1% to an advisor, plus .35% MER costs. All in at 1.35% (and only 1% tax deductible).
Our 1% management fee gets you a Wealth Forecast (by a CFP professional), monitored and reviewed every 6 months at a minimum, portfolio management from managers who have been in the business since the 1980's (who have seen the market crashes of 1987, 1997, 2001 and 2007) and have the experience to handle it when it happens next and understand the risks involved, as well as the fiduciary responsibility that you only get with discretionary portfolio management.
What are you paying for?
Something to consider.
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist