FP Answers: Am I paying too much in portfolio management fees?

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By Julie Cazzin with Allan Norman

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Q: My husband Jim and I have a $2.5-million portfolio of investments made up of stocks, mutual funds and exchange-traded funds (ETFs) with the wealth management branch of one of the Big 5 banks. Our annual fees, based on the size of our portfolio, were $30,000 last year. This seems exorbitant, given that about one-third of our portfolio is sitting in dividend-paying stocks that we don’t plan to sell.

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We are retired, in the top tax bracket, and don’t need any income from this portfolio. We plan to leave the proceeds to our five grandchildren when we die, so we’re in for the long term. What is the best way to go about removing, in kind, a portion of our stock holdings without having to pay huge fees? And do you foresee any problems in splitting our portfolio into two separate accounts, one with the bank, and one self-directed online? — Margarite in Timmins, Ont.

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FP Answers: Margarite, your question reminds me of an article I recently read suggesting that “many investment advisers are charging Picasso prices for painting by numbers.” This is leading some investors to question just what, exactly, are advisers doing for their fees.

To your first question, it is easy to move a portion of your portfolio to a self-directed account at very little cost. The bank website may list the fees. Open a self-directed account, log in, download and complete a transfer form, which you will send to the bank. Ask for a partial, in-kind transfer and identify the stocks you want to transfer when completing the form.

Alternatively, instead of transferring the stocks, you can ask your bank adviser to not charge fees on your stock portfolio, which they may or may not do. But it’s worth asking.

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As for your second question, there may or may not be problems splitting your portfolio into two accounts. It is possible the percentage fee charged on your bank portfolio will rise if you drop below $2 million in investments, or some other specific level. Even so, this likely won’t be a deterrent from moving some of your account.

Are you comfortable and do you have the time to manage a stock portfolio on your own? I know you’re holding your stocks for the long term, but something may happen someday that warrants a change.

I’m curious: what’s stopping you from moving everything to a self-directed account and saving the entire $30,000 in fees per year? I’m not sure how you are investing, but perhaps a mutual-fund/ETF portfolio would be easier to manage on your own than a stock portfolio.

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This brings us back to “what exactly is your adviser doing for you?” They must be doing something right, otherwise you would probably move all your money. Your adviser is managing your investments, but they’re also likely helping you with the bigger picture. That is, making sure you’ll be able to maintain and enhance your lifestyle over your lifetime, without the fear of ever running out of money, no matter what happens.

Doing this requires monitoring the growth of your investments, home, and other properties and assets, watching the different sources of money flowing in and out of your liquid accounts, and learning about your current and future lifestyle expenditures, so they can help you make the best — and most tax-efficient — use of your money.

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It’s a service that helps you make good financial and lifestyle decisions, allowing you to confidently spend money in retirement knowing you will be alright. That is financial freedom.

Once you move a portion of your account from your adviser, they will no longer have direct access to account values and tax information, making their role as your planner more difficult, but not unsurmountable.

If you’re wondering if your current fee is too high, I am guessing you’re being charged one per cent on your $2.5-million investment portfolio value (about $25,000) + 13 per cent HST in Ontario (about $3,250), which is not out of the ordinary. On your stock portfolio, the fee is about $9,322 before tax, and $5,275 after tax on a non-registered portfolio, with a marginal tax rate of 43.41 per cent.

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You can control your adviser’s compensation by moving a portion of your investments, but the final decision is up to you. It’s up to your adviser to demonstrate their value to you. In the end, I suspect you both want to ensure you’re all treated fairly.

Allan Norman, M.Sc., CFP, CIM, RWM, provides fee-only certified financial planning services through Atlantis Financial Inc. Allan is also registered as an investment adviser with Aligned Capital Partners Inc. He can be reached at www.atlantisfinancial.ca or alnorman@atlantisfinancial.ca. This commentary is provided as a general source of information and is not intended to be personalized investment advice.

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