Investment: Do You Know How Much You Pay?

One of the most significant investment methods made in the Canadian Investment Market is via Mutual Funds.

Mutual Funds are manufactured by a person or group around a method of investment and risk comfort level. The fund has a fund manager or team which place the trades in accordance with the risk level of those who would be the investors - you.

These people charge the fund a fee. The more money in the fund, the higher the fee since the fee is a percentage along with in some cases benchmarks for bonus fees. Witinin the fee is a Managemnt Equity Ratio which usually pays the income or commission of a fund advisor.

A fund Advisor guides clients usually with financial advice. The advice is based upon goals of clients to a given time horizon for eventual use of the money.

What many people do not know is that there are varying ways of charging you for the fund you have selected through an advisor. Also, there are various advisors and not all of them charge the same way.

The wealthy usually do not wish to pay high fees and neither should you. And yet, it would appear that the less money you invest the higher you pay when using an advisor. Put another way, once you pass certain levels of invested money, the more power you have to reduce what is charged to you. Yet there are some advisors who will give you a break right away, depending upon how they run their business.

So the goal you should start with, is 'to know how your advisor is paid'.

Your options, while defined in the 'simplefied prospectus'- (a kind of menu of cost and Risk or rule book provided to you by your advisor for each fund you own) may not at first be clear to you. But this booklet tells you how much you pay the advisor and the mutual fund company out of your fund which therefore reduces your overall investment return.

While it would be quite nice if the advisor were like a maitre'd in a restaurant, highlighting risks, costs and generally explaining the more subtle aspect of an investment while you consider your investment choice, many advisors simply guide your attention to Series A or what I call the 'retail' part of the menu rather than the wholesale menu that is also there for you to be aware of.
In the 'wholesale' section, after the retail area or series A, you should be able to locate Series F.

Most mutual funds have various series which have different costs to you.

Series F cuts your Fund costs in half and also cuts the income of the advisor by relieveing the Fund Company of the duty of taking from your fund and remitting to the advisor a commission.

With Series F the advisor is required to deal with you directly and ask permission of you to accept a certain level of cost. In other words-negotiate with you. Series F gives you the control of the relationship. Series F is the cheapest way of dealing with an advisor due to this aspect of negitiability. In series A there is minimized negotiability.

If you use a financial advisor, you should make it your first order of business and continued order of business every year to examine what you pay the advisor, since it comes right out of the 'return' of your mutual fund (s) and your return on investment.

Let me ask you a question. When was the last time you negotiated your cost of investing?

DO YOU KNOW HOW MUCH YOU ARE PAYING?