This blog post is sponsored by Equivesto.
When you start investing, it can be very exciting when you begin seeing results. However you might notice that your returns are smaller than you anticipated. This could be for a variety of reasons, including the fees you are paying.
Different investing vehicles and scenarios follow different fee structures and business models.
Some of the most common fee structures are commission-based, fee-only, fee-for-service, management expense ratios (MER), and transactional.
Fees should not stop you from investing. However, it’s important to recognize what you are paying for and the value you receive from paying fees.
Fees you pay to advisors
Commission-based
If you work with a financial advisor, you may be charged a commission for the trades they make. It is the price you pay for convenience and to have someone else manage your money and make investing decisions. The commission model depends on the company you are working with and the services you are receiving.
Some firms charge recurring commission fees for the entire time they manage your investments. If you are paying these fees, ensure that you are in fact getting the services and attention you are entitled to. This means check-ins with your advisor and updated plans when life changes.
Fee-only
Other advisors charge a flat rate up front. They may charge $1000-$3000 for a detailed financial analysis and plan or an hourly rate, between $150-$400 depending on their qualifications, experience and other factors. If your life is more complicated and you have various goals, assets and liabilities they may charge more. Fee-service advice can be beneficial and more cost effective in the long run and it may offer less bias as the advisor does not make a commission off of the investment products they suggest.
Fee-for-service
There is also a combination model where a financial advisor makes a percentage of the total assets they manage and also a flat fee for additional services.
If you choose to work with an advisor, Certified Financial Planners are recommended because they have a legal obligation to look out for your best interests. This is called the fiduciary duty and not every financial advisor has this designation. For the most part, the most common percentage fees for in person financial advisors is 1%-2%.
Through robo-advisors you pay less in fees. Typically, online financial platforms charge below .5% in fees but they don’t offer as much customized advice and there is less human advice.
Fees you pay for investments
Management Expense Ratio
Once you start investing, you may notice that there are expenses you pay to own Exchange Traded Funds (ETFs) and Mutual Funds. One of these fees is the Management Expense Ratio (MER). The MER represents how much money you pay to own a fund. For example if an investor has $10,000 in mutual fund ABC, and the MER is .78%, the investor has an annual cost of $78. The Management Expense Ratio includes the management fees and operating fees incurred to run the fund.
Depending on the fund, the MER may include fees to compensate the team making decisions about the fund. This also includes paying for the tools they use to make calculations and market research.
There are also taxes and operating expenses (administrative costs) that are included in the MER. These include:
- Record keeping fees
- Accounting costs
- And legal fees among other expenses
The MER is automatically deducted from the mutual fund so you will not receive a bill at the end of the year to pay up. The fee is paid indirectly and the performance of your fund reflects the return after the MER is paid (net of MER).
Typically, mutual funds have higher MERs than Exchange Traded Funds because they are more actively managed. It’s a good idea to see how much your fees will cost you in the long run because it can really add up!
Transaction fees
Another fee you will may end up paying, depending on how you invest, is a transaction fee. These fees are common on do-it-yourself trading platforms and can range between $4-$10. When you buy or sell a stock, option, mutual fund, or ETF on a trading platform, you may be prompted to pay the transaction fee before making the trade.
Investing through Equivesto
Unlike investing in mutual funds and other equities that have transaction fees through the brokerage; investors never pay fees on Equivesto. This is because Equivesto makes their money through their due diligence fee and the success fee that is charged to the company they are helping. This also means that you are not paying commissions to the Equivesto team when you invest through them.
At Equivesto, you can discover great Canadian companies from various industries who are actively raising capital using their portal. Minimum investment starts at just $100 per company.
As an investor, you get access to the platform, the full list of offerings and all the details, and support from the Equivesto team. Outside the cost of their actual investment, there are no fees at any time for investors.
Equivesto is licensed to provide financial advice to their clients and to help ensure that their investments are the right fit for them. While you choose investments yourself on Equivesto, you can always set up a one on one appointment for detailed financial advice for your personal situation at no extra cost.
Access to private investment opportunities have historically only been available to the wealthy & connected. Equivesto has changed that.
Start investing today! https://equivesto.com/invest-ambitiously
