It has been a while since I’ve opened up the mail bag to share. This time around, I received an email from Jeff looking for advice on how to reduce his investment fees.

Here is the email:

How do you go about investing in stocks without attracting fees. As it stands now – I give my money every month to a financial advisor and they invest my money for me. Now, my question is – I could go and invest in BMO or something else through my advisor – but I also cringe at the fees that I am likely to be charged – just like I cringe at what I’m being charged inside my mutual funds.

So – how do you do it without seeing those fees? Is it as simple as signing up to E-trade or something else?

Anyways, it seems like cutting out the middle man – the financial advisor – may not be a bad idea – specifically when I see that a lot of these people do not seem to have much more knowledge about the industry then I do.

Lets start off by taking a look at how some financial advisors are compensated. To my knowledge, there are typically 4 ways:

  1. Salary + bonus. The personal finance banker at a big bank who has access to mutual funds exclusively typically get paid on salary with bonuses given depending on total account size (ie. CIBC).
  2. Percentage of clients portfolio. The independent financial advisor, who may work under one of the bigger, high net worth companies like Scotia Mcleod, or CIBC Woodgundy, get paid a portion of the value of your portfolio. This fee is typically 1% of the total value of your portfolio / year. These advisors typically have access to all sorts of investment instruments, often with lower MERs to offset the annual charge.
  3. Commission only. There are a bunch of these advisors around, for example, RBC advisors. These financial advisors do not get paid unless you purchase one of their mutual fund (or insurance) products which typically have higher MER’s. A portion of the MER is kicked back to the advisor on a monthly/annual basis.
  4. Fee only planner. These guys usually work under an independent firm and their advice is usually unbiased as they don’t receive kickbacks for their recommendations. I don’t have much experience with fee only planners, but I imagine that they get paid on an hourly or per visit basis.

So Jeff, seeing the above list, you might not be “ripped off” per say, but paying for a service. Hopefully your advisor is looking out for your best interest and not his/her own. If you have a “good” advisor, and don’t have the time to research the markets yourself, then the fee may be worth it.

I think one of the biggest red flags to look out for in an advisor is if the portfolio contains a bunch of mutual funds with high MER’s (see and deferred sales charges (DSC). If that is the case and the portfolio is under performing, then evaluate the DSC penalty for leaving and find someone else. Check out WhereDoesAllMyMoneyGo for more info on how the advisor benefits from mutual fund sales.

To “cut out” the middle man, you’ll have to spend more time to research investment instruments based on your risk tolerance. If you want to stick with DIY mutual funds and want to reduce your fees, then you’ll have to go with index based funds. The TD E-Series is a popular place to start looking. Other low cost brokerages allow mutual fund purchases/sales, but typically charge extra.

If you want to trade your own stock or ETF, then you’ll have to pay commissions for every trade and be comfortable with doing your own research. Check out my comparison post of Canadian Discount Brokers for various fees/commissions side by side.

Do you guys have anything to add?


Photo credit: Nieve44/La Luz


  1. Robert Hof on May 14, 2008 at 10:55 am

    I’ll bet the readers of PF blogs such as MDJ are much more active planners of their financial future, and as such, have a higher than average understanding of (or at least interest in) their financial well-being. I count myself in this category. I’ve been an entrepreneur for most of my working life, working hard for that early retirement.

    That being said, I wish I had met my financial advisor 10 years ago. Sure I’ve had RRSPs, I’ve had an Investorline account. But I’ve come to learn that picking stocks is not the core function of a good advisor. Defining the goal, and creating and implementing the plan – these are at least as important as picking stocks. This is where a good advisor is worth every penny they make and more.

    They say a little knowledge is dangerous. I’m not about to entrust my future to some yahoo who gets all his information from PF blogs and Chapters. You know who that yahoo is? Me.

    Ladies, Gentlemen, get a good independent CFP-certified advisor. Get references! Learn that you have much to learn, and don’t let your ego get in the way.

  2. on May 14, 2008 at 12:12 pm

    Thanks for the link!

    All the big 5 banks’ have full service brokers: BMO Nesbit Burns, RBC Dominion Services, CIBC Wood Gundy, ScotiaMcLeod, TD Waterhouse Private Investment Advice. All 5 have the ability to use the traditional transactional approach, fee-based (where a percentage of assets is used, but usually doesn’t get down to 1% until you are at $1,000,000 or more), and very few full service bank advisors offer fee-only but I believe they all have the option (this can be hourly or a flat fee of $x,xxx for a financial plan, an IPS or both).

    Having said that, off the top of my head there are some ways to reduce fees:

    If you are going to use mutual funds in a non-registered account, you can use a f-class version of the fund with a fee based advisor. While the cost may be the same, the trailer to the advisor may be tax-deductible.

    You can negotiate your commissions with your transactional advisor if you do choose to use one.

    You can write put options on stocks you want to buy (you receive the contract premium which may fully offset the commissions you pay to buy the stock if the stock gets put to you). Maybe a good topic for a guest post on MDJ? :) There are some drawbacks to this method (such as the stock falling much below the strike price, or never getting to the strike price and increasing before you can buy it).

    You can write call options on stock that you already own instead of using limit sell orders. Again you collect the contract premium while you wait for your stock to hit the price you have determined that you want to sell at. Again, the risk here is that incredible news develops which sends the stock into orbit forever, and you may have preferred to keep the stock if you had known this. With the call option contract out there you are obligated to have your stock called away.

    Just some thoughts shooting from the hip.

  3. Digger on May 14, 2008 at 12:17 pm

    Another way to cut down on the fees is to enroll in a company’s DRIP plan. If the plan also has an OCP (Occasional Payment Plan) you can buy more stock without incurring any fees. This type of stock purchase would be good for solid dividend companies that you plan to hold for a long time.

    No fees to invest in a good stock.
    Dividends automatically reinvested.
    Ability to hold part shares.

    A bit of a hassle to set up initially.
    Shares are purchased at specific times so there is less control over price.
    Selling shares takes longer.

    I wouldn’t suggest this for all stocks but if you had a small amount of money each month that you wanted to invest in value stocks this could be a good way to go.

    For more information:
    See “Dividend Achievers List” article on Million Dollar Journey.
    Derek Foster’s book “The Lazy Investor”
    Canadian Drip website –

  4. Personal Money Tips Blogger on May 14, 2008 at 12:54 pm

    If you know what you are looking for, know when to sell, and have the time and interest in following your investments, then investing through a discount brokerage makes sense. The trade off you make is your time versus the money you spend on an advisor: The less you spend on your advisor means the more you spend on it yourself.

    You are paying your advisor to watch your portfolio, make recommendation, and provide help and advice. You pay a premium for the service and if you are not getting service, get another broker.

  5. The Financial Blogger on May 14, 2008 at 10:48 pm

    You might think that I am preaching for my own kind but dealing with a real financial planner will give you much more than only good trades. He should be able to make a financial plan so you can achieve your goal without much effort

    This is priceless. Don’t try to cut down on the fees but try to get the best out of what you pay for!

    Remember that: If you cut down on the fees, you will never be able to buy a Bmer…

  6. Good Stock To Invest In on May 15, 2008 at 6:37 am

    For our successful growth in investment business we need some experts and to invest on any stock we have to pay some amount as process fee. This might be a big amount. By following these tips we can surly reduce in our investment fees. thank you for the information.

  7. Al on May 15, 2008 at 10:07 am

    It was financial planners that got people into ABCP. I’d rather do it myself than take that kind of risk.

  8. Dividend Growth Investor on May 15, 2008 at 1:14 pm

    You can also save on investment fees if you use drips or SPP

  9. Best Stocks To Invest In on May 16, 2008 at 6:30 am

    The tips given to reduce the investment cost will really help the small investors. They will be investing less amount and the fee that they has to pay will be high. Thank you for the information.

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