I’ve been with the same full-service brokerage for many years. My adviser recently informed me that they are transitioning to a fee-based service from what has historically been a commission-based service. I rarely seek the advice of my adviser, and consequently he doesn’t make a lot of money from me. The prospect of paying more than $1,000 per month for services that I do not fully utilize is a bitter pill to swallow. However, I am learning that fee-based services (based on the account value) have become the industry standard. Am I correct that commission-based advisers have gone the way of the dodo, and that unless I want to move to an online trading platform I’m stuck?
You are correct that more advisers are moving to fee-based compensation, but the commission-based model isn’t extinct just yet.
According to a 2022 survey by investment management company BlackRock, about 71 per cent of advisers’ revenue came from asset-based fees, compared with about 24 per cent from commissions. The rest came from charges for financial plans and other sources.
For advisers, fee-based compensation has several advantages. It provides a more predictable revenue stream, and it reduces the amount of time the adviser spends recommending transactions to clients to generate commissions. This frees up the adviser to build his or her practice by bringing in more business and offering a broader menu of services. Fee-based compensation also reduces the potential for abuses such as account churning.
Typically, the annual cost of a fee-based account is about 1 per cent to 2 per cent of the client’s assets, which covers portfolio management and may include extras such as retirement and tax planning. But for a client who doesn’t require a lot of financial advice, it’s hard to justify spending thousands of dollars a year on asset-based fees.
So what are your options?
Well, you sound like an excellent candidate for a self-directed account. If you’re making your own investment decisions anyway, why not cut out the middleman and reduce your fees even further? You can set up a simple portfolio with a handful of index exchange-traded funds that will cost you less than 0.1 per cent on a continuing basis.
On the other hand, if you’re determined to work with an adviser, you may have some options.
I ran your question by Robert Cable, a retired financial adviser in Mississauga, and author of two investing books, Inevitable Wealth and Investing on Autopilot.
“It is getting harder to find a commission-based adviser. That being said, advisers do not need to be one or the other. They can offer both fee-based and commission-based accounts,” Mr. Cable said. “The adviser this client has been working with could almost certainly offer both but has, it looks like, decided to go entirely fee based. His decision. Clients don’t have to follow his path.”
He suggests that you contact the adviser to determine if the commission-based option is being removed entirely. If it is, he recommends that you contact the branch manager and explain that you would strongly prefer to remain on a commission basis and ask if there are other advisers in the office that offer that option. If it’s a hard “no,” you could then ask a few friends or associates if they know of an adviser who might suit your needs, Mr. Cable said.
If those efforts fail, it may be time to consider a discount broker.
The good news is that, if you decide to make the switch, you would be in a strong negotiating position. I’m guessing your portfolio is worth high six figures, or possibly more than $1-million, based on your comment about potentially paying more than $1,000 a month on a fee-based account. A portfolio of that size could qualify you for perks such as priority access to the discount broker’s most experienced agents, exemptions from administrative fees and cash incentives for moving your account.
For example, BMO InvestorLine (my broker) is currently offering $1,000 cashback to customers who transfer $500,000 to $999,999, and $2,000 for transfers between $1-million and $2-million. The cashback offer tops out at $7,900 for amounts of $3-million or more.
Even if you don’t see a cashback offer advertised by a certain broker, don’t be shy about asking. You’re in the driver’s seat with a portfolio of that size. The new broker should also cover any transfer costs and will facilitate all the paperwork on your behalf.
Mr. Cable suggests that you look for a broker that will give you access to the company’s internal stock research. The big companies are probably your best bet in this regard, as they have the largest teams of analysts and cover for the most companies. At RBC Direct Investing, for example, clients with at least $250,000 of assets get access to equity research from RBC Capital Markets.
Take some time to explore the options that are available, and be sure to read reviews of various discount brokers before taking the plunge. I’ve heard from countless readers over the years who have moved to a self-directed account and never looked back.
E-mail your questions tojheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
