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.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
