It’s important for every investor to know how their registered investment advisor is compensated and what fees and charges they pay.
Advisors and their firms may charge fees to investors to cover the costs of managing accounts, analyzing investments, meeting with clients, and other services. Compensation can also be built-in to products like mutual funds, exchange-traded funds (ETFs), and more.
How Investment Advisors are Paid
Registered investment advisors are generally paid in the following ways:
- Fees or commissions after buying or selling an investment
- Trailing commissions charged as long as the investor holds the fund
- Charges when the investor buys or sells the investment, which may be front-end loads, back-end loads, or deferred sales charges
- A percentage of the assets under management, especially if the investor has high net worth or needs other wealth management services
- Fee-for-service, meaning the advisor charges an hourly rate or fee based on the specific service provided, like preparing an [investment plan]
- Salaries, which likely means the costs of an advisor’s compensation are built-in to the products you buy
These are broad categories of fees and charges investors may notice when purchasing investments or reviewing accounts. A registered investment advisor can explain how various fees and charges apply to investments and affect potential returns.
How to Read a Charges and Compensation Report
Starting in January 2017, investors have received a Charges and Compensation Report or Investment Fee Report from their advisor or investment firm. These reports break down the fees and charges paid to your investment advisor over the year as well as other important performance information.
This sample Charges and Compensation Report shows investors what to expect in one of these reports.
BCSC InvestRight also created a video that goes through how these reports are created, why they’re important, and how to read the information.
BCSC InvestRight Fee Guide
Investors looking for a broader understanding of investment fees can also download this free BCSC InvestRight Investment Fee Guide. The Guide addresses key points about fees and provides definitions for terms that appear on investment materials or statements.
If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393 or through e-mail at [email protected] You can also file a complaint or submit a tip anonymously using BCSC’s online complaint form.
A few months ago, I talked about allowance charts for kids. Since this month is financial literacy month, I thought I’d follow-up and share some of the results I’ve seen from our chart system after I read a Globe and Mail article that discussed the best age to teach financial literacy. The experts quoted in […]
Five new additions to the BCSC Investment Caution List