Jul 11, 2016
Personal Investor: How discount brokers are pocketing advisor fees
By Dale Jackson
ANALYSIS: Paying too much for a service is regrettable. Paying for a service you don’t even get is inexcusable.
Yet discount brokerages continue to collect advisor fees on mutual funds for advice they never give.
The charge comes in the form of a trailer fee – a percentage of assets invested in a mutual fund collected annually by the fund company to compensate the advisor who sells the fund for ongoing advice.
The problem is, with a discount broker there is no advisor giving advice. That’s what is supposed to make it a discount broker. When the trailer fee is passed from the mutual fund company to the discount broker, the discount broker pockets it.
The trailer fee on a mutual fund is typically one per cent of invested assets. On each $100,000 invested in mutual funds that’s $1,000 each year.
That dollar figure is important because starting this month discount brokerages have one year to send clients regular statements telling them how much they pay for advisor fees in dollars. The requirements are part of a decade-long industry initiative to better disclose advisor fees called Client Relationship Model.
Most investors who buy mutual funds through a discount broker are probably not aware they are paying a trailer fee since it is hidden in the fund’s management expense ratio.
Glenn LaCoste, from discount brokerage rating service Surviscor, says all but one discount broker pockets the trailer fee – Questrade. However, he cautions Questrade charges a fee to buy and sell mutual funds while other discount brokerages don’t.
Dale Jackson is BNN's Personal Investor. Follow him on Twitter @DaleJacksonPI
