What Fee Compression? Canadian Advisors Deliver 2.88% Value

If you’ve ever wondered if you’re worth the typical 1% of AUM fee that you charge, you can rest assured. In fact, you’re worth 2.88% — almost 3x that fee, according to Russell Investments’ annual study on the value of Canadian financial advisors.

In order to determine an advisor’s value, Russell Investments analyzed five key areas.

  • Investor behaviour. Being a behaviour coach is the single largest contributor to the total value advisors bring their clients, notes the firm. Over the last 20 years, the average stock fund investor’s inclination to chase past performance cost just under 1% annually. Thus, an advisor’s ability to help clients stick to their long-term financial plans and skirt irrational decisions is worth that amount, or 0.90% to be accurate, says the firm.

  • Tax-aware investing. The average Canadian family now spends more of its income on taxes than it does on necessities like food, shelter and clothing combined. By simply investing in tax-efficient solutions, like corporate-class mutual funds, advisors can add 0.63% to a client’s portfolio, says Russell Investments.

  • Ancillary services. If investors purchase services like retirement planning and tax-return preparation à la carte, it can cost thousands of dollars. So the firm estimates an advisor’s value in this area is about 0.75%.

  • Rebalancing. Advisors who apply a disciplined annual rebalancing policy have the potential to add up to 0.20% to a portfolio’s return, notes the firm, while reducing the portfolio’s risk by up to 0.70%. And that 0.20% can add up. Consider a hypothetical $100,000 investment. An 8.6% annualized return over 30 years would grow the initial $100,000 to $1,188,214. An additional 0.20% in return (an 8.8% annualized return instead of an 8.6% return) would have produced $1,255,645 — a $67,431 difference.

  • Investment selection. Robo-advisors set the value of investment-only management at approximately 0.40%, notes the firm.


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