Here is my submissions for the Canadian Tour of Personal Finance Blogs:
There are many posts out there on the high commissions/fees charged by both financial advisors and mutual fund companies. Almost all of these posts slam the high fees charged with no mention of the benefits that financial advisors do offer for some. Personally, I have mixed feelings on the compensation of financial advisors. For knowledgeable amateur investors like you and me their fees do seem ridiculous. Many amateur investors (myself included) shudder at the thought of paying 2% annually to a financial advisor or mutual fund manager. However, I would argue that isn’t the case for the majority of society. We shudder at the 2% fees in the same way a plumber would shudder at paying $80 an hour for someone to replace his faucets. There are many, many people out there who have absolutely no interest in finance or investing and as a result don’t find 2% to be an unreasonable fee to pay for advice on a subject that they know nothing about and have no interest in learning. The mere mention of a P/E ratio or dividend yield is enough to make many peoples eyes instantly glaze over and roll back in their head. If you don’t believe me start talking about the fundamentals of the stocks on your watch list at your next social event or family dinner and see how many people are just sitting there trying their best to be polite and seem interested. As further proof many people I talk to think that an RSP is an actual product. When I’m talking to them I say “that’s great you’ve started an RSP what did you buy?” and in 99% of the cases they respond with a funny look on their face and say “what do you mean what did I buy? I bought an RSP” and most of the time they aren’t interested in hearing that an RSP is basically just a sheltered investing account.
I have friends with zero interest in investing and they think that the fees they pay on their mutual funds and to their advisors are very reasonable as their returns handily beat the savings rate of banks, which is where their money would be if it were not for the advisors. Many of my same friends find it absurd that I’d pay $30 for an oil change or $80 and hour for the services of a plumber. I think the fees argument can be made for almost every profession. If you are in a profession be it amateur or professional you are going to have a hard time paying for something you can do yourself.
Personally, I have the biggest problem with real estate fees... 5% commission to basically just get my house listed on MLS?! that’s $10,000 on an average $200,000 home. Most people that I know who have purchased a house in the last 5 years found it themselves on MLS and then called their agent to simply arrange the viewing. Upon purchase some generic stock forms are filled out at the real estate office and then the lawyers take if from there. Now that was $10,000 well spent...To me that’s absurd!
Disclosure - I’m not a Financial Advisor.