THE TRUTH ABOUT INVESTMENT MANAGEMENT FEES: WHY CHEAPEST ISN’T ALWAYS BEST

Let’s get something straight: Investment management fees are not the enemy. They’re the cost of accessing expertise, strategic guidance, and opportunities to grow your wealth in alignment with your goals.

Yet, in a landscape where robo-advisors, DIY platforms, and fee-for-service models have exploded, there’s more confusion than ever about what you’re actually paying for — and why it matters.

So, let’s clear the air. It’s time to demystify investment management fees in Canada, understand how they’ve evolved, and most importantly, why focusing solely on the cheapest option could cost you more in the long run.

How Investment Fees Have Evolved: From Set-It-and-Forget-It to Tailored Strategies

A few decades ago, investment management fees in Canada were straightforward. You paid a commission when you bought or sold a mutual fund or stock, and that was that. Advisors were compensated through commissions, and the concept of a fee-based model was still relatively niche.

Fast forward to the 2000s, and fee structures started to shift. Regulators introduced more transparency, mutual fund costs began to drop, and fee-based accounts gained traction. Instead of paying commissions on every trade, clients paid a percentage of assets under management (AUM), typically ranging from 1% to 2.5%.

Then came the rise of robo-advisors, promising to slash costs with algorithm-driven portfolios for fees as low as 0.5% or less. It was a game changer — but it also fueled the misconception that “low-cost” was synonymous with “better.”

Now, we’re entering a new era where customization and strategic guidance are back in focus. Fee-for-service models, where you pay a flat fee for specific advice or planning, are gaining traction. Meanwhile, AUM fees have become more transparent and, in many cases, more negotiable, with tiered pricing that decreases as assets increase.

Bottom Line: Fees have evolved from being purely transactional to more strategic, aligning costs with services provided and outcomes achieved. This shift is crucial because it reinforces the point that not all fees are created equal — and not all advisors are offering the same level of service. 

What Are You Paying For? A Breakdown of Fees

Before I go any further, let’s break down what you’re actually paying for when it comes to investment management and advisory services:

1. Portfolio Management: Asset allocation, rebalancing, tax optimization, and ongoing monitoring. Most people don’t know what they don’t know, but real portfolio managers have more access to more data to make more decisions in an hour than any do it yourselfer might be able to successfully make in a month.
2. Financial Planning: Cash flow analysis, retirement projections, tax strategies, and estate planning. This is the good stuff! Setting the life goals and reverse engineering the steps so that money, which is just a medium of exchange, grants you access to the life well lived.
3. Behavioral Coaching: Keeping you focused on the long-term plan, especially during market turbulence. It’s when we do our best work, because it’s when you need us the most. Different cause, same result: we have to have principles in the face of uncertainty.
4. Access to Specialized Investments: Private equity, alternative assets, and other opportunities not typically accessible through DIY platforms.
5. Account Administration: Performance reporting, statements, regulatory compliance, and tax documentation. It’s super boring, but can you imagine trying to invest without it?

Not every advisor out there is doing all of that but at Surround Wealth Advisors of Assante Financial Management Ltd., you bet your management fees we are.  In fact, given the wide spectrum of advisory business models across Canada, if you’re receiving comprehensive wealth management services that include tax planning, estate structuring, and regular progress reviews, you should expect to pay a premium. We include everything in our approach because it’s what we’ve always done, because it’s what is best for our clients.

Why Cheapest Isn’t Always Best

Let’s tackle a common misconception head-on: Lower fees don’t always mean better outcomes.

Consider this: Would you choose the cheapest surgeon for a complex medical procedure? Probably not. You’d look for the most qualified, experienced, and strategically skilled professional who could deliver the best possible outcome.

Your wealth is no different.

Here’s the reality:

A Robo-Advisor or ETF Portfolio Without an Advisor Might Save You Money on Fees, But…

• It won’t stop you from panic-selling during a market crash.
• It won’t help you develop a tax strategy to minimize capital gains.
• It won’t guide you through the financial implications of a divorce, inheritance, or business sale.

A DIY Platforms May Offer Rock-Bottom Costs, But…

• Are you prepared to make complex investment decisions on your own?
• Do you have the time, interest, and expertise to monitor and adjust your portfolio?
• Will you stay objective and disciplined when emotions run high

The point here isn’t to knock lower-cost options. They absolutely have a place in the market, particularly for younger investors, those with simpler financial situations, or people who genuinely enjoy managing their own portfolios.

But as your wealth grows and your financial picture becomes more complex, so do the risks of making costly mistakes. And that’s where experienced advisors — the right advisors, Surround Wealth Advisors — bring value that far exceeds the fees.

Ensuring the Right Fit: Aligning Fees with Your Needs and Goals

Now, let’s talk about how to assess whether you’re paying a fair fee for the services you’re receiving. It boils down to three key considerations:

1. Risk Tolerance and Risk Capacity
   • Risk tolerance is your psychological ability to handle market volatility. Risk capacity is your financial ability to withstand losses. A skilled advisor aligns your portfolio’s risk level with both your risk tolerance and capacity, ensuring you’re not overexposed to unnecessary risks. CHECK.
2. Rate of Return Requirements
   • Are you aiming for a 6% annual return to hit your retirement target? Or do you need an 8% return to fund your children’s education? The right advisor designs a plan that aligns your return objectives with your risk parameters, all while factoring in tax implications and cash flow needs. CHECK.
3. Comprehensive Wealth Plan
   • Are you paying for portfolio management only, or are you receiving integrated financial planning? True wealth management considers not just investment returns, but how those returns fit into your broader financial plan. It addresses cash flow, retirement, tax minimization and estate planning. CHECK.

If you’re paying a fee, but you’re receiving comprehensive, proactive, and highly tailored advice that aligns with your goals and risk tolerance, then you’re getting good value. On the flip side, if you’re paying a low fee but aren’t receiving personalized guidance or support, you might end up losing far more than you save.

The Bottom Line: It’s About Value, Not Just Cost

At the end of the day, it’s not about finding the cheapest option; it’s about finding the right vehicle for your financial journey. Think of fees as an investment in expertise, strategic planning, and financial security.

Yes, you should absolutely understand what you’re paying and why. This is why fees have always been printed in black and white on statement for our clients and discussed in meetings from long before it was a regulatory requirement. We want you to experience the entire equation from fee to value. But instead of asking, “How can I pay the least?” ask, “What am I getting for what I’m paying?” and “How does this align with my overall financial plan?”

Investment management fees in Canada have evolved, but the principles of value and alignment with your goals remain constant. Because when it comes to growing your wealth, the right guidance is priceless. Remember money is not wealth, money is a medium of exchange to gain access to a wealth of experiences. And that’s the kind of investment that truly pays off.

Gillian Stovel Rivers, MA, CFP®, CEA
Senior Wealth Advisor
Assante Financial Management Ltd.
www.surroundwealth.com

 

The opinions expressed are those of the author and not necessarily those of Assante Financial Management Ltd. This material is provided for general information and the opinions expressed and information provided herein are subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on the information presented, please seek professional financial advice based on your personal circumstances. Insurance products and services are provided through Assante Estate and Insurance Services Inc.