I recently had someone reach out to me to ask how soon I would be able to take on a new client.
Tessa received an unexpected $50,000 inheritance last year. She decided to invest it into her TFSA to put towards a down payment on a cottage. At the time, she was using the services of a financial advisory firm who offered a “lower fee” managed account option. She didn’t have a particular dedicated advisor, but she had access to a team if she wanted to ask questions or make changes to her investments.
When she received the money, she transferred it into her TFSA through her online investment portal, and that was it.
She expected that her money would be invested according to a risk profile she had filled out when she signed on with the firm.
Tessa is the first to admit that she is not an expert in investing. She understands the general concepts of risk and knows the basics of what options might be available to her when it comes to investment vehicles. But otherwise, she wanted someone else to take charge of managing her money.
That’s why she signed on with a financial management firm, after all.
A few months went by. In the meantime, Tessa had started a new small business. She decided to withdraw some funds from her TFSA to help with her business cashflow.
When she logged on to her online portal, she was shocked. Her TFSA showed a $250 loss, but otherwise absolutely no change. Even with her limited knowledge, she had expected much more movement (in either direction!) based on her risk profile. She called the 1-800 number and asked for clarification.
The advisor she spoke to was just as surprised.
Her $50,000 had been left in a specialized “money fund”, which was essentially a glorified savings account with a miniscule return. The fee for that account was 0.5% - which amounted to $250. Instead of earning her more, her money had sat uselessly in an account and paid a management fee.
She was confused. Why had her money been put into that fund? Why had it not been invested?
They required an e-signature from her.
That’s it. That was the reason.
It had been three years since she filled out the initial risk profile, so they required a signature to confirm that the profile was still accurate before they would invest the money.
Except… no one told her that.
No one reached out to check in when she deposited $50,000 randomly after years of consistently depositing much smaller amounts.
No one reached out to see if her goals or plans had changed after coming into $50,000.
No one reached out to guide her through the risk profile after it “expired”.
Sure, she was supposed to be paying “lower fees” – but she had lost months of potential growth, had never been educated on what her money could accomplish for her, and didn’t actually have a comprehensive plan.
The opportunity cost of those low fees was sky high.
Tessa decided she wanted a far more personalized approach. She wanted to work with someone who was accountable to her; someone who knew her as an individual. She didn’t want to actively manage her investments, but she wanted someone who could map everything out very clearly for her and stay on top of everything on her behalf.
That someone turned out to be me.
It is always a good idea to get the details of how your financial advisor or financial planner will be compensated. But don’t take “low fees” at face value – they may cost you more than you think.
If you want to work with a Certified Financial Planner who takes an active, personal approach to building your wealth – book a call with me.