Category Archives: Wealth Accumulation

Sound guidance, sage wisdom and helpful tips about accumulating wealth and managing your money whether you have a lot of it, or not. Top shelf advice from Jamie List, managing partner at Bearing Capital Partners.

7-eleven

Five Best Franchises for Familypreneurs

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7-elevenA familypreneur is an entrepreneur who runs a business with his family.  This means their business decisions are made while considering their family’s needs, and by considering how their enterprise affects their loved ones. A familypreneurship is born from a deep consideration of the opportunity available, and what limitations or expansion of the family dynamic that such a mercantile operation might impose on their lives. One thing is certain, familypreneurs always put their families first.  This from Top Five Business Models for Entrepreneur Families which was written up in the Toronto Entrepreneur’s Blog in October 2014.

While there are many paths leading to the decision to own a business, and to striking out on one’s own to be an entrepreneur, the path to familyprenuership is always intriguingly different. It usually comes as a solution to a massive life problem, for example, chronic unemployment, a painful divorce, or forced migration to another country etc. But sometimes the business decision is born out of the realization that their lives are not fulfilling, and their careers are not be leading them to where they want to go in life.

Here are the top five familypreneur franchise business models, measured in terms profitability, scalability and quality of life.

Open a Family Owned Retail Store

Buying a retail stores with the intention of providing meaningful employment for everyone in the family is the number one choice of new Canadians who become defacto familypreneurs to better adjust to this society.  In many cases they have just survived a Grape-of-Wrath style life altering journey, and so now the demands of managing a general store in Canada seems easy by comparison.
An increasingly popular choice in franchises are dollar stores, and Canadian dollar stores in particular are popping up more and more which is a sure sign that people are doing well in the model.  Also becoming more and more prominent are Bulk Barns, Party Max, and 7-11 stores. These retail chains all advertise on the internet to find applicants, and in their brochures they stress quality of life and employment for the whole family. The 7/11 store owner program in particular makes it very easy to manage this complicated retail venue by providing  daily, weekly and monthly checklists to follow and phone numbers to call for further guidance.

Become a Compact Refreshment Centre Operator

Compact Refreshment CenterYou’ve seen vending machines that are absolute life savers for hungry people waiting in hospitals, automotive repair centers, airports and shopping malls, have you ever wondered what it might be like to own such a machine? or ten? or two hundred?  Anywhere there’s a safe, sizable, reputable waiting room you’re sure to find a vending machine filled with tasty snacks.  Depending on the branding and the products inside, stocking that machine could be a family business.
The Compact Refreshment Centre vending machine doesn’t look like the big bulky combo snack and drink machines that you usually see. It has been designed to be small and attractive (with no advertising or logos), and fits into almost any office environment.
Families that stock their own compact refreshment centers and who work together every day, enjoy great lives together with lots of personal freedom. They only have to work a few hours a day, and because they work with each other they feel more connected to their families than any of their neighbors do, because of their shared responsibility and social interaction within their circle, sharing their circle’s perspective with the community at large
compact refreshment center family with PepsiThe Compact Refreshment Centre program offers a sensible way to start and grow a business that yourself and your family can enjoy for future decades. Becoming a successful Compact Refreshment Centre Operator will change your life and bring a mental, physical and financial security to decisions – it fuels bigger and even more lucrative daydreams
There are lots of jobs for family members of all ages in a CRC venture, including accounting, buying food (dry goods to stick the machine), the labour of stocking machines, collecting the coins, and sorting the coins and then rolling them up for the bank are all jobs for eager teenagers.  The term “Familypreneuring” has been recently popularized by John and Michelle Humphrey of Familyprenuering.com. Based out of San Diego, CA. the couple have created a webinar and ebook on the subject.

Open a Frozen Yogurt Franchise!

Frozen Yogurt is a dessert made with yogurt and sometimes other dairy products. It’s more tart than ice cream, and is lower in fat content. For whatever reason, North America’s hunger for frozen yogurt has become insatiable, and stores that specialize in serving this food stuff have become very popular in the 21st century shopping mall-scape.
Buying such a franchise, although it does have some seasonal limitations depending on the location, can be a very profitable venture over the long term, simply because the ingredients are so cheap to procure and customer satisfaction is so high. The staff requires very little training, and the stores tend to become social hang-outs for teens with lots of money to spend on other things. And because frozen yogurt products taste delicious. they can become synonymous with ‘good times’ forming very positive brand experiences. The restaurants there’s always a job for everyone in the family; even the youngest children can distribute flyers, prep vegetables and wash kitchen equipment.

Buy a Food Delivery Franchise

Organic food delivery business
In the shadow of bio engineered food, plague and pestilence, the Canadian organic food industry has grown at a rate of 300% since 2006, making it one of the fastest growing segments of the economy. As more people become aware of the dangers of conventional farming practices, the demand for access to clean, safe, chemical free food has absolutely exploded.
A rapidly expanding service sector in the internet age is the grocery delivery business. Lots of consumers find it ultra convenient to be able to go online and customize a grocery order for immediate delivery rather than take two or three hours to go there themselves.

Organic’s Live is an organic food delivery business that was founded by a group of concerned dads who believe communities can eat good food that has been produced with environmental, health and economic stewardship at the fore. They market food that has been grown free of chemicals and in harmony with its surroundings. There are several food delivery food franchises businesses to choose from, but the demand for organic food is higher because obtaining certified organic commodities is usually only possible at organic markets or at traveling farmers’ markets which are hard for working parents to find and effectively access.

Start a Niche Service Business

molly maid franchise logoIf you walk through any residential neighborhood in any city in Canada during business hours, you will spot many different service businesses at work in other people’s homes.  There are various trucks painted different colours with ladders, tools and machines doing eavestrough cleaning, driveway sealing, snow removal, grass cutting etc and these are some of the less imaginative examples. Many different types of  cleaning businesses are available as franchises now, and people specialize in cleaning ventilation ducts, carpets, drains, vegetation, pools … An office cleaning business may not be exactly glamorous, but it can be very profitable.
This quote is from a testimonials on the Molly Maid website’s franchise page,  “As my children were growing older, I felt it was time to return to the work force. I wasn’t interested in working for someone else, so I started looking at the possibilities of buying a Franchise. I wasn’t interested in working evenings and weekends, and wanted something I could operate out of my house.”
This above quote reads like a textbook example of a familypreneur at the starting point, making a decision to put the people they love foremost in their lives while they work for success.
These are the Top Five Franchises for Familypreneurs and although they are all very different, they are all rather similar in one respect: the founders don’t necessarily want to get rich, but rather they just want to be their own bosses, and savor the thrill of making it, or breaking it in the real world alongside their families, working in business as a team.
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There’s No Place Like Home…

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Believe it or not, there are people who believe that a home and a mortgage are too cumbersome to manage, and there are some financial experts who recommend that renting real estate is more beneficial than buying.

The advice is based on the assumption that real estate will not be the great investment over the next 40 years as it has over the last 40 years.

Regardless, look at the facts.  Make some reasonable assumptions:

  • First, assume that home prices only rise as fast as inflation,
  • Next, assume that your rent would be approximately equal to your mortgage payment
  • Then, assume that, instead of making a down payment, you take your down payment and invest in “the markets.”

If this was how you approached this decision, you would need an after-tax and after fees rate of return of 12.4% on your investment portfolio in order to have the same amount of equity in your portfolio as you have in your home!

Now, to be fair, you have taxes and upkeep on your home. If you assume that taxes are 1% of home value, and assume that upkeep is another 0.5% of home value, then you would still need an after-tax and after fees rate of return of 10.8%.

These rates of return, over the long term, are unachievable.  You would have to have an all equity portfolio for the entire period, and find a way to pay no tax, and still, historical rates of return show broad market equity indexes return about 10% – not enough to get you there!

Finally, one more important issue to note.  Your home is generally considered your principal residence for tax purposes.  This means that, when you sell it, there will be no tax.  So the equity in the home is yours.  If you have found a way to pay no tax on the growth of your “invested” down payment, and if you have found a way to get 10.8% to 12.4%, you will still have to pay tax on the growth eventually.

So – if the aggressive growth rates don’t turn you off, then the tax treatment might just.  Home ownership will likely remain a worthy and profitable goal.

Management Fees – Are you paying for Bondage or Advice?

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Each year, Canadians decide how and where they will invest.  Other than asset allocation, the fees that are paid will likely have the largest impact on their account.  For some, fees will be paid to an advisor involved at some point in the process.  That advisor might be a planner or a broker who takes commissions or trailer fees as a result of managing a clients’ account.  Or, fees may be paid to an investment manager, either indirectly through ownership in mutual fund, or directly as a result of a discretionary or segregated account with that manager.

Outside of fees, you may also want to explore whether or not your advisor has a fiduciary duty to you, and if there are any conflicts of interest in your relationship.  Conflicts can arise as a result of the business structure (i.e. only recommending products from that company), but can also also arise out of compensation structures.

Essentially, the amount and type of fees you pay are what determines the kind of practice your investment advisor runs.  Instead of just asking “how much” the fees are, perhaps examine the types of fees you are paying, why you are paying those fees, and what incentive it gives to the recipient of those fees.

Trading Commissions

By far, the most common method of compensating advisors is still commissions.  However, all commissions are not created equal.  There are basically three types of commissions:

  • Brokerage commissions: when trading securities, a fee is charged based on the size and type of trade.  Some brokers will pre-arrange a fee schedule for their clients that provide a certain number of transactions for a fixed cost.
  • “Spreads” on Bonds:  Many investors are unaware that there is a commission paid on a bond.  That commission is called the spread, and it is the difference between the actual rate being paid on a bond, and the rate at which it is sold to you.  For most bonds the spread is between 10 and 25 basis points (0.10% and 0.25%).
  • Mutual Fund “Front End” commissions: when an advisor recommends a fund, the client is charged a percentage of their investment in order to purchase units in the fund recommended.

In all cases, the commission here is a fee paid as a result of a transaction.  Make sure that, when you are working with an advisor, you are comfortable with what those commissions mean.  The commission regimes mean that the advisor gets paid when you act on their advice.  Thus, it is reasonable to say that their bias will be to implement a portfolio solution that prefers action.  If you are an active investor, then this will compensate an advisor who continues to bring quality investment ideas to you.  However, if you are an inactive or conservative investor, you may feel that you are pressured to take action that you do not feel is in line with the objectives of your portfolio.

Deferred Sales Charges

Mutual Fund “Back-end” commissions are a contentious topic among investment professionals and the investment public.  These “deferred sales charge” occur when a client purchases a new fund within a mutual fund company.  The advisor is paid a commission by the fund company, but the client is required to remain with that fund family for a certain period of time to account for those fees being paid, usually 3 of 6 years.  After the first year, those funds pay a trailing commission to the advisor of roughly 25 to 50 basis points.

The upside is that there is no immediate cost to the client.  In addition, the commissions paid are usually either 2.5% or 5.0%, and this allows advisors to receive compensation from smaller accounts, and enables them to spend the appropriate time with those smaller clients to deliver proper advice.

The downside, however, is that the bias for a practice run with this compensation scheme means that the advisor is paid to meet and satisfy new clients rather than existing clients.  If an advisor is being paid 5% on a new client and 0.50% on their existing clients, the attention of their practice is likely biased towards the initial portfolio set-up, and not necessarily the ongoing management of your account.  If your advisor recommends the use of these charges, ensure that you are comfortable that you will continue to receive the same quality of advice into the future.  In addition, your advisor should not be asking you to re-invest in deferred sales charges again once the deferred sales charge period is over.

No Load

No load compensation schedules are generally by advisors working with mutual funds, and are intended to mimic the type of compensation schedule that investment managers receive (see below).  The no load schedule means that the advisor receives their compensation as a percentage of the assets they have under management.  This means that their bias is towards maintaining the assets they already have, as there is no extra incentive for them to attract new clients, and there is nothing stopping them from leaving if they are unhappy with their service.  These are a form of servicing commissions, as above, but are the only form of fees these advisors receive for clients invested in these funds.  Thus, their bias will be towards more inactive clients.

Servicing Commissions

Servicing commissions are fees that are paid by fund companies (generally) to advisors for maintaining the accounts that they have.  Servicing commissions vary depending on whether the advisor has recommended a front end load, no-load, or deferred sales charge fee options for their clients.  Reasonably, these are the fees that the advisor receives for maintaining your account over the long term.

Investment Counsel Fees

A direct relationship to a discretionary portfolio manager usually means a fee schedule much like the “no-load” schedule described above.  These fees are usually lower, as a result of the size and structure of accounts being managed.  In addition, it is generally accepted that these fees are tax deductible for non-registered accounts (although taxpayers are advised to consult their tax professional to ensure this is the case for them).  The fees paid to these managers can also be mixed with an incentive fee of some sort, such as a share in a percentage of profits.  This is more commonly found in managers with higher risk or specialty mandates.  There are a variety of “retail” solutions like this that are available to clients through advisors that mimic this relationship.  Two of note are offered by SEI and Franklin Templeton.

Your Objectives

Perhaps the best advice ever spoken on this topic was delivered by Upton Sinclair when he uttered the following: “It is difficult to get a man to understand something when his job depends on not understanding it.”  More specifically, if your objectives do not fall in line with the method in which your advisor receives fees, it will be difficult for you both to see eye to eye on an investment strategy.  While the fee discussion tends to raise the blood pressure of both clients and advisors alike (for different reasons), it is a discussion that should be had.

Regardless of the fee schedule, good quality advisors are likely going to give good quality advice to their clients, regardless of the fee schedule.   However, even good quality advisors are running a business, and the business decisions that they have made about their practice are going to impact how they deliver their advice in the future.

As far as I can tell, there has already been much written about fees, and a recent report suggests that Canada’s mutual fund industry may have the highest fees in the world, on average.  So what is an investor to do when faced with the costs of investing?

Protecting your Estate: Where there’s a Will…

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HeadsupDad.com
To love what is lovely, but will not last

There are a variety of things that we don’t like to do. Taking out the garbage comes to mind, as a task that is unpleasant, but absolutely necessary to the proper functioning of a household.

So it is with a legal Will. Many families, particularly young families, put off the inevitable conversation about their Will. It is an unpleasant conversation, and there are a good deal of difficult decisions to be made and discussions to be had, to solve some problems that will (hopefully) never arise.

Its not about you…

At the end of the day, there is nothing more important than protecting your family and their future in the event of an untimely meeting with your maker. Everything you have done, every nickel you have saved, every asset you have accumulated does not want to be tied up in court while they try to figure out what to do with it. You don’t want your creditors, government, family, any of your beneficiaries to be arguing, fighting, negotiating over your assets at a time when they should be taking the time to deal with their own losses and come to terms with their new realities.

Bottom line: Drafting a legal Will and a Power of Attorney is a necessary and fundamental part of the financial planning process.

The downside to dying without a Will is that there is a time lag between that event and when your estate is cleaned up. When someone dies, the courts need to probate your estate, and then approve the passing of assets on, even if that person is a spouse. With a proper Will, the courts can quickly move things along. Without a proper Will, this can draw out and lengthen the process—which is already full of emotional burden.

There are two significant roles and responsibilities you need to appoint before you begin:

  1. Executor – this is the person that is in charge of carrying out the terms of the will.  Many spouses appoint each other, but often there is an alternate appointed in the event of a common disaster (i.e. both parents pass away).
  2. Guardian – this is the person that you appoint to take care of your children should you not be able to.
  3. Powers of Attorney – this is a person who will be able to make decisions on your behalf if you are incapacitated.

Once you have these roles determined, and before you see a lawyer, you should also take account of the following:

  • make a list of all assets (investments, RRSP’s, pensions plans, real estate, family heirlooms, i.e. anything you own of significance financially or emotionally)
  • make a list of all debt (mortgage, student loans, etc.)
  • identify all insurance policies (personally owned, group/employer policies)
  • identify any other legal arrangements that may impact your planning (pre-nuptial agreements, shareholders agreements, etc.)

Finally, when you go to see the lawyer to draft your will (I would encourage spending the money on a lawyer, and not using a will planning kit), you should also prepare your powers of attorney.  A power of attorney outlines who has the legal right to make decisions if you are incapable of making those decisions for yourself.  Usually people draft two powers of attorney: one is for their wealth (for decisions about their money), and the other is about health, (decisions about healthcare).

Identifying the key roles in your will and POA planning, as well as a thorough list of assets, liabilities and insurance in advance will go a long way to speeding up the process of drafting the will.  As with Life Insurance, a small investment of time and money well spent and a few prudent but simple and easy steps today, will make things that much easier for those that are left behind. The good news is that this will help you save some money on legal fees, even if you won’t be around to spend it.

In the end, you will have a document that will protect your family and will streamline a stressful process during what will certainly be a very difficult, tragic and traumatic time (unless by chance you are not only dead, but a Deadbeat Dad—but of course you are not one of those. You would not be here right now, sitting with that concerned look on your face, reading this post while looking up your lawyer’s telephone number on your Blackberry or your iPhone—there it is, that was not so hard now was it? Go ahead, hit the dial button).

Questions? Concerns?

Please feel free to post your comments and questions here. We’ll be happy to help.

Your RRSP and Long Term Wealth

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Maximizing Your RRSP

RRSP’s are the central planning tool for many Canadians’ retirement objectives.  Say what you like, but the tax advantages of the deductible contribution are a powerful incentive to add to this tax-deferred investment vehicle.

It is important to note that the RRSP is just that – a tax deferral.  Most Canadians understand that their wealth accumulates tax free in an RRSP (more specifically, free from accrual taxation), however what most investors do not properly recognize is the effect of unwinding their RRSP.  If you are not careful, the tax that you are saving currently will be recouped by the government again later on.

So the bad news is that the RRSP is not a perfect vehicle.  The good news is that it does the trick up front, affording you tax incentive for savings, and defers tax on growth.  However, there are a variety of strategies that can help you maximize the after-tax value of your RRSP, both to you while you are living, and to your estate if/when you pass the assets to beneficiaries.

The Facts about RRSP’s

There are two main attributes of the RRSP/RRIF that we are looking to deal with in this article.  The first is the tax liability generated when the RRSP is converted into a RRIF and income is taken on an annual basis, and the second is the tax liability that exists when the RRSP/RRIF is passed along through the estate.

  • First – income that you receive from your RRSP is taxed just as though it were interest or employment income, meaning at your top marginal rate for the given tax year.  Most individuals recognize this in their planning.  The rules for RRIF payments is that there is a minimum amount that must be taken out each year, based on your age, or the age of your spouse (whichever is more beneficial).  This means that you can be forced to take out more than you need.
  • Second – in the year of death of the second spouse, the entire balance of your RRSP is included in order to calculate income tax payable on the RRSP/RRIF.  This income would come in excess of any other investment, dividend, and/or capital gain income declared on the final return.  This means that, if your RRSP was the only income you took in your final year (in Ontario), a $1,000,000 RRSP would have a tax liability of roughly $448,000, leaving your estate with only $552,000.

The tax treatment of the RRSP/RRIF at death is what we are most concerned about in this article – effectively, how do we reduce a tax liability that will erode almost one half of the savings you have worked so hard to accumulate?

Three simple approaches

Broadly defined, there are three different categories you can take to managing the ongoing and terminal tax liability in your RRSP.

  • Effectively manage your tax brackets while you take income from your RRSP.  Tax bracket management for estate planning takes a little bit of discipline.  Essentially what you are trying to do is remove income from your RRSP/RRIF at a tax bracket lower than what it would be at death.
  • Reconsider your asset allocation to reduce double taxation of Capital Gains in the RRSP structure.  Look at the tax treatment of the assets you have, and allocate the least tax efficient assets into your RRSP/RRIF.  Income producing assets are going to be taxed at the highest rate, so leave them in the RRSP/RRIF.  However, dividends and capital gains are tax-advantaged vehicles; leave them in your non-registered portfolio.
  • Use complimentary assets and strategies in combination with your RRSP to maximize the value that the RRSP delivers to you while you are living, and to your estate.  The first and simplest would be to incorporate a permanent insurance strategy into your planning, starting early if possible.  Simply put, life insurance will be able to fund the tax liability that exists within your RRSP/RRIF.  Furthermore, most permanent life insurance contracts allow you to accumulate assets within the contract on a tax deferred basis (returned tax-free if the proceeds pass on at death).

When considering a plan to minimize taxes, please remember that any tax driven strategy should be considered carefully by an independent tax professional.  The information presented above depends on certain assumptions which may or may not be relevant to all of our readers.

The long and the short of it is that the RRSP/RRIF is a great planning tool with powerful front end benefits that the average consumer enjoys – a tax deduction for savings.  But be careful: without proper planning, those savings will be eliminated by the government in retirement, or, at the latest, at death.  If your intent is to maximize your after-tax income during retirement, or to maximize the value of your estate to your heirs, careful attention should be paid to your RRSP/RRIF and how it is interacting with your tax rates and other assets and cash flows you have at your disposal.

Investment Management Fees – Buyer beware

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Now that you are looking towards the future, and perhaps are beginning to take a serious look at your long-term savings options, let’s take some time to understand how you might be charged (and how you can avoid) fees as you invest.

For some, fees will be paid to an advisor involved at some point in the process.  That advisor might be a planner or a broker who takes commissions or trailer fees as a result of managing a clients’ account.  Or, fees may be paid to an investment manager, either indirectly through ownership in mutual fund, or directly as a result of a discretionary or segregated account with that manager.

Essentially, the amount and type of fees you pay are what determines the kind of practice your investment advisor runs.  Instead of just asking “how much” the fees are, perhaps examine the types of fees you are paying, why you are paying those fees, and what incentive it gives to the recipient of those fees.

Trading Commissions

By far, the most common method of compensating advisors is still commissions.  However, all commissions are not created equal.  There are basically three types of commissions:

  • Brokerage commissions: when trading securities, a fee is charged based on the size and type of trade.  Some brokers will pre-arrange a fee schedule for their clients that provide a certain number of transactions for a fixed cost
  • “Spreads” on Bonds:  Many investors are unaware that there is a commission paid on a bond.  That commission is called the spread, and it is the difference between the actual rate being paid on a bond, and the rate at which it is sold to you.  For most bonds the spread is between 10 and 25 basis points (0.10% and 0.25%).
  • Mutual Fund “Front End” commissions: when an advisor recommends a fund, the client is charged a percentage of their investment in order to purchase units in the fund recommended.

In all cases, the commission here is a fee paid as a result of a transaction.  Make sure that, when you are working with an advisor, you are comfortable with what those commissions mean.  This method will reward the advisor when you act on their advice.  So, it is reasonable to say that their bias will be to implement a portfolio solution that prefers transactions.  If you are an active investor, then this will compensate an advisor who continues to bring quality investment ideas to you.  However, if you are an inactive or conservative investor, you may feel that you are pressured to take action that you do not feel is in line with the objectives of your portfolio.

Deferred Sales Charges

Mutual Fund “Back-end” commissions are a contentious topic among investment professionals and the investment public.  These “deferred sales charge” occur when a client purchases a new fund within a mutual fund company.  The advisor is paid a commission by the fund company, but the client is required to remain with that fund family for a certain period of time to account for those fees being paid, usually either 3 of 6 years.  After the first year, those funds pay a trailing commission to the advisor of roughly 25 to 50 basis points.

The upside is that there is no immediate cost to the client.  In addition, the commissions paid are usually either 2.5% or 5.0%, and this allows advisors to receive compensation from smaller accounts, and enables them to spend the appropriate time with those smaller clients to deliver proper advice.

I believe that the significant downside, however, is that this form of compensation provides incentive for advisors who meet and satisfy new clients, rather than existing clients.  If an advisor is being paid 5% on a new client and 0.50% on their existing clients, the attention of their practice is likely biased towards the initial portfolio set-up, and not necessarily the ongoing management of your account.  If your advisor recommends the use of these charges, ensure that you are comfortable that you will continue to receive the same quality of advice into the future.  In addition, your advisor should not be asking you to re-invest in deferred sales charges again once the deferred sales charge period is over.

No Load

No load compensation schedules are generally by advisors working with mutual funds, and are intended to mimic the type of compensation schedule that investment managers receive (see below).  The no load schedule means that the advisor receives their compensation as a percentage of the assets they have under management.  This means that their bias is towards maintaining the assets they already have, as there is no extra incentive for them to attract new clients, and there is nothing stopping them from leaving if they are unhappy with their service.  These are a form of servicing commissions, as above, but are the only form of fees these advisors receive for clients invested in these funds.  Thus, their bias will be towards more inactive clients.

Servicing Commissions

Servicing commissions are fees that are paid by fund companies (generally) to advisors for maintaining the accounts that they have.  Servicing commissions vary depending on whether the advisor has recommended a front end load, no-load, or deferred sales charge fee options for their clients.  Reasonably, these are the fees that the advisor receives for maintaining your account over the long term.  These are also referred to as “trailer” fees.

Investment Counsel Fees

A direct relationship to a discretionary portfolio manager usually means a fee schedule much like the “no-load” schedule described above.  These fees are usually lower, as a result of the size and structure of accounts being managed.  In addition, it is generally accepted that these fees are tax deductible for non-registered accounts (although taxpayers are advised to consult their tax professional to ensure this is the case for them).  The fees paid to these managers can also be mixed with an incentive fee of some sort, such as a share in a percentage of profits.  This is more commonly found in managers with higher risk or specialty mandates.  There are a variety of “retail” solutions like this that are available to clients through advisors that mimic this relationship.

Your Objectives

If your objectives do not fall in line with the method in which your advisor receives fees, it will be difficult for you both to see eye to eye on an investment strategy.  The fee discussion tends to raise the blood pressure of both clients and advisors alike (for different reasons), it is a discussion that you must have with your advisor, and you must be comfortable with as a client.

Good quality advisors are likely going to give good quality advice to their clients, regardless of the fee schedule.   However, even good quality advisors are running a business, and the business decisions that they have made about their practice are going to impact how they deliver their advice in the future.