More Money Podcast - 058 Yes, You Are Paying Fees on Your Investments - Chris Ambridge, President of Transcend Private Client

Episode Date: September 21, 2016

This episode is all about fees, and my guest, Transcend Private Client president Chris Ambridge, has a wealth of knowledge to share all about it. We also discussed CRM2, the new amendments coming into play to make it more clear how much we're paying in fees, and we talked about the different ways advisors are compensated, so you have a better understand of why they may suggest certain investment products to you. Long description: This episode is all about fees, because even though it paying fees on investments may seem like a little thing...it's not. Like my guest Chris Ambridge, president of Transcend Private Client, mentions in the episode, surprisingly 2/3 Canadians don't know their paying fees. Reality check people, you are paying fees! Everyone pays fees on investments. How else do you think banks and wealth management firms make money? But even though we are paying fees, and there really isn't any way around that, it's important to know how much you're paying. That's why we also discussed CRM2 and how this will will help clients like us know exactly how much, in dollars, we are paying. It's great to see a percentage, but I think seeing the dollar amount will really help us all know whether we're paying too much for what we're getting. Hey, I'm fine with paying high fees, if I'm getting a high return. But that's usually not the case. That's why it's important to look over your investments every once in a while to check if you're really get any bang for your buck. If you're paying 2.5% on a mutual fund and only seeing a 4% return, it might be time to look into something else (perhaps Index Funds and/or ETFs?). More Helpful Info About CRM2 We talked quite a bit about Client Relationship Model - Phase 2 (CRM2), but I wanted to make sure you really understood what all this is all about. CRM2 came into effect July 15, 2013 and has been phased in these past 3 years. Essentially, what these amendments mean is that beginning July 15, 2016, registered financial firms will need to: Provide an annual report on charges and other compensation that shows, in dollars, what the dealer or adviser was paid for the products and services it provided - Ontario Securities Commission Basically, these amendments are a way to evoke more clarity when it comes to fees, instead of making it hard for clients to truly understand how much they're paying for their investments. If you want to go further down the rabbit hole, here are some good websites to check out that go more in-depth about CRM2. Cost disclosure, performance reporting and client statements 7 myths about CRM2 Performance Reporting & Cost Disclosure Learn More About Transcend's Pay-for-Performance Service First Pay-for-Performance™ Financial Planning and Wealth Management Service Launches in Canada New pay-for-performance funds to offer investors something different Transcend offers performance-based fee structure Check Out Transcend's Latest Blog Posts Top 5 Things You Need to Know About Investment Fees Your Financial Checklist For Every Checkpoint How To Maximize Your Inheritance Your Guide to Retiring Well Follow Transcend on Social Connect with Transcend on LinkedIn Follow & chat with Transcend on Twitter Stay up-to-date on everything investing on Facebook This episode is sponsored by . All the opinions and thoughts are my own. For more podcast episodes, check out the Podcast page. Shownotes: jessicamoorhouse.com/58 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello, and welcome to Episode 58 of the Mo Money Podcast. I'm your host, Jessica Morales. Thank you so much for joining me for another wonderful episode. A wonderful episode because this one is all about fees. Fees. Fees that you probably don't know that you're paying, but you are. And I know that because right after this episode, I went out to dinner with a friend and we started chatting about money because I can't help myself. I just need to talk about it, I guess. I'm just obsessed with it.

And we started to chat about investing and fees and she had no idea that she was paying fees on her investments. Like she just, oh, I am? I guess that makes sense. Yeah, it does make sense. You're for sure paying fees. You cannot invest for free. That's just not a thing that happens. Banks like to make money.

Investment firms like to make money. It's all about money. So I'm going to be talking about investing and fees with my next guest, Chris Ambridge, who is the president of Provisis Wealth Management Limited and also the CEO of Transcend Private Client. And he has a wealth, pun intended, of knowledge when it comes to investing and fees and everything like that. So we are going to really get smart today, guys. We're going to learn some facts and figures. This guy really knows what he's talking about. So I'm very excited to chat with him and share this episode with you. So without further ado, let's get to the program. Thank you, Chris, for joining me on the podcast today. I'm excited to talk to you today.

I'm looking forward to it as well. Awesome. So tell me a little bit about yourself. Well, I'm the president of a firm called Provisus Wealth Management. It is a portfolio management firm that's been around for 10 years. And we manage approximately $400 million for private clients who are looking for something different. Rather than mutual funds or ETFs, they're looking for professionally managed portfolios that are custom-made for their services. And we've recently rolled out a service to clients directly

called Transcend Private Clients, which we can talk about later if you like, where clients have the opportunity to participate in the same type of portfolios that high-net-worth clients have the opportunity to participate in the same type of portfolios that high network clients have, but on a vastly different pay scale and opportunity for performance where we're actually tying the results clients get to the amount that they have to pay, which is something very different from what happens currently in the Canadian marketplace. Absolutely.

So I'm just curious, how did you get into that line of work? Have you always been just really passionate or interested about finance? Not originally. When I came out of my undergraduate, I was obviously searching for something to do. I went back to school like a lot of people and got a master's of business, an MBA. And it was there that I saw that investment management was where I wanted to settle. So over a course of several jobs that weren't quite in that field, I moved closer and closer and then finally got into a portfolio management firm and have been actually managing

money for clients for going on three decades now. So the opportunity has started to present themselves and what I found over that time working both in Canada, Europe, and other overseas jurisdictions, that is, there's a lot of different ways to manage money, a lot of different ways to get results and, of course, pay for it. And Canada, in certain instances, lags behind the rest of the world in how that is accomplished. And over the course of my career and where I've worked, we've tried to be a bit more innovative,

change things up in the status quo and give a new look, a new feel for clients. And I think we've done that. And some of the things that we've brought out have been certainly revolutionary. And I think as people learn more and more about it, they'll come to realize that what is being offered in the current climate is not always in everybody's best interest. Why do you think Canada has lagged behind in that respect?

Canada has always been a market where individual investors have relied upon others to give them guidance, rightly or wrongly. In certain instances, many studies have shown that people who have listened to advisors at the end of the day have been well rewarded because they've made regular contributions. They've paid off their debt. They've accomplished the goals they set out. So from that perspective, advisors have been very good to clients. In other aspects, clients have not done as well because they've not looked into their own situation for their own benefit. They've

blindly gone where they've been led. And a lot of other countries around the world, it's more clients going seeking out information and gathering that information and making decisions. In Canada, it's very much what we call a push market or a sales market. Clients are sold to by the advisor and broker community into a product versus a solution that's specific to the client. So even to that end, that model has been very costly to Canadians because Canada is always rated as one of the most expensive investment markets in terms of fees that clients pay.

And it's only recently through innovations that have come into Canada, such as robo-advisors or government regulatory changes, to make clients and Canadians in general aware that they are paying fees. We've done a couple of years ago that two-thirds of Canadian investors in mutual funds didn't even think their advisors earned anything. Well, they do, and they earn quite well. So Canadians are slowly becoming aware of it, but it still takes a lot of education and a lot of knowledge to get to where they should be. Absolutely.

No, and I've heard that quite a bit, especially from lots of the bloggers and friends I have in the U.S. It's very expensive to invest in candidates. You know, we're paying crazy fees compared to lots of other places. You kind of mentioned lots of people don't, and that's a staggering percentage that you said, that two-thirds of Canadians didn't even know that they were paying fees, which is scary because we're all paying fees.

And, you know, for a long time, we didn't really know. It wasn't very easy to find out how much we're paying. But there is kind of a new regulation coming in called CRM2, if I'm not mistaken. Did you want to talk a little bit about that? Right. And this primarily deals with mutual funds. It's exempt on a few other products like segregated funds, which are a product like a mutual fund that's sold by insurance advisors. They tend to be much more expensive because there's certain guarantees and advantages theoretically, but in a lot of cases, fees are expensive on that side. But CRM2 is a regulatory imposed guidelines that has gone into effect actually July 1st,

but the first tangible effects will come in on January 1st. And what the primary thing that a lot of investors and Canadians will see is for the first time it becomes mandatory for investment advisors or brokers to show clients

exactly how much the advisor earns when they sell a product or a mutual fund to that client. So clients will see how much they're earning. They don't see the whole

picture because the CRM2 only is required for the advisor's portion, not the manufacturer's. So if you go to and buy mutual funds, usually there's two pieces of the piece, how much the company that creates the fund earns and how much the advisor who sells it earns. So clients are going to see the one side of it. The second piece, you can see the total fee of the client if you dig and want to see the true numbers. Even that is becoming more available because there's a requirement for what's called fact sheets to provide it to every Canadian when they buy a new fund

or a new piece of an existing fund. So those are mandatory requirements. So by studying that two-page document, clients can easily see how much they earn in aggregate. But advisors' pay is now going to be transparent. And, you know, a lot of advisors out there do very good things for their clients, and they should be paid. They should be compensated and should be remunerated for what they do.

Others, however, are simply salespeople selling a service that is paying them an ongoing fee because clients pay fees based on the total assets they have on an ongoing basis. So you as an investor or a client should be comfortable that the fees you're paying, you're getting service for them. There's lots of other alternatives out there that can help you. And one other thing that actually CRM2 is going to do, which is even more important because fees is one side of the coin the other side is results you know if you're getting value or

performance for your money most people are happy with that well most people don't actually see their performance most statements that they've gotten in the past have not generated their performance or shown any sort of comparison you know some people will say, well, I generated 10% return. Well, that's all well and good, but the market did 20%, so you underperformed. Now it's going to be obvious for clients what they pay and what they get for it. So there is a very tangible benefit in coming to clients in this regard. Yeah, that's really exciting

because I even have, not too long ago, me and my husband read our, you know, a meeting with our financial advisor and I want some clarity on some of our investments. And he just made it seem very difficult to, you know, I'm just like, I just want to know what the number is. How much are we paying for this, you know, I'm just like, I just want to know what the number is. How much are we paying for

this particular mutual fund? And he just kind of talked in circles and kept on referring to, well, it's this percent, but it just wasn't very helpful what he was saying. I'm like, no. And so I'm glad this kind of regulation is coming into play because there should be more clarity and it should be, you know, people should know, yeah, not just how much they're paying for something, but also what the results are, not just how much, oh, if your return is this. But no, your return might be 10%, but if everyone else is making 20%, then you're not doing so well. So I'm glad this is coming into play. When exactly is it rolling out? Has it started to or it will be soon?

Well, the legislation has gone into effect, but the advisors in the brokerage community have a six-month window to get all their statements and reporting ready. And as of July 1st, clients will receive or start to receive a new form of information in terms of quarterly or monthly statements which show the performance, which will show the benchmark, which will show other information that clients should be aware of, and of course, fees. Now, one thing I should mention on the fees that advisors receive, it's the total gross fee, and that doesn't all come to advisors because like everybody, an advisor has costs. Like they have a dealer or a broker firm they work for

that takes part of their fees to cover expenses. So to say an advisor earns 1% or 1.5% is not completely fair because there's other hands that take portion of that. But it's something that people should be aware of. If a client is more substantial and they have hundreds of thousands of dollars or half a million dollars, fees become important. Absolutely. It's a lot of money.

Well, and that's up over time, too. Yeah. If you look at a fee over a long term, say you take a 2% fee on $10,000, that's like $200 a year. That's every year for the next 30 years until you decide to retire. Well, 30 times 200, that's $6,000 you're paying in fees. Maybe worth it to you, maybe not. You have to make that decision.

Absolutely. I wanted to kind of chat about what the different ways advisors are compensated. I feel like there is a big gap. People, you know, first off don't know that they're paying for lots of the investment products that they're getting, but I don't think they know the different ways their advisor might be compensated. I know I did, obviously, research before we went with our advisor. I asked him straight up, how are you being compensated? So I know kind of what your motivation is for pushing certain products.

So do you want to kind of explore some of the different ways advisors are compensated that we should all be aware of? Well, I mean, you can start with the bare bones. If you go to buy a stock or a bond directly from a broker, you're charged a commission. And that is spelled out or should be spelled out whether you're at a discount brokerage or a full service brokerage like one of the banks type thing. So they'll tell you exactly what you charge. So it's on a per trade basis based on the number of shares and the value.

Then you can look at things like GICs. You know, when you go to a bank or a credit union and you're quoted 2% on your five-year GIC, you think, oh, that's fair. Well, really, you're paying a fee on that because the underlying bank or whomever takes something, their earnings. So clients think they're not paying for JCCs. Well, they are.

You look at, I guess, the biggest service is in Canada, mutual funds. Well, mutual funds, there is what's called an MER, which is the manufacturer's expense ratio. So that's an ongoing recurring fee that's deducted on mutual funds basically every day that your monies are invested. So that's part of the fee that the advisor earns, the manufacturer earns. There's even government taxes in there.

It wasn't too long ago that there was no HST on mutual funds. The government changed that and now you pay taxes on your retirement money. Even in the mutual funds, there are certain fees that aren't readily available, like trading costs, which are costs that clients have to bear, or marketing costs, which are not at the top line report. So some people have to dig deeper. Some clients will get what's called financial planning fees. So, for example, you go and get perhaps a lower cost fee from a mutual fund company, but the advisor is paid directly.

So you want to have consultation fees on how to set up your estate or start saving money for your children's education or purchasing a house down the road. They'll charge a direct fee for you. So various fees in that regard. And the thing to also remember is different fees have different tax treatments. So the fees, for example, that you pay on a mutual fund are not tax deductible.

Whereas if you come to a portfolio manager, the monies that you pay for fees for open or corporate or non-registered accounts are tax deductible. So not only are you getting perhaps a more sophisticated service, you're generally getting it at a cheaper rate. So there's fees everywhere. The question is, how are they displayed to you? How are they charged? Even people think, for example, ETFs. ETF has been a growing phrase in a growing sales area. It's reached $100 billion in sales in Canada, $2 trillion in the United States. The tagline is, they're very inexpensive.

Well, the reality is some are very inexpensive, some have a higher cost, and people don't even imagine. For example, on an ETF, the idea is an exchange-traded fund is designed to track an index. So by paying that fee, you expect that index's performance. That's the premise.

Unfortunately, because of the way the monies are managed, there's usually a discrepancy excluding fees from the underlying performance. So the manufacturers, through no fault of their own, but to create the ETFs, are impacting the client's performance because they're underperforming the results. So there's all these little, not costs or fees, but costs to the client. And people just have to be aware that sticker shock is one thing, but what actually you're paying is another thing.

Now, it's interesting you bring up the tax thing, because I didn't ever think that I was actually paying tax on those fees. That's something that I just never even thought about. Yeah. So, for example, you go and see a MER, a mutual fund, and they say it's 2%, and you're living in the province of Ontario, for example, well, you pay HST, which is 13% on top of that. So that's another 26 basis points, or a quarter of a percent, roughly, that you're paying to the federal government and the provincial government for the pleasure of owning that mutual fund.

Well, that's fun. Yeah. There's no escaping taxes unless you're very good with your money and manage your money appropriately. So you want to manage your money as tax efficient. A lot of people are concerned with fees, but the best way to minimize the fees is prevent taxes from being taken. So, top up your RRSP, maximize your TFC, view RRSP, invest your money in a tax-efficient

way. So, your registered accounts should have fixed income, which are the most punitive tax vehicles in the country, and open accounts should have fixed income, which are the most punitive tax vehicles in the country, and open accounts should have equities. Right there, that one little sentence or structure where you can save a lot of money. Absolutely. More than it is at all. Yeah.

Sorry. No, no, you continue. This is very fascinating. I'm learning a lot. Yeah. Sorry. No, no. You continue. This is very fascinating. I'm learning a lot. Yeah. So, I mean, it's just people should try to learn more. They should question their advisors. They should be aware that there are things to do beyond just buying a mutual fund and

socking it away for 20 years by asking the questions and learning the responses from somebody who hopefully knows what they're doing. It's better off at the end of the day. Absolutely. So speaking of fees, so the wealth management firm that you work for, you are doing a kind of a different type of fee structure. It's called the Transcend Pay for Performance Model. Did you want to kind of talk about that?

Because it's something that I've never really seen before, and it seems pretty interesting. I believe we're the first to put it in full force across Canada. Part of the reason is because of what we're doing. We've basically come to the conclusion that we know that we can generate substantial performance for clients and do better than a preset benchmark or gauge to say how well we've done. So what we've done is we've cut our costs below most ETFs to 25 basis points, or a quarter of a percent. So that's our administration cost. So anybody that decides to use our service directly

through the transcend.ca website will be charged that on the equity funds. That covers the cost of operating the fund. So it covers the trading costs, the custodians, the fund accounting, all the regulatory costs. We don't make a penny. So what we do is then say, okay, clients, what we're going to do is we're going to be on the same side of the table as you. We're going to be for the first time working with you and not earning anything until we deliver outperformance or better results. So for example, if we put you into a Canadian equity fund and we outperform its performance, we do better, then we get paid. So every quarter,

we will say, okay, the Canadian stock market was up 10% last quarter. Well, Transcend's funds were up 12%. So we outperformed by two. So clients get to keep all the performance up to the 10%. It's that 2% where we then would take a fee. So we outperformed by 2%, better than ETFs, better than most mutual funds. So we'll take a percentage of that 2%. So we'll take 20% bonus, if you will, of how much we outperformed. So that way, by delivering results to clients where they see positive success, we earn our money. And that's revolutionary as far as I know.

Yeah. So if a client doesn't or like their fund doesn't beat the market or it matches the market, you don't make anything? We don't make anything. Oh. Well, I guess it's in your best interest that they perform better than the market then. Right. And part of it, well, I mean, a lot of people can try and do it because that's everybody's goal is to add value.

But we do it without taking risks. So we're going to match the risks. We're not, you know, trying to shoot for the stars here. We're trying for doing, you know, little incremental gains every day and adds value. We're not cowboys or shooting for the stars, as I said. So it's a different part of the story. We'll start to have it. And we, the funds have, that we use in the Transcend side,

have been available for five years post our performance so people can see exactly how we've done historically, and the results are there. So we hope a lot of people will at least give it a thought. Yeah, no, definitely. It sounds very interesting. So you mentioned a couple times what type of clients should approach you and kind of look into this Transcend Pay for Performance model. You kind of mentioned that you deal with kind of high wealth clients first. Right.

And as we've evolved over time, a lot of our emphasis has moved from the million-dollar clients down to clients that are accumulating wealth. They're growing their retirement funds or they've come into some assets or they have some liquid money. A lot of robo-advisors will take people with $5,000. Because of the way we are structured, our minimum is only $50,000. We take all account types. So clients as a household, if they have $50,000 and they have it in RSPs or TFSAs for couples, there's many ways of putting it together. That's the minimum to get into the structure. So obviously it's not for everybody, but it's for people that have gathered some assets and they're looking for a different solution.

So it's kind of not for the people that are just starting out, but people that have kind of built up some wealth and want to graduate to kind of something to the next level, kind of get to the next level with their investments. I think so, yeah. If you look historically, mutual funds have always been the starter for most people, because you can get in with $1,000, $5,000, whatever the fund company is setting as their minimum. And as you've accumulated wealth,

then you start to look at other solutions, whether it's a stock portfolio or private clients or hedge funds or those type of structures. So it does require more wealth to move into those more selective vehicles. The robo structures are there for clients that want to start, but even then, the costs are not bare bones. There's still a lot of mouths to feed in that process.

We know from our experience and our cost comparison that the mechanism that we've put in place is more economical clients. Fair. You don't pay unless you get results. And certainly compared to mutual funds, which have had a lot of negative press recently. Yeah. Because fees are a big distraction and do cost performance. So we think it's a fair way.

It's just a matter of clients becoming aware. Mm-hmm. No, absolutely. No, I'm so glad that we got to talk about fees in depth for this episode. It's something that I think a lot of people, it may not be like a sexy topic exactly, but I think it's super, super important because I don't think people realize they're paying fees or realize how maybe their high fees that they're paying are really affecting their results and the money they could be making on their investments. Absolutely.

Absolutely. Well, thank you, Chris, so much for joining me. So where can people find more information about this Transcend Pay for Performance model and more about your firm? The Transcend Pay for Performance has its own website called transcend.ca. It is a place to start. It gives you a lot of beginning information. There's a lot of articles and content.

There's also videos of how the structure works so it's transparent. Performance is there. The way we work is every client that comes to us will have an in-depth conversation with a registered portfolio manager who will take them through a questionnaire, build a specifically tailored investment

policy statement outlining the best way to build their portfolio, show them exactly what the fees are. Transparency is paramount at this stage. Just because fees are required to be shown, they should be shown in every aspect. And clients should be educated, too, as to what their results have been and how they've been arrived. So start at transcend.ca is the perfect place to look and learn more. Fabulous.

Oh, thanks again, Chris, for chatting with me and sharing some of your knowledge about this crazy finance world. Okay, my pleasure. And if you have any other questions or want clarity, happy to answer whenever I can. Thank you very much. And that was episode 58 of the Mo Money podcast with guest Chris Ambridge from Transcend Private Client. And of course, he mentioned the website if you're interested in learning more about their pay for performance program that is very unique. All you have to do is go to transcend.ca that's spelled T-R-A-N-S-C-E-N-D.ca. Transcend.ca. All right, you got it. And of course, make sure

to check out the show notes for this episode. I am going to break down what we talked about in this episode. If you kind of just want a bit more clarity and just, you know, kind of remind yourself of what we talked about, check out the show notes, Jessica morehouse.com slash 58. And, uh, you know what you should do right now? You should give me a rating or review. If you're not comfortable giving me a review, that is totally cool. All you have to do is give me a rating. The little stars makes my heart, you know, feel 10 times bigger when I see that. Or if you're feeling a bit, you know, spicy and I don't know, in a good mood or whatever, and you really enjoy this episode or just my show in general, you know, leave me a little review, you know, that'd be kind of cool.

And I'd give you a shout out, read it out on a future episode. So I will see you back here tomorrow because I have a new episode for you. It is not part of my listener series. It is a very special episode though, because as I mentioned on here in a couple previous episodes, I organized and hosted my very first event called the Millennial Money Meetup here in Toronto, where I live. And it was a blast and kind of a success, guys. Not going to brag, but it was kind of a big deal. We had a full house. I had to cut registrations within two weeks. And we had almost 140 people and lots of you. Actually, some maybe you're listening and you came to my event. Thank you so much. I tried to meet as many people at the event,

tried to say hi to everyone. But of course, there was a ton of people. So if I didn't say hello, it's not because I was trying to be a jerk. It's because I'm so sorry, I dismissed you. And hopefully, I will do more events in the future. And I'll be able to say hello. But yeah, no, it was a rocking event. It's all about creating community, getting people together to talk about money, learn about money, especially us millennials. And it was a blast. I can't wait to do the next one, trying to figure out what that's going to look like and when it'll happen and all that great stuff. But in the meantime, I recorded the panel discussion I have with myself, Barry Choi, Michelle Summerfield, and Daniel Tia, who were my panelists. And now I'm going to share it with you in tomorrow's episode. So even though you couldn't

be there possibly, or you were there or whatever, you want to listen to it again, hey, I got you covered. It is going to be tomorrow's episode. So please enjoy and I will see you back here tomorrow. This podcast is distributed by the Women in Media Podcast Network. Find out more at womeninmedia.network