When setting up an investment account, your Caldwell advisor will provide an explanation of how fees are applied.
There are two categories of fees common to all mutual fund and segregated fund accounts:
1. Getting Started
In most cases, several hours of preparation go into setting up an investment portfolio. Activities include identifying your investment objectives, preparing and reviewing with you a portfolio suited to those goals, completing regulatory and account-opening paperwork, communicating with other financial institutions when an account transfer is involved… all the requirements related to setting up your investment account. With some firms, your account may have immediate fees applied against your deposits to cover the set-up costs by both the advisory firm and investment dealer. Our approach is to ensure that every dollar of your contribution gets invested; accordingly, we apply no deposit or withdrawal fees.
1. Front-end Load – FEL (Bundled): Some investment funds apply a fee of up to 5% of the amount you invest. The fee is paid to the Investment Dealer that offers the fund – in our case, Credential Qtrade Securities Inc. This is a bundled fee that CWEA has reduced to 0% on your behalf.
2. Low-Load – LSC (Bundled): Low-load funds charge a lower sales charge of approximately 3% of your invested amount, and a redemption fee of up to 3% on amounts withdrawn within the first 3 years. CWEA does not offer this fee structure to their clients as it reduces the amount invested.
3. No-Load – NL (Unbundled): Availability of No-Load funds is typically limited to accounts exceeding $250,000. Effectively, NL funds unbundle the Advisory fee from the Management Expense fee; while the Management Expense fee is pre-determined, the Advisory fee is reported separately and can be negotiated with your advisor based on the overall account value being managed on behalf of the client and any related parties. In other words, volume discounts are applied.
4. Back-end Load or Deferred Sales Charge – DSC (Bundled): Once the dominant fee structure, this model has recently been squeezed out of the industry. It saw an early withdrawal fee of up to 6% applied against any withdrawal made against the account within 6 years of deposit; the earlier the withdrawal, the higher the fee. Caldwell Advisory eliminated DSC as an option over a decade ago.
2. Ongoing Investment Management & Advisory Services
Management and administration expenses are incurred by fund companies as they invest your money. These expenses are paid by the fund and are in turn recouped directly from investors’ accounts as the Investment Management Fee (IMF).
Management costs relate to:
- Actively overseeing the fund
- Trading costs
- Compensating portfolio managers for investment selection
- Paying other companies hired to assist in the administration of the fund
Operating expenses include:
- Bookkeeping and administrative fees
- Marketing costs
- Filings with provincial securities commissions
- Legal, audit and custodial fees
In addition, Advisory Fees are paid to the Investment Dealer, a portion of which gets passed on to your advisor. This fee is intended to cover administration and management costs borne by the Dealer, in addition to the advisory services provided directly by your advisor.
Advisory Fees include costs and services related to:
- Dealer administration
- Compliance & oversight
- Technology for client forecasts and reporting
- Annual reviews
- Local administrative staff
- Office overhead
- Licensing & compliance
- Continuing education
Depending on available options, the IMF and Advisory Fee may be either reported separately or bundled into the overall cost of your investment.
- When bundled, the two fees combine to make up the Management Expense Ratio (MER) which is determined as a percentage of the overall fund value and withdrawn prior to the reporting of the investment performance; and
- when unbundled, the IMF is deducted prior to the reporting of the fund’s performance, and the advisory fee is reported quarterly as a deduction against each investor’s account. For non-registered (or Open) accounts, the advisory fee may be tax deductible as an investment expense.