When explaining compensation, follow these three simple steps to ensure you cover all bases.
1. At the first meeting
- Have an open discussion where you lay out the facts before anyone makes commitments, says Doug*, a Calgary-based advisor.
- Tell your client she’ll be charged X% of all assets she has at your firm, and stress this sum is charged every year.
- Or, if you’re paid using trailers, explain that part of the MER goes towards your commission.
- Break down how that covers fees for third parties (i.e., portfolio managers), as well as the firm.
- Explain that the percent amount also includes your compensation for services rendered.
- Don’t forget to outline commission structures for any insurance you sell
2.If your client is surprised
- Ask what her concerns are.
- Go over the fee structure again, including who is paid what (e.g., firm and portfolio manager fees).
- Suggest less expensive alternatives—perhaps that she should switch to a passive portfolio, which requires less management and, therefore, reduces costs.
3.At the annual review
- Discuss how the portfolio has performed, where her assets stand and, as a result, what her total costs are.
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