Investors are fine with trailer fees, survey says

Most investors consider trailing fees to be an acceptable form of advisor compensation, according to the results of a survey commissioned by AGF Management Ltd. and conducted by Gandalf Group Inc., both of Toronto.

Many survey respondents admitted they do not know a great deal about the trailing commissions they pay, and about half said they have heard “very little or nothing” about trailing commissions. But those who consider themselves knowledgeable about investing were more likely to say trailing commissions are acceptable, AGF said in a release Wednesday.

The survey was designed to probe investor satisfaction with advice, fees, transparency and investment options, as well as respondents’ views on the role of advisors, new reporting obligations, and awareness and assessment of various types of commissions and fees.

Survey respondents expressed a preference for fees based on investment value and performance, rather than fees based on the service provided, or hourly rates. They expressed an even clearer preference for deducting fees from their investment portfolios, rather than paying these fees in a direct charge or payment.

“As a firm, AGF is committed to providing investors and their advisors with choice,” AGF chairman and CEO Blake Goldring said in the release. “We believe advisors and their clients desire the right to negotiate the appropriate compensation model in a transparent way that best meets their needs and as such, we will provide advisors and their clients with the product options they require to build their portfolio.”

The survey found that if the ability of investors to pay advisors indirectly from imbedded commissions was discontinued, and instead advisors charged clients directly for advice and service, 24% of respondents would be less likely to seek out advice from an advisor.

“As a long-standing participant in the Canadian financial services industry we have always been an advocate for sound regulatory change that is grounded in the needs of investors,” Goldring said in the statement.

The survey also found that most Canadian investors rely on advisors at least somewhat when it comes to helping with decisions about their portfolios. Nearly half of respondents said they rely on advisors to help them make most or all investment decisions.

Investors with advisors are highly satisfied with their relationships, with 70% saying they are “very satisfied” and a scant 3% “very dissatisfied,” the survey found. The most important reason for satisfaction was the bottom line. Investors who rely on advisors are more likely to be highly satisfied with the growth and returns in their portfolio.

Most respondents also gave high satisfaction ratings to their advisors on providing unbiased advice, being transparent on fees and helping to manage investment costs.

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