Dale Jackson

Personal Finance Columnist, Payback Time

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The old saying “it takes money to make money” rings especially true when it comes to fee-based investment advice.

Simple math makes the point. A typical 1.5 per cent annual fee on a $1 million individual client portfolio brings the advisory firm $15,000. An advisor with 50 clients generates $750,000.

Compare that with a millennial just starting out or the average investor with a $100,000 portfolio. A 1.5 per cent annual fee brings in a paltry $1,500 annually. An advisor needs to take on 500 clients to generate $750,000 in fees.

It should be no surprise the best advisors flock to the wealthiest clients, and the wealthiest clients get the most face-time with the best advisors.

In most cases, the only alternative for investors with modest portfolios who want professional management are generic mutual funds, which compensate the advisor through annual fees that average about 2.5 per cent. On a $100,000 portfolio, that translates into $2,500 a year. In the end, they pay more for less.

So, here’s life’s harsh lesson is: if you want good advice you need a lot money. How average Canadians can grow a diversified portfolio without the hindrance of fees is less obvious, but one solution is exchange-traded funds.

ETFs are just about the only low-fee way average investors can participate in a broad range of investments. Services such as robo-advisors offer diversified portfolios to lower risk and widen opportunity.