How to make more money without investing more

Ashleay: Hi everyone, and welcome to iA Financial Group's podcast “In Your Interest!”. I'm Ashleay, your host, and as always, I'm joined with Sébastien Mc Mahon, our Chief Strategist and Senior Economist. And, Sébastien, hi!

Sébastien: Hello, Ashleay.

Ashleay: So today we're going to demystify the fees associated with investing and advantages of consolidating assets in a single financial institution. By the way, I do believe we have a special guest for the occasion.

Sébastien: Yes, we do. I'm very happy to be joined here by Pablo Carrera. Hello, Pablo.

Pablo: Hello. How are you?

Sébastien: I'm good, I'm good. How about you?

Pablo: Thank you. Very well.

Sébastien: All right, so you’re Regional Sales Director at iA Financial Group. And I believe you're the prettiest voice in all of Canada. Present, past and future.

Pablo: Thank you very much. That's very humbling.

Sébastien: So, we'll be hearing that delicious voice today to talk about management fees. Is that right?

Pablo: This is radio, right? You can't see my red face right now.

Sébastien: No, no, no, we can't see it. But I think we can get it through, you know, through the air, still. So, management fees.

Ashleay: Yeah. If we talk, let's say the first three components of the management fee breakdown, right. So, there's a fee for fund management, transaction fees, another fee for professional and financial advice, professional financial advice, sorry, and agency fees as well as the fees for sales taxes. Maybe you could tell us a little bit more about what each of these fees do and why we're paying them.

Pablo: Absolutely, yes. So, when we look at fund management and operating costs, for example, there, you're looking at the fees associated with the actual fund manager, the support team, the research team that supports that fund manager. You're looking at also other related costs like statement preparation, client services and everything that goes around the management of a fund. When you look at the second level, which is more the advice portion of it, well, there you're actually paying for the added value of having a financial advisor to give you advice to learn about what your needs and your objectives are, to build a plan to accompany you throughout the evolution of that plan. All of that added value, obviously, that comes with a price, that comes with a cost. And well, thirdly, obviously because it's a service, taxes have to be paid as well.

Sébastien: Yeah. And you know, we've talked in the past Ashleay about the different products. Of course, there's mutual funds, there's seg funds, you also mentioned, you know, exchange traded funds. Exchange traded funds, it's fun when you can manage your money by yourself. But you know, there's always the traps of, you know, it's Tuesday morning. Markets are down. You're feeling pessimistic. You sell, you think, oh, I'll get back in the market at the right time and you don't. So, that's where professional help is necessary, I would say. So, you pay for that with your fees. So, it's your money. You paid for it. So, you might as well, you know, benefit from it to the maximum.

Pablo: Absolutely. Yes. And there's a great added value in having an advisor in your corner because you need to have that emotional check when you're dealing with your money. Sometimes we will tend to get a little bit emotional. We'll get nervous, we'll get scared. And to have somebody in your corner that says, you know what? Markets are just pulling back, but it really isn't the right time to panic. It's not the right time to sell—stay invested, maybe take advantage of some opportunities. Let's keep an eye on the long term. Let's remember the investment horizon that we originally established and stay on track.

Sébastien: Yeah. And just, you know, make sure that you sleep on both ears at night. You know, someone's in your corner, as you said. So, if we focus more on mutual funds and seg funds, can you maybe remind us of the difference between the two?

Pablo: Absolutely, yes. So, when you're looking at a mutual fund, generally you're talking about a single investment where you pool many different companies, it's managed professionally by a fund manager and many investors will invest in that same fund. When you take that concept and you add on top of it some guarantees, some protections, some advantages, you add things like beneficiary designation, which is something that we can do because we're an insurance product, and that allows you to add some creditor protection, it allows you to bypass the whole estate settlement process and settle directly to the beneficiaries. All those advantages are present only in segregated funds because they're insurance products.

Sébastien: Okay. And can you tell us more about the guarantee. So, there's guarantee. My understanding is that it's the money you put in initially that is guaranteed if someone, you know, dies. This is easy to understand, but maybe talking about the maturity of the product.

Pablo: Yes. Well, there are different levels of guarantees. So, you're going to have some maturity guarantees which are fixed at a future date in time. You're going to have some death benefit guarantees which cover you obviously, in case you die, so, in case you pass away, for the benefit of your beneficiaries. There are also guarantees related to some of your past gains through resets. You could also guarantee things like future cash flows in an annuity. So, there's different levels of guarantees. And it's important for your advisor to be able to understand what your needs are, to be able to give you the proper advice on which level of guarantee you need.

Sébastien: And if you buy a mutual fund, you buy it and you own it until you sell it. But for seg funds, the maturity aspect is you talk with your advisor, say, maybe this money I will be needing in 10 or 15 years because of x, y reason, whatever. So, then you can fine tune it. So, right, so let's put a guarantee that until this date you cannot lose more than X percent.

Pablo: Exactly. Yes. So, when you're looking at the different levels of guarantees, that's where the financial advisor comes in with some great added value, because they'll be able to give you the advice on the level of guarantee that you'll need depending on your objectives.

Sébastien: Okay. So, different funds for different objectives, so, different management fees. So, can you tell us maybe why fees tend to vary so much according to fund types.

Pablo: So, definitely, when you're looking at the fees you have to understand, first let's look at the funds themselves. Some funds will be managed in a more, a little more passive style of management. Some will be index funds where the actual fund management is not as, I don't want to say important, but it's not as heavy as some other type of funds. Well, in those less managed funds, if I can explain it that way, those funds will obviously have lower fees. When you look at funds that are more actively managed, maybe funds that are invested in certain sectors or invested in certain geographical areas, well, and especially if you're looking at funds that are managed externally, those funds will naturally come with higher management fees. The old saying that you get what you pay for is sometimes quite valid when you're looking at fees on your investments.

Sébastien: Of course.

Ashleay: And I understand that all investments have fees, but is there a way to enjoy the same benefits and maybe pay a little less?

Pablo: Absolutely, yes. So, when you're looking at consolidating your assets, many companies will offer advantages to investors for consolidating the assets with that company. And one thing that's important to remember is, consolidating your assets does not mean putting all your eggs in the same basket. The companies, investment companies nowadays are fairly diversified both in product and in management firms, that you can consolidate your assets and not be stuck all in the same place.

Ashleay: Right.

Pablo: They will offer diversification. So that's an important feature. And many times, that consolidation comes with some advantages. In the case of lowering fees, for example, I know that in our case at iA Financial Group, we do offer prestige pricing. Prestige pricing is designed for those investors that are able to have a minimum amount of $300,000 in assets under management with us, and the fees get reduced automatically.

Ashleay: Oh wow. Now that sounds very, very interesting, that said, I don't think I have $300,000 at the top of my 35 years of life. So, does that mean basically it's maybe for a more restricted group of people that would be able to afford it?

Pablo: You might think so, but in fact, what we try and do is make it as open and affordable to everybody as possible. So, in other words, the $300,000 does not need to be upfront, your first investment. It can obviously be accumulated over time. Furthermore, what we will also allow is if one individual does not have that $300,000, we offer family pricing. So, we can actually consider the assets of one house or one address and get to that same level of $300,000, and then everybody within that house is able to benefit from those advantages.

Ashleay: Oh, wow.

Sébastien: So a husband and wife and, you know, the children who grow older, or even if, you know, the grandparents live in the house, this is all things that are possible. So, so as you said, it's just having your business, let's say with one financial advisor or one financial firm, it's not, you know, investing all of your money in a single product. It's just doing the business with the investment.

Pablo: Exactly. Yes.

Sébastien: Okay.

Ashleay: Very neat. Well, we learned a lot today. Thank you, Pablo.

Pablo: Thank you very much. Always a pleasure.

Ashleay: Yes. And thank you, Sébastien. You've both educated us a lot on the subject. And thanks everyone, and let's meet again next week. Love this podcast? Want to know more about economic news? Follow our In Your Interest! podcast, available on all platforms, visit the economic news page on ia.ca or follow us on social media.