The Fee's Not The Fee: What's The Real Cost Of Investment Management?

By Mark A. Barnicutt, MBA, FCSI, CFA


Today’s investment management offerings are comprised of a variety of Service Components that comprise the total offering.  As a result, it can be rather challenging for investors to compare the investment management offerings from various Advisors/Counsellors in terms of both Service Offering & Price.

As a result, I’ve designed five (5) questions for investors to ask any Investment Advisor/Counsellor in order to determine the true nature of the proposed Investment Management Service Offering and associated Pricing so that investors can do a true ‘apples-to-apples’ comparison amongst Investment Advisors/Counsellors:

Question #1: How Much Will I Be Paying For Advice/Counsel?

  • This is the service that relates to the ‘pure‘ advice & counsel with respect to the structuring of an investor’s portfolio aligned against their unique goals, timelines & tolerances for risk.
  • Some investment firms will also offer additional ‘non-investment’ management services as part of this fee, which includes wealth planning/stewardship and financial planning.  Generally speaking, investors should be prepared to pay an incremental fee for these services relative to firms that don’t provide such non-investment services.

Question #2: How Much Will Investment Management Cost?

  • This is the service that relates to the money management of an investor’s portfolio (ie: the people that select the stocks & bonds in clients’ portfolios).
  • In some firms, the people who provide ‘advice‘ are the same people who conduct ‘investment management’, although over the past several years, there has become an increasing ‘division of duties’ within firms such that the people who conduct ‘advice services’ are different that those who provide ‘investment management’ services. The reason for this is that in a growing global economy of virtually limitless investment choices, the skillsets (and time) required to conduct investment management are very different than those required to provide advice services.
  • In some firms, all investment management activities are conducted ‘in-house’ while other firms have ‘outsourced’ their investment management activities to external money managers who specialize in specific areas of investment management.  Generally speaking, the average investment management costs for a firm that has ‘outsourced’ their investment management activities will be slightly higher than a firm who has ‘insourced‘ their investment management activities.  The incremental cost between the two investment management business strategies should be considered the cost of obtaining ‘objectivity’ of investment management selection.  Such an incremental benefit may be of importance to some clients but not to others.

Question #3: How Much Will Security Transaction Costs Be?

  • These are the commission costs associated with the ‘buying & selling’ of securities (ie: stocks & bonds) in investor portfolios.  The long-standing tradition of commissions is that Equity Securities (ie: Stocks) have transparent ‘per share’ costs that are disclosed to investors separately while Bonds/Fixed Income securities have opaque commissions that are simply factored in as part of the security price (ie: the commission is effectively ‘buried‘).
  • The key for investors to understand is that a ‘Trade’ has a cost associated with it but it’s all about how much you pay….ie: are you paying ‘Retail’ or “Wholesale/Institutional’ pricing.  For investors with sizeable investment portfolios, especially who are paying a separate set of investment fees for investment advice/management, the commissions that they pay should be strictly lower-cost Wholesale/Institutional pricing.

Question #4: What Are The Costs For Operating Pool/Investment Funds?

  • Investment Funds are excellent investment vehicles for investors to obtain a ‘pooled‘ approach to investment security purchases in situations in which (1) the nature of the underlying investment securities don’t lend themselves easily to being in ‘individual security format’ in client accounts – such as Small Cap Equities, High Yield Debt, etc.; and (2) in client situations in which the allocation to a particular investment mandate is small (ie: less than $200K) and, therefore, it’s operationally challenging to have a portfolio of individual securities.
  • When purchasing Investment/Pool Funds, all investors should ask what ALL of the Fees associated with each Pool Fund.  Although there are several fees & costs associated the operation of Investment Funds, for the purposes of this article, investors should ask what additional fees & costs are associated with the operation of an Investment Fund beyond the Investment Advice & Investment Management Fees that they will be paying.  Generally speaking, these additional fees/costs are referred to as Fund Operating Expenses, and they relate to items such as Accounting/Audit and Legal expenses as well as the costs associated with valuing the units/shares of the Fund as well as keeping track of the various investors in the Fund.

Question #5: How Much Will Custody Cost?

  • Custody is the costs associated with the independent safekeeping of client assets, and generally decline in percentage terms as the investor portfolio size increases.
  • As discussed in a separate article we wrote, we strongly believe that a financially strong & independent custodian is important for investors with significant portfolio sizes.  To view this article, please click here.
  • Finally, it should be noted that for custodians who offer both Custody Services + Brokerage Services, custodial costs can become skewed low because these costs are often being subsidized by affiliated brokerage costs. Bottom line….an investor needs to assess ALL investment related costs.


As the pricing framework for the global investment management industry is tied to ‘assets under management’, generally speaking, the more assets a client invests, the lower the Percentage Fees paid.  For this reason, I’ve assumed below that a Sample Investor has a $5 Million portfolio.  As a result, and based upon my experience in the industry, the range of pricing for the various service components (as a percentage of the value of client portfolio assets) of such a $5 Million portfolio would be as follows:


  • Advice/counsel should range between 0.25% and 0.75%, depending upon the extent of services included in the advice offering.

Investment Management:

  • Investment Management fees should range between 0.30% and 0.75% depending upon the type of underlying investments being managed, with Canadian Government Bonds at the low-end of this range and Global/International Equities being at the high-end of this range.
  • For some Advisory/Counselling firms who are registered as Portfolio Managers, they are often able to negotiate lower fees than disclosed above given (1) Their aggregate buying power of client assets, and (2) the fact that the Investment Managers don’t need to meet with the end-investor client (given the fact that the licensed Portfolio Manager takes on all of the responsibility for the suitability of the underlying investments with the end-investor client).

Security Transaction Costs:

  • Institutional pricing for Equity Securities should be 1 - 3 cents per share while similar pricing for Bonds/Fixed Income Securities (included as part of the price) should be less than 0.5% of the buy/sell price.
  • For a $5 Million portfolio, with a prudent level of ‘turnover‘ (ie: buying & selling) over the course of a year, should translate into costs, as a percentage of assets, in a range of 0.03% – 0.05%.

Pool/Investment Fund Fees:

  • If Pool/Investment Funds are utilized in client portfolios, depending upon the (1) Fund Size, (2) Number of Fund investors, and the (3) Nature of the underlying investments/securities, in a given Fund, the Operating Expenses are typically in a range of an extra 0.10% – 0.20% relative to the other costs above.
  • It should be noted, though, that many Alternative Investment Funds (ie: Hedge, Private Equity, Private Debt, Real Estate, etc.) can have higher Operating Costs than disclosed above that disclosed above given the increased operating costs associated with primarily pricing the illiquid securities in these Funds.


  • Custody will typically cost between 0.10% and 0.15%, and is increasingly including the transaction costs of ‘settlement‘ of transactions via brokers with the custodian.

By summing the above components, it’s reasonable to expect that a $5 Million investor would experience Total Investment Counsel/Management & Related Fees in the range of 0.78% – 1.90%, or an average of 1.34% per annum.

By asking the above questions, we believe that investors will become better stewards of their own wealth and be better able to make informed decisions about the Value they are receiving (ie: Services Received For The Price Paid).



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