Fee for Service

Times are changing and fee-for-service accounts are becoming more popular. Fee-for-service accounts are generally for larger accounts starting at $100,000 or more of investable assets.

The idea is to pay either a flat percentage, say 1% or so of the market value of the portfolio or agree upon a flat dollar amount to manage the account. Many private money managers catering to wealthier clients tend to use the percentage fee model.

Here is the simplified process to convert a regular mutual fund account to a fee-for-service account.

1. the advisor has to give up all annual service fees (trailer fees) that he receives from all of the mutual funds in the account

2. all of the regular mutual funds are transferred to a special class of funds called "F series" that have much lower MER's. "F series" funds are available for fee-for-service accounts only.

3. the new fee is negotiated with the client.

The advantage to the client is that MER savings are considerable. The MER or Management Expense Ratio as it's called is basically, the internal costs to manage a mutual fund portfolio. Since the fund company now doesn't have to pay the advisor they can afford to lower their internal costs and pass on the savings to you.

The savings are significant. For an average stock mutual fund you can save about 1% in MER costs.

There is another potentially very significant savings opportunity. We advisors are not allowed to tell you that the fee may be tax deductible as we are not tax professionals but do consult with your tax person about the possibility of writing off the entire fee as a tax deduction.

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