By Chris Ambridge, Transcend
Special to the Financial Independence Hub
Providing a service costs money, but paying a fee deemed as an unnecessary amount has come under attack from consumers at all levels. Think banking fees, or the perception of “hidden fees” on phone bills to brokerage and investment fees. Consumers are demanding more value and in some cases winning the battle.
There is more scrutiny on fees than ever before. Studies have shown many investors either believe they do not pay anything or have no idea what they do pay (Hearts & Wallets: Wants & Pricing — What Investors Buy & Competitive Ratings — 2016).
But everyone understands nothing in life is free and clients have a right to know what they pay.
The long-view of investment fees
For centuries, if an ordinary person had any liquid wealth the best they could hope for was meagre interest on their cash. Then, as the concept of companies developed, the notion of profiting from an equity investment emerged and stock exchanges were established in seventeenth century Europe to trade equities.
In Canada, much of the early development was raised in the London market, with public shares of large companies such as the Hudson’s Bay Company. The Toronto Stock Exchange (TSX) was created in 1861, and 17 years later the TSX was the second official stock exchange in Canada.
At this time, being a stockbroker was a comfortable, genteel and very lucrative profession. By providing investors with access to markets, brokers earned fixed commissions of about 2% or more per trade. This lasted until May 1975, when negotiated commissions were introduced, leading to increased competition and a decrease in direct share ownership. Currently only 17% of the Canadian financial wallet is invested directly in stocks, down from 30% in 1990 when it was second in importance only to short-term deposits.
Asset managers on the rise
For less well-heeled investors, the first modern mutual fund was created in Canada in 1932. They were slow to catch on and grew very little between 1930 and 1970. However this was reversed in the 1970s when investors wanted greater stability following the oil crisis. Continue Reading…