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Wealth Professional | 17 Mar 2015, 09:52 AM Agree 0
Embedded-commission advisors could lose as much as a third of their book if trailers are banned by the OSC, wagers one industry vet, herself preparing for that kind of attrition.
  • Dean | 17 Mar 2015, 11:07 AM Agree 0
    Unfortunately we have people on the outside trying to regulate an industry that they have no idea how it works. In Canada it should be about choice and we have it today. The amount of money that is poured into the debate whether we have imbedded fees or fee for service is mute. Canadians enjoy the freedom of choice, which model fits them best today is in their hands not the regulators. Why take the options of choice away and regulate to one standard (FEE for service model) that the regulator in their ignorance feels one shoe fits all. It will be a sad day for Canadians should these bully's ever get their way.
  • M R | 17 Mar 2015, 11:32 AM Agree 0
    Another ugly "transformation" that appears to now be taking place is that a number of MFDA advisors are giving up their fund licenses, and will place all future client wealth holdings into segregated funds. Very surprised this has yet to receive any industry media attention, as I suspect many clients have little to no understanding of segregated funds and their cost structure.
  • c k | 17 Mar 2015, 12:17 PM Agree 0
    I totally agree that clients should be aware of the fees paid for service whether it is a commission, a trailer or fee on the amount of assets held under administration. I also agree that clients should have a choice as to how they pay for their service. Canada is a country of choices, to say that fee based fits all clients is wrong. What about the elderly million dollar client who does maybe 2 trades a year why should they pay 1% (10,000) for a fee when they could pay commission on those 2 trades and save thousands of dollars. The clients should be given CHOICES.
  • Mark Matsumoto | 17 Mar 2015, 01:36 PM Agree 0
    Everything changes. Advisors will have to get paid, so commissions will become fees. Many people may get upset about costs and go to banks where everything is so deeply embedded that sales costs cannot be separated.
    Compliance costs are now excessively large, so average clients will not be worth having if they want a discount on fees, so the amount and quality of advice available to him/her will go down and the cost will go up.

    In my opinion, overall many current and proposed regulations will hurt Canadians and the Canadian economy.
    I don't have the power or influence to change the outcome, so I will just have to adapt to the changes.
  • Will Ashworth | 17 Mar 2015, 01:37 PM Agree 0

    Is it not possible to separate product from advice? Like ordering in a restaurant, you'd have two columns, column A for advice and column B for product. Those not wanting advice could eat from column B only.

    Isn't it possible to regulate such a system without putting embedded-commission reps out of business?
  • Kathy Waite Your Net Worth Manager | 17 Mar 2015, 02:00 PM Agree 0
    If there were no trailers then MERS drop right? Cut the trips, incentives, spa and golf days out supplied as bribes and the cost of products should drop.
    You then say I expect to be paid for the time I spend helping you achieve your goals. My time is worth $ an hour ( including overheads and time spent on CE ) . I spend X number of hours preparing for appointments , meeting you and on follow up so I will be billing you $ X a year . Bill monthly , instalments, or once a year whatever you choose. I suspect the drop in MER will cover the cost of time you bill for and client wont be worse off. HOWEVER if you don't do what you say you bill for they will notice rather than just getting a trailer skimmed off you have to justify the fee. If they decide not to pay one year they can come back but pay an extra "set up" fee for the work incurred in the extra fact finding and playing catch up on advice. OR if you are very good at your job you will be full and they wont be able to come back. Clients will soon catch on. Most of the enquiry emails I get say " are you taking on new clients?" they realise good advisors get full quick . Like any other profession have a wait list. Lazy advisors will bleed to death slowly as their clients vote with their feet.
  • Bob White, ,CLU | 17 Mar 2015, 04:11 PM Agree 0
    The question is WHY? Why ban embedded compensation?

    CRM2 is addressing full disclosure of compensation, fees etc.

    So why is the OSC taking the position they are? It is self serving and they need to fully disclose why they feel they are protecting the consumer better or in addition to the CRM2 process.

    My personal thought is it keeps them in high paying jobs with very nice pension plans, just my opinion. But the reality I have not seen any reason for the position they are taking, none, and there is no sound reason to believe that banning embedded compensation will have a positive effect.

    What needs to be done is to have financial advisors belong to a professional organization that requires a code of conduct, ethics and practice, requires E&OE, has a built in fiduciary duty and has the ability to discipline it's members to the point of banning them from doing business in any jurisdiction.

    That said, then we would require less regulation, and that would be a conflict to the OSC, who's mandate it to keep changing the goal posts. Maybe the OSC and other regulators need to be disclosing what they get compensated, what education requirements, knowledge and skill there employees have.

    Every product of any sort in Canada, including the services of Lawyers, accountants, Doctors, the auto sales person, the Major banks, all have some form of embedded compensation, CRA has embedded compensation, if they are bonusing employees for collecting more than target.

    The reality is, we (our Governments) need to ask the simple but very important question, WHY?

    Give a good business reason that make banning embedded compensation. Disclose all data to the consumer to their advisors, the companies, dealers, and to our appointed members of Parliament and Legislatures, why the Canadian consumer will no longer have a choice of how they pay for their financial advice and services.

    Full disclosure is all that is required, and it reduces MERS be cause we will not have the extra cost that regulator add to the fees for making changes and rules that are too self serving and conflicting with rules already in place (CRM2) that already does the job.

    Because changes were made in other countries because they had serious issues does not mean Canadians have to be lemmings and fall off the cliff. And why do we need to import a foreigner who drove the bus in another country to force those changes, which have proven to not be good for the consumer? Oh, yes they forgot about the consumer, the people that pay the fees and taxes. If there was full disclosure by a third party as to pros and cons of the proposed changes, I believe the consumer would not be voting in favour of what the OSC is doing.

    I am an advisor that does both embedded compensation and fee for service, and I know there are clients who can not afford fee for service accounts, I also know that 1/3 of my business pay 80% of my income, so I am not looking after the 2/3 to get rich.

    All Advisor need to take the time and ask yourself, regardless of your practise style, is it right, is it logical to cause change when there is already disclosure in place?

    Bob White, CLU
    Serving clients since 1976
    Member of Advocis since 1977
  • Bob White, ,CLU | 17 Mar 2015, 07:38 PM Agree 0
    I would like to comment on Mr Kivenko's comment. How can you distinguish professionalism based on how compensation is paid. That is arrogant. The compensation is paid to the dealer, regardless if fee based or not. The advisor gets paid a percentage based on grid.

    I would ask what fee % he charges? I charge 1% fee or FEO1% either way the client cost is virtually the same unless it is fee based open money and there is the ability to deduct fees, representing a lower net cost, and for the F class the MER may be even lower than the A/B series.

    Kenmar Associates, re the debt. The comments lead to believe that it is the embedded compensation that is leading to Canadian Debt. The banks are the biggest lenders, they have the greatest Mutual fund holding, and have historically never disclosed to clients how they get compensated from the Mutual fund companies, or in most cases why they only offer proprietary funds, slight conflict of interest.

    Further I would ask do the people making the comments hold mutual fund and segregated fund licencing, If not, how can they be doing a proper job from a tax and estate planning perspective if they are planners. If not then they too are just sale people, like we all are. We sell our services, and it is how we get paid for those services that is the issue. Let the consumer decide, via full disclosure, which CRM2 is targeted to do. So I ask, tell us how what the percentage you are charging your clients, not what is or is not the method of payment.


    Bib White, CLU
    Serving clients since 1976
    Member of Advocis since 1977

    Ken Kivenko is one who has been outspoken about banning commission and called arguments to keep commissions as “unprofessional.”

    “Commission based advice has led to excessive leveraging, churning, DSC sales and adulterated KYC information with little emphasis on debt reduction,” the president of Kenmar Associates said. “Latest report shows Canadians have a record debt to income ratio right now. Advice giving can be a profession but major changes are needed.”
  • Will Ashworth | 18 Mar 2015, 11:29 AM Agree 0
    Full disclosure makes absolute sense. If present, the argument for keeping embedded comp makes total sense.

    However, the fees that go to the fund company, whether it be the management or early redemption fees, aren't included in the annual report to clients detailing dollars paid by client to rep and dealer.

    So, until this gap in the CRM2 disclosure rules is filled, full disclosure isn't necessarily "full".
  • Wealth Adviser | 18 Mar 2015, 01:17 PM Agree 0
    Decorum! Gentlemen and Ladies!

    AUM fees (trailers) and unembedded, discrete fees are one and the same. Get rid of the name "trailers" and call them what they are really are; AUM fees. Whether fees are embedded or not is a moot point. Both are disclosed. Both are transparent.

    @ Kathy, yes the MER will drop by the AUM fee(excluding MMF) to be replaced by the negotiated fee.
    MER minus 100 bps plus 100 beeps (leave HST out of the calcs) is a wash provided we assume that all Canadians invest in 100% equities 100% of the time.

    Since this is not a valid assumption, and Canadians will likely hold fixed income investments, gross advisor remuneration will be far less than 100 bps.

    For HNW,clients, you need scaleability - the bigger the account -the less proportionally,the fees. Yup - volume discounts!

    Problem is for small accounts; scaleability doesn't/can't work. The regulator won't let me open a nominee fee-based plan and charge the client min. $1250 per year fee-based account plus $125+ annual trustee fees for a $100/month PAC.

    The solution ( for some advisors) is to abandon the lower 80% of our clients and concentrate on the top 20% I see a problem with this - everyone is chasing the same client and no one is chasing the bottom 80%.

    If Steadyhand's assertion that the rich subsidizes the poor and that it is patently unfair to the rich, then the poor have to pay the true cost of investing. So he says.

    To some, I suppose, that is fair game and in the business world companies are free to make Rolls Royce's or produce Model T's.

    For me, I must have both models to service all
    of my clients - not just the rich ones.

    @Will under CRM2 Dealer compensation is indeed disclosed.
    Advisors are howling in protest as CRM2 misleads investors in believing that Dealer compensation is what the rep makes. I just looked at my expense report and can confirm this is not true.

    re: Ken, My view (on DSC) is different from Ken's. When DSC funds were introduced decades ago, it had a remarkable effect - churning almost disappeared. There was no need to make a trade - you were paid to keep investments for the long-term. Being a stockbroker at the time -this was a staggering concept. Long-term to me was 20 minutes. I think Ken is mostly referring to leveraging in his quote and I agree with him. Leveraging is a double-edged sword and the bulk of compliance issues are often leverage related. Leveraging is permanently banned at our branch by the way.
    DSC in a 0% FE world is a dying breed. DSC will die a death of neglect soon enough.

    Lastly, I would not worry too much if commissions are banned. Some mutual fund companies already have client name fee-based accounts. fees are negotiable, no account minimums, no trustee fees, no fee-based minimums. Essentially they have already replaced trailers with fees and advisers can replace the trailer AUM with a separate unembedded fee.

    The Aussies claim it cost a billion to go fee-based. We could do the same in this country but that is a lot money to rebrand AUM trailers as a "fee". Who pays for the costs to do this shell game? The Investor of course!
  • Matthew | 27 Mar 2015, 02:48 PM Agree 0
    It is hard enough to get the average family listen to advice when they don't have to directly pay an advisor. Imagine how many less people will even seek advice knowing they will have to pay a bill.
  • Debbie Hartzman.CFP.CLU.CDFA.TEP | 28 Mar 2015, 02:20 PM Agree 0
    The point of the reduced client based as quoted in this blog, is because I could simply not afford to help the small client with the amount of service I presently do, if I was no longer entitled to my trailers that I have worked for 20 years to establish. Yes, there are defiantly work a rounds but how fair is that to client. I believe in choice. I run a fee for service consulting for clients who are going through divorce, and when I see what other professionals do to create the cash flow they require from an account, I can only imagine what this will mean to the investing public when they no longer can rely on a fixed fee set by the industry. Perhaps the distinction should come down to , those of us who give service and deserve the service fee, and those advisors who are strictly transaction base, and really do not deserve it. If the fees were segmented in this way, then the adage of "you pay for what you get" would be much easier for the client to understand.
  • SO | 19 May 2015, 08:43 PM Agree 0
    I can't wait to see what all the unintended consequences of regulatory changes will look like.

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