Forum

Wealth Professional forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Notify me of new replies via email
Wealth Professional | 24 Mar 2015, 11:31 AM Agree 0
The speculation on the street is that certain advisors are contemplating a move that while genius, flies in the face of client interests.
  • Ross Birney | 24 Mar 2015, 12:07 PM Agree 0
    This is not "genius" or "oddly brilliant". It's disgusting and repugnant that those calling themselves advisors would even consider such actions. Hopefully the Compliance departments of their firms have a stronger moral compass.
  • David McDonald | 24 Mar 2015, 12:37 PM Agree 0
    So, as with most of these moves, if there are only a 'relatively' few advisors, why would such trades not be queried by the compliance officers connected with these advisors?
  • Harley Lockhart CLU CHFC | 24 Mar 2015, 01:03 PM Agree 0
    Some will jump on this opportunity to cry for banning DSC sales. That is not the problem. The issue is the mind-set of the advisors.
    There are situations where DSC will work to the advantage of the client. Sometimes the DSC charge is the little incentive needed to offset impulsive spending and leave long term savings intact. In a compulsive society, there is little to help individuals overcome the attraction of the immediate.
    Let's not take away a helpful tool.
    With the proliferation of specific rules to govern advisor behavior the available choices to help consumers become smaller, it seems, every day.
    Deal with the issue. There are enough rules already in place to restrict unscrupulous practitioners.
    New rules will only inhibit the good advisors and take opportunity away from investors.
    Instead of making more rules that are poorly enforced, make the investigative process more robust to withstand court challenges. Give the regulators teeth to impose meaningful penalties. The self-serving will continue to ignore rules as long as they are not backed up with stiff consequences.
  • Gerald Curtis | 24 Mar 2015, 01:53 PM Agree 0
    I'm sure the irony of this very reality has not escaped anyone who is thinking forward to full implementation of CRM2. This points out one of the flaws of this initiative. The other serious flaw is that the management costs of the funds aren't reported at all, to the best of my knowledge, anyway.
  • Will Ashworth | 24 Mar 2015, 02:08 PM Agree 0
    Harley,

    You make a good point that if used properly, the DSC isn't the evil product everyone thinks it is.

    Hallett was simply pointing out one of the possible unintended consequences of CRM2 implementation, the other being advisors giving up their mutual fund license to sell segregated funds and insurance.

    There is, however, a belief in many circles that DSC funds will disappear from neglect, not regulation, which is, I think what you would prefer.
  • Will Ashworth | 24 Mar 2015, 02:11 PM Agree 0
    Ross,

    The comments were meant to emphasize just how bad these actions truly are and not a reflection on the majority of advisors.

    It's a small group that aren't interested in what's best for the client. It's definitely something for compliance departments to take seriously.

    Thanks for the comment.
  • Will Ashworth | 24 Mar 2015, 02:14 PM Agree 0
    David,

    You're absolutely right. Hopefully, this will bring to light any churning, etc. that might be taking place in the industry.

    As stated it's a very small segment and not representative of a majority of advisors.

    Good comment.
  • Will Ashworth | 24 Mar 2015, 02:26 PM Agree 0
    Gerald,

    You're right about the management fees not being in the annual report of costs to the client and compensation to the dealer.
  • Larry Gaucher, BSA, CFP, CFA | 24 Mar 2015, 08:11 PM Agree 0
    I have heard of this happening as well. The abuse of the DSC should be monitored and stopped but won't be so they will succeed in showing lower compensation going forward.
  • Peter | 25 Mar 2015, 09:38 AM Agree 0
    I have said for decades that there is absolutely no replacement for ethics, honesty, integrity and fiduciary duty!
    The pendulum has swung from one extreme (no compliance 25 years ago) to the other extreme (we are totally handcuffed by compliance).
    The so called "brilliant" advisors and the crooked advisors, will always find ways around all the rules and regulations for self-gratification and sheer greed.
    DSC commissions are not the problem at all. There is a place for DSC as there is a place for NL and LL and FEL.
  • Sara Clodman | 25 Mar 2015, 09:51 AM Agree 0
    The anecdotal claims stated in your article are not supported by the facts. Following is an excerpt from a letter written by IFIC’s senior manager of research to The Globe and Mail:

    Comprehensive fund sales data show that there has been a steady decline of funds being sold with the DSC option. At the end of 2014, assets in such funds represented 37% of all load fund assets, down from 58% in 2007. It should be noted that this decline has occurred during the consultation, planning and execution phases of CRM2. Furthermore, while individualized reporting will be a feature of changes brought in on July 15, 2016, mutual fund expenses, fees, and dealer compensation are currently provided to investors in concise language in mandatory Fund Facts documents and in more detail in the simplified prospectus.

    The full letter is available on IFIC's website.


  • BurlingtonAdvisor | 25 Mar 2015, 11:22 AM Agree 0
    Does anyone remember when front end load was 9% upfront to the advisor? DSC at 4-5% was brought in to help the CLIENT - if they planned to keep the money on deposit for 5 years the client does not pay anything out of pocket or out of their investment - aside from the MER. Why is this so bad? Investing in general is supposed to be long term. If it is so bad - why are the fund companies offering DSC funds? Advisors have taken a pay cut over the past 20 years from 9% to 5% now to 1% with increased competition from the banks entering the wealth management space. How is a new advisor supposed to survive on 1% while building their practice? Go work for the bank I suppose . . . .
  • Bob T | 26 Mar 2015, 12:40 PM Agree 0
    This is, of course, the major issue with CRM2. An advisor being compensated with a 50 bp trailer fee on funds sold in 2015 will look much better than an advisor with a 1.25% fee based account and could end up taking business from his less expensive competitor.

    CRM2 should require all costs be disclosed.
  • Tim Hazlett, CFP, RRC | 26 Mar 2015, 09:52 PM Agree 0
    The thing that bothers me the most about CRM2 is the way advisers are being portrayed as a bunch of rogues that push products (investments) down clients throats based on the high commissions the advisor will be paid, rather than it being the right investment for the client's investment objectives, risk tolerance and time horizon.

    I am all for full disclosure of fees, but to suggest we are all pushing clients into certain investments to fill our pockets, is fully misguided, in my opinion.

    The sad reality is that many clients may be left without a qualified investment adviser to rely on because of the added regulation, or may be pushed into even higher fee products such as segregated funds because their adviser turns to insurance products only.

    Not once have I heard the positive aspects of the client/adviser relationship, such as keeping the client focused on their goals, rather than the client focused on the short term volatility of the markets. Who didn't need a qualified investment adviser from 2000-2002 or 2007-2009. I would certainly wager a bet that a larger percentage of investors that relied on a qualified investment adviser stayed on track during those periods over those investors that didn't rely on a qualified adviser for advice. This can be very costly, indeed.

    I certainly hope this added regulation does not have unintended consequences. Many may be left without a qualified investment adviser to their peril.
  • Will Ashworth | 27 Mar 2015, 11:23 AM Agree 0
    Tim,

    You've made some very rational comments about the positive merits of advisors.

    They're an excellent addition to the discussion.
  • Will Ashworth | 27 Mar 2015, 11:50 AM Agree 0
    Sara,

    The article is meant to emphasize that a small minority of advisors are involved and not the majority of mutual fund salespeople.

    I consider Dan Hallett a very respected source when it comes to mutual funds.

    But I do appreciate your concern that we could painting the entire canvas with big, broad strokes.

    Thanks for commenting on the facts about DSC funds.
  • Bob T | 27 Mar 2015, 12:36 PM Agree 0
    BurlingtonAdvisor
    I do remember the 9% front end load. I also remember sitting in meetings with wholesalers trying to get me to buy their funds because they would pay me a 6% DSC instead of 5%. I also remember when the MER on a DSC fund was higher than a non-DSC fund.
    Just because a fund company offers DSC doesn't mean it is good. The reason they offer the option is to sell their funds not because it is a good option for clients.
    I know it is difficult for a beginner advisor to start out a career on 1% trailer fees particular if the firm also takes a bite out of that fee but many of us have done so.
    This particular article did not appear to me to pass judgement on DSC fees but it did pass judgement on advisor who look forward to new regulations and in order to skirt the effects are loading up on DSC funds now to avoid having their clients see the new fee on their statements in a few years.
    I, personally, welcome disclosure but am concerned that all the cost are not going to be disclosed resulting in an uneven playing field for advisors. Since I am almost entirely a fee based advisor my clients know what they are paying me and I have never been reluctant to compare my fees with others. I don't relish the time when a client comes to me with concerns that he is paying 1.25% and his friend is only paying 0.50%. I won't have the luxury of examining his friends portfolio and letting him know the total fees his friend is actually paying. How can partial information be useful to a client.
    I have seen so many situations where clients statements clearly show that the advisor takes the 10% free units from funds each year and then uses them to purchase a new DSC fund. I have seen so many situations where the DSC expires and so a different fund is purchased. If DSC is truly a wonderful idea what number of people stay invested in a fund after the DSC has expired and how many end up switching to a new DSC fund.
  • Dan Hallett | 31 Mar 2015, 08:58 AM Agree 0
    Will, thanks for following up on this topic. And thanks to everyone who has commented. As Will noted, I chose my words carefully to highlight that this is a problem but that it's a minority of advisors that are engaged in such a practice.

    My article was aimed specifically at three groups: individual investors; dealer compliance staff and regulators. My goal was to simply raise awareness that this is happening on some scale. It's tough for me to know exactly how significant this trend really is. But based on the number of unrelated accounts I received (i.e. from advisors, wholesalers) it's too much.

    IFIC pointed out that the high level industry stats don't support my anecdotal evidence. Some may look at their letter and conclude that I'm full of something.

    But I know that this is happening. And the fact that the high level stats don't support this says two things to me. First is that most advisors aren't doing this - not a surprise to me since I believe most are honest and hard working. Second is that it's important to highlight this since the overall stats would have you believe that this isn't happening.

    In other words, it's more important to highlight because it's not as noticeable. If we ignore this, investors get hurt by being churned and the rest of the advisory industry gets yet another black eye courtesy of the ethically-challenged contingent.

    You can pretend that it's not happening. Once convinced that this was real and more than a few isolated incidents, I felt compelled to shine a light on it in an attempt to minimize the activity and resulting damage.
Post a reply