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Wealth Professional | 23 Apr 2015, 08:05 AM Agree 0
The industry may have grossly underestimated the challenge of converting embedded-commission clients over to fees, says one advisor who’s tried and has the war stories to prove it.
  • Anonymous | 23 Apr 2015, 10:00 AM Agree 0
    My firm has implemented a fee based model that would charge clients between 50K and 100K of assets 1.80% if I add F series funds into the account with MERs around 1.2% those clients would have an all-in cost of 3.0% substantially higher than some of the lower cost embeded commissions funds available today. Even if I added some ETF products, that would still bring the total cost inline or higher than some standard mutual funds available today.
  • Tony Battista | 23 Apr 2015, 10:08 AM Agree 0
    Unfortunately The Advisors are not united, and not coming out explaining our role we play with the financial welfare in our communities. As usual the Banks will be the big winners and the average Joe the big looser.
  • Tony Romano | 23 Apr 2015, 10:11 AM Agree 0
    Maybe I'm missing something here! I know that even if my embedded commission is taken away, the total MER for my clients will not drastically decrease since most of my clients are in fixed income funds, which do not pay me very much, in addition to equity funds which pay me more but still not nearly as much as clients believe i get! So forcing clients to pay out-of-pocket is going to bring more transparency to the industry? What about people that can't afford paying out-of-pocket all the closing costs on a new mortgage, such as lawyer fees, so they ask the financial instituion to simply add it to the mortgage? Why can't people just be given the choice of fee-for-service or embedded fees? Let them decide and be on with it. No?
  • Ross Birney | 23 Apr 2015, 10:32 AM Agree 0
    I agree with all of Abbott's comments except, "...DSC funds make sense..." Over almost 34 years I have yet to see an example of where it is in a client's best interest to purchase funds on a DSC basis. The argument that they help to keep clients invested when they might otherwise sell at an inopportune time is ludicrous and merely self serving. If there were no up front 5% commission would they still sell on a DSC basis? Client education is a better and far more long lasting solution.
  • Michael Gentile | 23 Apr 2015, 01:52 PM Agree 0
    About a year ago, I spoke to W.P. on the subject of the number of layers of Kevlar that the consumer is being wrapped in so that they are protected and the problem they face today “dying under the weight of the Kevlar.” As a financial advisor with 40 years of industry experience, I have to question some of the thinking by those that believe that sound investment advice should be a freebie or to put it another way; “free advice is worth exactly what it costs, nothing.” I have no objection to transparency. I have in fact created a binder describing in detail what we provide in exchange for the compensation we receive. We like to be proactive, so I have sent a letter to my Mutual Fund clients advising them of what to expect in the form of disclosure in the months ahead. In addition to an information binder describing the services and the associated expenses required to provide those services, I have initiated an informal survey. The survey offers the client a choice between embedded trailers and service fees. I have yet to have anybody choose service fees over the trailer. We are all about transparency however, I have yet to see anybody actually want to acknowledge the other components of transparency as it relates to the list of expense items required to run a financial services business in today’s infinitely more complicated financial environment. In conclusion, there is a cost and I have to believe that the majority of people understand that.
  • Will Ashworth | 23 Apr 2015, 04:22 PM Agree 0
    The point of the DSC in the context of the article is that when clients don't want to pay out of pocket for something like reviewing a pension option (that means they won't go for low-load options either) than the DSC fits the bill.

    Jason wasn't suggesting that advisors load up on DSC funds.

    I hope that makes sense.

  • Ken kivenko | 23 Apr 2015, 05:13 PM Agree 0
    The real discussion should really be about the fiduciary duty of professional advisors as opposed to salespersons.Once that I settled the embedded commission issue goes away.Commissions or fees not tied directly to work packages and deliverables is not the way forward for the profession. If regulators want to register salespersons that give only general advice they should be able to collect as much commissions as their marketing skills provide- BUT they must not be allowed to call themselves advisors just like technicians cannot use the title Engineer.
    KK. P.Eng.
  • Stan Buell, SIPA | 23 Apr 2015, 05:50 PM Agree 0
    Why am I not surprised to hear the industry say clients want imbedded commissions and don’t want to know their costs? Like they don’t want fiduciary duty. What rubbish! It is sales persons posing as Advisers by using unregulated business titles like “Financial Advisor” and “Vice President” to deceive investors and gain their trust. Those registered representatives who want to be treated like the professionals they should be will accept the responsibility (fiduciary duty) that goes with being a professional. They realize that investors need to know their costs and their annualized rate of return compared to appropriate benchmarks. It’s time the industry awakes.
  • Ross Birney | 23 Apr 2015, 06:10 PM Agree 0
    Will - I don't understand your logic. A client doesn't want to pay you to review a pension option (your example) so your solution is to put them into a fund on a DSC basis???

    If I'm running a restaurant and someone doesn't want to pay the cost of a meal I resolve anything by increasing their parking fee!!!

    A client has asked you to provide a specific service. Your choice is either to provide that service or not, and if so, to either charge for that service or not. DSC fees have nothing to do with it.
  • Will Ashworth | 24 Apr 2015, 11:17 AM Agree 0
    I disagree with your comment:
    "Why am I not surprised to hear the industry say clients want imbedded commissions and don’t want to know their costs?"
    First of all, advisors just want to be paid for their services. So, whether they're paid by client cheque or the equivalent commission, at the end of the day the client/advisor relationship carries on.
    You are assuming that all advisors working under the embedded commission model aren't disclosing costs to the client. My experience tells me that's simply not true.
    Furthermore, this article doesn't suggest that clients don't want to know their costs. It suggests they don't want to write the cheque. There's a big difference.
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