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Wealth Professional | 12 Mar 2015, 10:18 AM Agree 0
In an ironic twist, embedded-commission advisors are standing with the OSC in appearing to reject calls for a speedier review of trailer fees.
  • Doug | 12 Mar 2015, 11:32 AM Agree 0
    I agree with Harley and it appears that the fee only camp thinks everyone who uses commission is just a salesman, taking advantage of the public. Has there been any study done asking the public what they would prefer; monthly fee based on assets, embedded commission or fee based on service paid for either by commission or fee? A lot of the problem with embedded commission is at head office and the way they structure the product. Should a mutual fund that started at 100 million still be charging the same MER when it reaches five billion in assets? Should DSC exist, as a 5% commission upfront and 7 year penalty seems excessive. And finally it seems that CRM is only dealing with a portion of the financial industry; what about PPN's, seg funds, life insurance (yes I know the CSA only regulates securities but the four pillars have supposedly fallen and maybe it's time to make the playing field level).
  • Dan Allen | 12 Mar 2015, 11:35 AM Agree 0
    I have a combination of fee-based and commission based clients and adapt according to their needs.
    Why has this become an "all or nothing" debate? If there is an issue about objectivity, why not legislate all trailers at the same rate (not 0%) and eliminate the real objection.
  • Will Ashworth | 12 Mar 2015, 11:44 AM Agree 0
    Dan,

    It's quite possible that regulators won't do anything about embedded compensation making this discussion moot.

    The problem with trailer fees is that they don't ensure the advice paid for is actually given.

    If there was a way to guarantee this I'm sure embedded comp wouldn't concern regulators.
  • Harley Lockhart | 12 Mar 2015, 12:17 PM Agree 0
    My final comment in this article is misquoted. I actually said the evidence exposes the error in suggesting commission based advisors chase higher paying funds. If advisors were chasing payouts, the largest funds would be those that pay more. Name ONE large fund that pays higher than the norm.
  • Brad Kezema, CFP, CLU | 12 Mar 2015, 04:30 PM Agree 0
    Harley's last point is a perfect example of how regulators are promoting changes on hypothetical situations versus really examining the real marketplace. I also fully support Doug's concerns about the other products. If client protection is really the focus, segregated funds, PPNs and DSCs should all be in the same discussion.
  • Kathy Waite Your Net Worth Manager | 12 Mar 2015, 06:37 PM Agree 0
    I regularly see families paying trailer fees they are receiving no help for. They get a once a year call from "the assistant" asking if they "want to do more RRSPs " and if they say no then no appointment to review is offered. If they only have life insurance its even less likely they get any contact . The rep who sold it probably doesn't even work there any more. My last 3 clients all came about because they didn't have enough to be interesting to commission based advisors but wanted to discuss how to cope with a 50% pay cut / enforced retirement and how to budget so they might save something to invest. If it wasn't for fee only how would these people get help? I agree live and let live this doesn't have to be all or nothing ( I was commission based very successful for 20 years ) but there should be well publicised choice .
  • Ken kivenko | 13 Mar 2015, 01:33 AM Agree 0
    Arguments presented are not professional. The conflict arises by noting that index funds and etf's have very little sales. Commission based advice has led to excessive leveraging , churning , DSC sales and adulterated KYC information with little emphasis on debt reduction. Latest report shows canadians have a record debt to income ratio right now.Advice giving can be a profession but major changes are needed.
  • Brad Kezema, CFP, CLU | 13 Mar 2015, 11:08 AM Agree 0
    Will,

    Would you agree that you can have have two lawyers who both charge $500/hour and one lawyer can give much better advice than the other? It happens in every business. To assume that an advisor that earns $2,000 in trailer fees is in inferior to a fee-based advisor who writes an invoice for $2,000 is completely biased. The value you recieve for that $2,000 is in the eyes of the consumer, as it should be. I offer both options to clients, trailers or fees, and to say one is better than the other is equal to saying there is only one answer for RRSPs vs pay down mortgage. You will have unscrupulous advisors on both sides, that is the problem.
  • Will Ashworth | 13 Mar 2015, 02:21 PM Agree 0
    Hi Brad,

    In response to your comment I've broken out my comments below your own.

    (B)"Would you agree that you can have have two lawyers who both charge $500/hour and one lawyer can give much better advice than the other?
    (W) I would.

    (B) To assume that an advisor that earns $2,000 in trailer fees is in inferior to a fee-based advisor who writes an invoice for $2,000 is completely biased.
    (W) That's true but that's not what I said. My point is that there are advisors providing no advice for that $2,000 commission. At least when you write a cheque for $2,000 you presumably have agreed that the advice was worth the expenditure and if not, you'd complain to your advisor.

    (B) I offer both options to clients, trailers or fees, and to say one is better than the other is equal to saying there is only one answer for RRSPs vs pay down mortgage. You will have unscrupulous advisors on both sides, that is the problem.
    (W) There's no question that whether we're talking commission-based or fee-based, there are bad eggs. I have no problem with a dual-comp system but only if the advice is given.

    By the way, your other point about segregated funds, PPNs and DSCs is a good one.
  • Wealth Adviser | 16 Mar 2015, 12:57 PM Agree 0
    It is odd that some consider trailer fees as different from AUM trailer fees.

    They are one and the same.

    Fees-based accounts have their own built-in sets of conflicts of interest. The lawyer argument is flawed. An adviser can charge a 1% fee or charge a 1% AUM fee (trailer).

    If you are charging a flat 1% fee then reverse-churning can be a potential conflict of interest. You are earning that 1% fee whether you work for it or not. As a matter of fact, doing any work for the certainty of a return would in our economic system, discourage the use of economic inputs (work) to generate a known return ( fee-based advisor remuneration).
    Worse, you can make the same 1% by switching all investments to low-risk, short term bond funds. An adviser makes more money with less risk and does less work.

    Therefore fees can themselves be a very serious conflict of interest.

    Also don't forget that average trailers for advisers are well less than 1% so mandating only fee-based accounts will result in an immediate pay raise for all advisers.

    Therefore, I do question the reasoning why the regulators would eliminate all transactional based compensation in favour of a one model fee-based system that would clearly hurt the majority of investors.

    Again, keep transaction based models where it is suitable and appropriate. Keep fee-based models and use them where it is appropriate.


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