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Wealth Professional | 01 Apr 2015, 09:12 AM Agree 0
New numbers on commissions appear to back the concerns of embedded commission advisors worried a wholesale move by the industry to the fee-based model would hurt clients.
  • Gerald Curtis | 01 Apr 2015, 10:16 AM Agree 0
    Methinks there is just too much "smoke and mirrors" and innuendo here - and not just in the embedded fees model, either. Both options are already there - let the clients decide which suits them better.
  • Dalena McLean | 01 Apr 2015, 12:30 PM Agree 0
    How many believe reverse churning and milking may become a bigger problem?
  • Niki | 01 Apr 2015, 01:09 PM Agree 0
    My Dr has about 2,000 patients, and the responsibility she has is fiduciary. No one says she must only have 150 patients. She is paid whenever I come in and she never disclosses to me what she is paid from either the government or any corporation or anyone else.
  • Harley Lockhart CLU CHFC | 01 Apr 2015, 01:40 PM Agree 0
    Let's be clear.

    Your title is not correct. I am not angered by growth in Fee-based compensation. I am concerned that the current commission model of compensation is falsely presented as biased and conflicted. Bias and conflict originate in the attitude of the advisor irrespective of how they are paid.

    Clients should have the freedom (as they do now) to choose either method to compensate their advisor (or any other basis acceptable to both client and advisor).

    Either model can serve clients well.

    Eliminating either model weakens our financial services industry.

    A far better solution for everyone is to enforce principles of advisor behavior. Advocis has required an annual attestation to their Code of Conduct for several years. Investment Executive reported today that FPSC and IQPF have published a unified Code of Ethics with almost identical principles to Advocis.

    Perhaps more attention should be given to the professionals who face clients daily.
  • Niki | 02 Apr 2015, 01:32 PM Agree 0
    When I stand back and look at what is happenning, I cannot help but feel that the industry could have taken a better look at the credentials and education of the Financial Advisors, in terms of quality. That is what the Medical Associations did. Physicians do not question that the Dr. has the right to earn a living. Instead our regulators are saying that those in the Industry must be bad because they are earning a living, which for some is not too shabby. Instead of looking at the whole picture, they behave like there is something terrible about Finanacial Advisors making a living. If they really felt that way--they could look at the Medical Model, and make it Universal. Does anyone else see the hypocracy?
  • Tim Hazlett, CFP, RRC | 05 Apr 2015, 10:28 AM Agree 0
    I fully agree with you on this article Harley. The regulators need to keep a close eye on the individual offering investment products as the fee structure is not going to stop those with criminal intent.

    I am also worried about those clients that are going to be priced out of the market due to potential changes to how advisors get paid.

    There have been surveys completed that show the overwhelming majority of clients are comfortable with how their advisor is paid. I don't understand why they are looking at changing something that is currently working. The current system offers choice to the client.

    As PriceMetrix has discovered, fees may not actually decrease, if embedded fees are eliminated, it may in fact be the opposite effect. It may cost clients even more to get the advice they truly need and deserve. Thanks for speaking out!
  • Debbie | 08 Apr 2015, 07:29 PM Agree 0
    I am amazed at Lochart's arrogant audacity when he states "I’ve had maybe a dozen ask about how much I get paid. I don’t think it’s any of their business" Of course it is a clients business! CRM2 is going to pose a real challenge to this guy then he states "we should start treating clients like they’re adults.”...really?! sounds like it's time some of his clients showed him the door! I hope they read his brazen remarks.
  • Grant | 19 Apr 2015, 07:33 AM Agree 0
    The arrogance and sense of entitlement displayed in this article is exactly why reform is so badly needed in this industry. Start with fiduciary standard and proper credentialling of financial advisors.
  • John | 19 Apr 2015, 10:51 AM Agree 0
    This advisor's attitude of ' pay my fat fees or there is the door' is typical of attitudes widely held in the industry.Trailer fees have already been banned in the UK and Australia, and will soon follow in Canada. In a world of very low fee ETF's who needs to deal with such arrogance. Investors should smarten up, and ,yes it is their business to know the fee structure.
  • Tim Hazlett CFP RRC | 20 Apr 2015, 09:43 AM Agree 0
    I don't understand the comment about all fee based advisors getting paid big fat fees on the mutual funds they offer to their clients.

    Pricemetrix did the numbers on fee based advisors and it turns out they are charging more than the 1% on average that fee based are paid on mutual funds.

    This is for ETFs as well, everyone talks about the low fees of ETFs, but if you add on the fee based adviser's fee of 1% plus other fees that are not being disclosed in many cases for ETFs, the fees are close to those of MERs on mutual funds and in most cases the ETF isn't even actively managed.

    Check out these WP Articles:
    Advisor addresses controversial fee practice and
    Advisors identify conflict of interest
    Advisor revenues up sharply in 2014: PriceMetrix (Investment Executive article)
    New alternative to banning embedded commission
    Advisors come clean on compensation

    Get your story straight before throwing all fee based advisors under the bus, that's all I'm saying!

    The regulators are starting to open everyone's eyes to the true all in fees of ETFs as well, finally, be careful of what you are saying and what you wish for.

    Also, don't be afraid to add your last name...

    Have a good day!
  • Debbie | 20 Apr 2015, 10:39 AM Agree 0
    I agree with Grant and John. The typical entitlement attitude needs to go and be replaced by a fiduciary standard and proper credentialing of those who handle and give advise about other peoples money.
    With regards to Niki's comments physicians are held to fiduciary standard, they have rigorous training to become a physician and they are not paid by the pharmaceutical industry! Most financial advisors are salesmen posing to the client as a professional with a fiduciary client best interest first agenda, but in reality they are far from it, representing their dealers interest first and under a low suitability standard. The reason Mr. Lockhart has rarely been asked by a client what he is paid is because they do not know they are paying him since they do not receive a bill and he like others fail to disclose this important piece of information. Clients know he is being paid, but CRM2 is hopefully going to expose to clients the amount of the tab they have unknowingly been picking up for years. Mr. Lockhart and his fellow advisors need to get ready for a lot more clients asking questions about what they are paid. As far as his comment "But we should start treating clients like they’re adults.” Good grief really? How insulting is that?
  • larry elford | 20 Apr 2015, 04:22 PM Agree 0
    I agree with Debbie's comments. She obviously does not have a dog in this fight like the so-called "advisor does. Professionals should never resent having high and higher professional standards. An annual pledge of allegiance to Advocis is akin to getting ones colours in the gang. Without clear standards of client first behaviour, (in a legal manner, not within "selfish" regulation, these guys are nothing but "white shoes, white belt" salesmen. Just sayin…

    Or as Securities lawyer Joe Groria states: “a statutory fiduciary standard will put all HONEST financial advisors and brokers in the same position, regardless of the sophistication of their client" (the investment industry (and dishonest advisors) prefers to have the ability to deceive and then dupe the unsophisticated client:)
  • John | 23 Apr 2015, 03:37 PM Agree 0
    As a clarification, I have no problem with Fee based advisors who clearly explain to clients their fee structure. For them there is no conflict of interest, they can and do provide unbiased recommendations for appropriate investments, and their compensation is not connected to the product . Mutual fund salesmen, on the other hand are faced with possible conflicts of interest, since their compensation is directly connected to the products they offer. Some advisors are honest about such conflicts and serve their clients honourably, while others certainly do not.
  • Niki | 23 Apr 2015, 05:37 PM Agree 0
    I have no issue with your clarification--just as surgeon may be said to be in a conflict of interest, in that they are paid to do a certain procedure, despite the fact that it may or may not be in your best interest to have that surgery (no pun intended). They get paid, and the Medical Association does not question the fact that they do the work ergo they must get paid; and have a proper living from said work. Saying the fees are not product specific is a ruse, because the fees are account specific, and generated typically on the basis of the value of the account itself. It's like saying it is a red rose over there and a blue rose over here. In both scenarios, the FA gets paid. The embedded fees can be made transparent between the two and there wouldn't be a single bit of difference. At the risk of sounding cliched, a rose by any other name is still a rose--and the Industry hasn't yet figured out a way to get me to do my job for nothing. The Medical Association does not question the right of the physician to earn a living--and yet they have controlled exactly how many physicians and surgeons graduate and are licensed. This has culminated in fewer practises with more patients per medical Dr. It has also resulted in many more support staff per Dr.. So what we are going to get when this whole thing comes crashing down are fewer FAs, more support staff, and a bigger industry overall. If it really goes badly--the Industry will be responsible for its own crash--and not any of the subsectors within. Having said all that, I do believe that it is fundamentally important that the Education of FAs be raised to at least a proper degree--if not a post graduate degree over time. At the end of the day, the financial health of the client is critically important, as their financial lives are in the hands of financial surgeons. I am astonished that the Industry powers that be have not brought the educational standards of FAs up to par with those who are psychologists etc... . Courses that can be completed in six weeks or less can be done by someone who digs ditches for a living and should never be in a position to give out financial advice to others (you can find an intelligent ditch digger but you cannot find a mentally challenged Dr.. Lest we forget, barbers used to do a lot more than cut hair.
  • Ken kivenko | 24 Apr 2015, 12:45 AM Agree 0
    There is overwhelming independent academic research that shows that embedded sales commissions influence dealing Rep recommendations. If that were not the case mutual funds would not offer those incentives.
  • larry elford | 24 Apr 2015, 01:15 PM Agree 0
    for Nikki, it must be reminded that mere sales reps for funds, stocks and mutuals funds should not be compared with surgeons. The fair comparison with any medical person would be to compare Doctors to Portfolio Managers, (otherwise known and licensed under the law as "advisers".) (See CSA license categories) Both these categories carry a "do no harm" type of oath to protect. "Advisors" who sell investment product have no such oath, nor a license under the name "advisor". Nor a legal obligation to do so. They are more accurately compared with the pharmaceutical salesperson, glib and eager to sell you product, but without having the essential legal oath to protect. This 90 second video tells it better than I could.
  • J. Maxwell | 24 Apr 2015, 01:54 PM Agree 0
    Debbie, Niki, Grant, John - email me:
  • Niki | 24 Apr 2015, 04:11 PM Agree 0
    Larry Elford: Exactly! Industry is going after the pay mechanisms when in my opinion, they need to go after the standards of education. We trust our health to Professionals who have done years and years of education and training, in order to do what it is they do. The rigors in those professions have been developed over centuries. And then we turn around (figuratively speaking) and trust the security gateway to those who have no more respect from society than there is the average eager salesperson, and then try to address the issue, by invoking rules and regulations around how they get paid. I believe this address, and it is an attempt to address issues in the system, fall short while missing the real matter at hand. The shakedown in how FAs and brokerages, are paid makes no difference when it does not address the salesperson. The irony in all this--when considering surgeons, is that although they say they do no harm, fact is, in order for them to implement what they do, they literally have to harm someone--and the long and the short is that no matter what they do, their patients will all die one day. So although standards have not been addressed, the implications of what current salespersons do in the security world has implications that can and often do go beyond the person's grave--effecting the rest of the family--if there is one. And the embedded fees vs fee based programs do not make a single bit of difference in regards to the ethical issues and need for improvement ongoing within the system. If anyone here recalls, embedded commissions were implemented in order to stop salespersons from churning accounts in order to achieve more commission. It was a solution once upon a time, and now that solution has been vilified, with so much energy, while ignoring the real problems within the system
  • Gerald Curtis | 27 Apr 2015, 11:24 AM Agree 0
    Two thumbs-up, Niki. Really good points and, I feel, get to the heart of the real problem - if there is, indeed, any problem at all!
  • Tim Hazlett CFP RRC | 27 Apr 2015, 12:29 PM Agree 0
    OK then lets look at the facts in the UK...

    UK Regulatory Reform
    Retail Distribution Review (RDR)
    (Effective January 1st, 2013

    Advisors must explicitly disclose fees and charge clients directly for their services.

    Higher professional standards for advisors.

    Some interesting facts...

    44% Fewer Bank Advisors and 20% fewer independent financial advisors due to RDR

    87% of bank clients who purchased investment products pre-RDR assumed the advice was "FREE"

    $30,000 lower-value clients deemed unprofitable were orphaned creating an "advice gap".

    What's happening now?

    *Average advisor revenue increased
    *More focus on holistic, ongoing advice services
    *Some consumers are still confused about charges...

    Now, take a look at the first one, Advisors are actually earning "More" after the changes, that could be because there are less advisors but there are also many more clients not being serviced by an advisor...

    Could it be that advisors have actually increased there fees?

    Food for thought...

  • Gerald Curtis | 27 Apr 2015, 01:04 PM Agree 0
    There are two broad groups of mutual fund clients: 1. The higher net worth ones who deserve a break on fees - either via high-net-worth accounts with reduced fees, or a fee-for-service arrangement - and they can and will cut a cheque for holistic planning services; and, 2. The average Joe who wants "to buy a RRSP", and whose account may never see a number with six figures. The latter client, for the most part, will not want to - or be able to afford to - cut a cheque every year to a fee-for-service advisor, so will be without one. In the real world of my clients, each of these gets all the planning they require and expect - regardless of how much I get paid on their account. In a world without embedded commissions, I don't know where the latter would even be able to buy a mutual fund, much less get any advice. I guess they could set up a low-cost internet brokerage account of some kind, but there would still be no advice at all.
  • Larry Elford | 27 Apr 2015, 05:03 PM Agree 0
    It was pointed out to me by a reader that the April 24th comment by Niki that begins with "Larry Elford: Exactly!":

    a) appears to some as if it came from me. (it did not)

    b) appears to make no sense whatsoever. (it does not)

    I am afraid I must opt out of this discussion since most in it appear to be from a very selfish serving "sales" side of the business, and there is only a minority who can look beyond their current sales-job, and discuss the professional requirements and aspect of investing. "Selling products is not advice giving, and advice giving is not sales"
  • Niki | 28 Apr 2015, 07:03 PM Agree 0
    nd one cannot simply say they are only an advisor and not a salesperson if they are unable to provide to their client that which they are recommending. It is the nature of this Profession, that those who are making recommendations need to also be there with their clients, and not relagate them to their own accounts on their own. Ergo, a Financial Advisor is also a salesperson--as a Realtor is also a sales person, and a surgeon is also a salesperson... .
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