All the heat’s on embedded commission guys, but one flat-fee advisor is pointing to the kind of damage an unscrupulous fee-based player can cause investors.
“There can be a clear bias with the fee-based model, too,” said Kathy Waite, an advisor with Eureka Investor Guidance, told WP. “I’ve seen people who were told not to pay off their debt and can’t renovate their cottage, for instance, because their rep wants to keep the assets under management so he/she can get his/her percentage.”
“That said, as much as I dislike embedded commissions and trailer (fees), I am not in favour of the fee-based model either.”
Her comments come as many advisors in recent weeks have publicly debated the impact an OSC ban on trailer fees could affect the industry, both for clients and advisors.
Waite, who is from the U.K., witnessed significant cuts to the advisor force at her ex-firm Prudential in 2000 to 2004, when the company went from having 16,000 advisors and left with just 325 during that time; and again, when financial regulatory reforms were enacted by the government in 2008 as more than 10,000 advisors fled the industry.
As a result, she’s seen significant errors on those sides and a time when embedded-commission advisors are feeling the crunch for industry players and fee-based advisors, Waite also called out some fee-based who can be just as devious with people’s money at times.
“The client is keeping $100k in cash for emergencies or early retirement and they still charge the 1.5 per cent on it but are not actually managing it,” she said. “They have some old mutual funds in there they haven’t sold and are getting a trailer on them as well as the per cent. TD just got fined for this (last November).”
“I think financial planners, investment reps, insurance, mortgage sales should be done on a flat rate.”
Brad Kezema, a wealth advisor with Moneta Financial Planning in Edmonton, also gave his thoughts and is an advisor who has operated on both sides of the coin.
“I’m not sure a ban is what’s needed, but more so transparency as a whole,” he told WP. “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. Crooks will be crooks. You will have unscrupulous advisors on both sides - that is the problem.”
Both advisors also backed the idea of a fiduciary responsibility being placed on advisors, depending on the way such a law would be structured and the language that comes with it. The idea was discussed by President Barack Obama in a recent address to Americans.
“The system makes it harder for (advisors) trying to do the right thing, because if there are giving really good advice and somebody’s selling snake oil, they’re losing business and ultimately those clients are going to lose money,” the U.S. president said in his address.