The latest report from the CSA on fund fees may have miffed embedded commission advisors, but the second one will likely have them up in arms.
“The Brondesbury study is just the tip of the iceberg,” says Burgeonvest Bick portfolio manager John DeGoey, a fee-based player. “Cumming [author of upcoming CSA report] will provide the smoking gun that embedded compensation advisors are biased beyond all reasonable doubt.”
The CSA’s first report published by the Brondesbury Group wasn’t well received by many advisors in the MFDA world especially those generating commission-based revenue. The major findings suggest three things: that funds that pay commissions underperform; distribution costs raise expenses and lower returns; and advisor recommendations are sometimes biased in favour of more compensation for the advisor.
Fee-based advisors such as DeGoey aren’t surprised by the findings. Others, however, think the regulators are missing a big part of this whole discussion, which revolves around costs and the expenses involved in operating an advisor business.
“I’m not so sure the regulators have been talking to the advisors,” Michael Gentile, president of Personalized Investment Planning told WP. “We have costs. Nobody is addressing those it seems. Nobody is saying, ‘Hey Mike, you run a business, you have rent, utility costs, staff payroll costs, research costs, licensing fees, you’ve got a ton of stuff that you have to expense.’”
DeGoey reminded WP that the executive summary details exactly what the research study is and is not intended to be.
“Judging by some of the online commentary [at WP], many people do not understand the distinction. …What on earth does ‘running a business’ have to do with the question at hand – either way?” says DeGoey. “The Cumming study (to report later this summer) is designed expressly to fill the gap because no one had actually looked into the question of how compensation may or may not skew advisor recommendations.”