The implementation of CRM2 continues to create a great deal of heated debate amongst advisors, but the idea of protecting client “choice” has a growing number singing “Kumbayah.”
“I believe the client should be given the option of deciding how they wish to pay,” says Chilliwack-based certified health insurance specialist Ken MacCoy, speaking for a growing number of advisors in both the embedded comp camp as well as the fee-based one. “Either a fee for service &/or an embedded commission.”
Kelowna advisor Harley Lockhart, himself a former Advocis chair, is among those advocating for choice and drowning out the voices that are still calling for a ban on embedded commission.
“Canadians can choose how their financial advisor is compensated – embedded commission (EC) and/or fees based on assets, time or services provided,” says Lockhart. “The significant part of this choice is that different compensation models provide different advantages for individuals in different wealth strata.”
“In Canada, investors have an advantage in that they can choose what they consider best for themselves. Surely, those same individuals can choose how their advisor is to be paid.”
That sentiment is helping bridge the gap between advisors divided on a host of product issues.
For every advisor WP hears from that frowns on DSC funds there’s another who supports this fund structure because it provides the client with choice. DSC, FE, LL, percentage of AUM, flat-fee, it doesn’t matter as long as the client’s best interests are served.
Embedded compensation, sometimes referred to as “trailer fees,” is a particularly prickly issue. Opponents believe it’s an unacceptable form of compensation because clients likely don’t understand how their advisors are compensated. Further, they believe there’s no place for DSCs because the client’s locked-in to their investments (unless they want to pay a substantial penalty to get out) for 5-7 years.
But if you run the numbers over a decade whether it’s for DSC funds or zero per cent front-end load funds, the cost to the client is essentially the same, argue analysts.