‘Brilliant’ advisors skirting CRM2?

‘Brilliant’ advisors skirting CRM2?

‘Brilliant’ advisors skirting CRM2? The speculation on the street is that certain advisors are contemplating a move that while “genius,” flies in the face of client interests.

“There’s a small, but very material contingent,” Dan Hallett is a portfolio manager with HighView Financial Group told WP, “that are going to be hurting a lot of people and giving the rest of us a bad name because they’re doing this.”

The Windsor, Ont., based player is exceedingly familiar with the mutual fund industry having spent more than a dozen years doing research on investment funds, portfolio managers and financial markets. Last week he came out in the Globe against one particular trend that suggests some advisors are looking use DSCs to skirt upcoming regulatory changes.

In a nutshell, Hallett maintains that some advisors are now selling a boatload of DSC funds this year in order to trigger a four per cent to five per cent upfront commission plus a 0.25 per cent to 0.50 per cent trailing commission.

That is entirely legal, as DSC funds are perfectly acceptable investments in the eyes of regulators.

The problem is the cost and commission report clients will begin receiving in 2017. It will show a trailer fee 50 per cent less than those paid to advisors selling front-end load funds and without any DSC commissions having been paid as long as they were paid out more than a year prior to the first report in 2017, making DSC advisors appear truly benevolent.

However, that’s the furthest thing from the truth.

“In a way, it’s exactly because of the pending changes that they’re doing this because that way they’ll escape the reporting,” said Hallet. “When I first heard about it [piling on DSC sales] I’m like, wow, it’s sort of oddly brilliant but it’s wrong because it’s taking advantage of people.”
18 Comments
  • Ross Birney 2015-03-24 12:07:21 PM
    This is not "genius" or "oddly brilliant". It's disgusting and repugnant that those calling themselves advisors would even consider such actions. Hopefully the Compliance departments of their firms have a stronger moral compass.
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  • David McDonald 2015-03-24 12:37:47 PM
    So, as with most of these moves, if there are only a 'relatively' few advisors, why would such trades not be queried by the compliance officers connected with these advisors?
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  • Harley Lockhart CLU CHFC 2015-03-24 1:03:11 PM
    Some will jump on this opportunity to cry for banning DSC sales. That is not the problem. The issue is the mind-set of the advisors.
    There are situations where DSC will work to the advantage of the client. Sometimes the DSC charge is the little incentive needed to offset impulsive spending and leave long term savings intact. In a compulsive society, there is little to help individuals overcome the attraction of the immediate.
    Let's not take away a helpful tool.
    With the proliferation of specific rules to govern advisor behavior the available choices to help consumers become smaller, it seems, every day.
    Deal with the issue. There are enough rules already in place to restrict unscrupulous practitioners.
    New rules will only inhibit the good advisors and take opportunity away from investors.
    Instead of making more rules that are poorly enforced, make the investigative process more robust to withstand court challenges. Give the regulators teeth to impose meaningful penalties. The self-serving will continue to ignore rules as long as they are not backed up with stiff consequences.
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