Clients fight to keep embedded commissions

Clients fight to keep embedded commissions

Clients fight to keep embedded commissions Converting embedded-commission clients over to the fee-based model isn’t as easy as transparency advocates make it out to be, cautions one advisor.

“The vast majority of clients still want commissions,” says Jason Abbott,a financial planner with WEALTHdesigns.ca and dual-licensee. “If I look at my book it’s probably upper-middle-market. Even the clients with more than half-a-million-dollars with me they still don’t ask for it [fee-based].”

No two words in the English language have generated as much disagreement in the wealth management industry than have “embedded commissions;” and with the push to CRM2, those words have been vilified by some. Transactional advisors such as Abbott have moved to offer clients a choice between that longstanding model and the fee-based one. But takers for the latter option have been fewer than many fee-based proponents would suggest, say critics.

Those players who are willing to make the jump with their clients are finding even opposition among the well-heeled investors who balk at paying a bill specifically for advice, no matter how valuable.

Where Abbott has found clients embracing fees is usually for a specific reason allowing them to see past writing a cheque.

“I’ve got some clients that do fee-based accounts because they’ll say, ‘You know I can deduct the fee on a non-registered account,’” says Abbott. “Maybe it’s the sticker shock and they know I need to get paid but they really don’t care.”

Those types of clients are in the minority and Abbott says the notion of doing away with embedded commissions would not jive with what clients perceive as in their best interests. Still embedded commissions are in many cases, and objectively speaking, a better option.

“At the end of the day people ask me what types of load structures do you charge?, says Abbott. “It depends on the size of the assets or the amount of work. If someone brings a small account to me and actually needs a little bit of work such as reviewing a pension option, well what am I going to do, bill them hourly?”

In these instances Abbott argues, DSC funds make sense – embedded commissions and all.

“So, that’s where loads come into play. For the small client under $50,000, advisors such as myself wouldn’t even entertain taking these clients [otherwise].”
10 Comments
  • Anonymous 2015-04-23 10:00:14 AM
    My firm has implemented a fee based model that would charge clients between 50K and 100K of assets 1.80% if I add F series funds into the account with MERs around 1.2% those clients would have an all-in cost of 3.0% substantially higher than some of the lower cost embeded commissions funds available today. Even if I added some ETF products, that would still bring the total cost inline or higher than some standard mutual funds available today.
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  • Tony Battista 2015-04-23 10:08:02 AM
    Unfortunately The Advisors are not united, and not coming out explaining our role we play with the financial welfare in our communities. As usual the Banks will be the big winners and the average Joe the big looser.
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  • Tony Romano 2015-04-23 10:11:10 AM
    Maybe I'm missing something here! I know that even if my embedded commission is taken away, the total MER for my clients will not drastically decrease since most of my clients are in fixed income funds, which do not pay me very much, in addition to equity funds which pay me more but still not nearly as much as clients believe i get! So forcing clients to pay out-of-pocket is going to bring more transparency to the industry? What about people that can't afford paying out-of-pocket all the closing costs on a new mortgage, such as lawyer fees, so they ask the financial instituion to simply add it to the mortgage? Why can't people just be given the choice of fee-for-service or embedded fees? Let them decide and be on with it. No?
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