CRM2 takes a page from alternatives

CRM2 takes a page from alternatives

CRM2 takes a page from alternatives Recent scrutiny by pension funds regarding the fees paid to private equity firms highlights the need for full disclosure by advisors when it comes to DSC funds.

“I think the main problem with DSC fees is that some advisors neglect in telling their clients about the fee structure and when the clients find out they are upset,” says Peterborough advisor Shawn Flannigan. “My clients are fully aware of the fees since the fees are outlined in their plan and I have them sign a document that they understand the fees.”

With fee disclosure a big part of CRM2 it should be of interest to financial advisors that even the big dogs managing billions of dollars in retirement money don’t have a handle on the true costs of some of their investments.
 
“Every pension plan in the nation is paying too much, and it’s being hidden,” South Carolina state treasurer Curtis M. Loftis Jr. recently told the New York Times. “South Carolina has come a long, long way.”

The South Carolina Retirement System Investment Commission (SCRSIC) hired Toronto-based CEM Benchmarking Inc. in 2013 to put together a report detailing the pension fund’s costs and performance.
 
The results were anything but expected.
 
“Less than one‐half of the very substantial PE costs incurred by U.S. pension funds are currently being disclosed,” said CEM Benchmarking in an April report it published calling for total cost disclosure for private equity. “Alternative asset classes, especially PE, are typically more expensive and have more complex cost structures than public asset classes. This makes cost disclosure and cost benchmarking difficult at best.”
 
Full disclosure, whether we’re talking about gigantic state pension funds or the average frontline financial advisor, is vital to a healthy relationship between client and advisor.
 
The topic has become just as important as the actual dollars and cents paid by clients to advisors. So much so that recent discussions on WP have centred on the DSC fee structure and the appropriateness of those fees given their early withdrawal penalties.

With supporters on both sides of the argument, Flannigan is one of many advisors who believe total disclosure is all that stands between an appropriate fee structure and an inappropriate one.

Pension funds are no different.

“There is not a broad consensus within the industry on what is a cost,” said Mike Heale, a principal at CEM Benchmarking. “Clearly we think there should be disclosure and standardized reporting on everything that the investor doesn’t get to keep.”