DSC ban would kill two other options

DSC ban would kill two other options

DSC ban would kill two other options More and more advisors are convinced any move by the CSA to ban DSCs would include blocking two other commission-based options the industry would like to hold onto.

“The discussion shouldn't be pro-this or anti-that,” suggests a WP reader speaking on condition of anonymity, but echoing the comments of other advisors attempting to read the tealeaves. “The CSA may put a halt to DSC, LL and FE all in one fell swoop so that will be [the] end of all of these arguments/discussions!”

In this advisor’s opinion, one who restricts himself to 0% front-end load funds, the DSC isn’t the dangerous beast that some portray it to be. Revisionist history puts the much maligned fee structure in a bad light, he argues, when the truth is far less deadly.

Still, more and more “younger advisors” have lost sight of the role of DSCs in mitigating client sell-offs in the 2008/9 recession, he argues. But regulators ready to eliminate those investments are just as likely to cut out the LL and FE options for advisors and their clients in the name of consumer protection. That collective ban would permanently upset the apple carts of embedded commission advisors. It would effectively force the AUM fee model onto most embedded holdouts and limit client choice.

That could have a punishing effect on clients with greater liquidity in hand -- whether you’re talking about 1% or AUM or an overreliance on ETFs.  

“I freely concede that the ETF is the greatest marketing innovation of the 21st century. But is the ETF a great innovation that serves investors? I strongly doubt it.,” industry veteran Jack Bogle told the Financial Times recently.
“For better or for worse, ETFs have opened indexing to a new market of stock traders. The only sure winners are the brokers and dealers of Wall Street.”
 
7 Comments
  • Ken kivenko 2015-05-21 5:18:38 PM
    What the heck is an" embedded commission" advisor? I'm sure that is not the title on the business card.DSC funds have cost investors millions of dollars in early redemption penalties thus impacting their retirement savings. Research shows that very few fund investors hold funds more than 6 years; in fact there are less than 40% of funds with 10 year records due to mergers and closing session. Advisors should focus on the best interests of clients- the rewards will follow without this distraction. I do not disagree that salespersons could sell DSC funds but they could not call themselves professional advisors.
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  • Mike Travers, CFP 2015-05-22 10:26:10 AM
    Ken, I'm sure a large portion of the early redemption penalties you're referring to is more a result of the DSC load not being applied properly, where the time horizon isn't clearly understood or worse, the advisor doesn't care.

    DSC has a place but it should not define the professionalism of an advisor. It's simple:

    1. Analyze the time horizon to understand the proper load to recommend
    2. Explain all the details of the load recommended (including what the client could face in cost if the time horizon is changed)
    3. Let the client decide

    Point three is massive and anyone declaring DSC to be wrong, not in the client’s best interest, criminal, or should be totally banned is just oblivious to how any marketplace should work.

    Guys/gals, this is just one part of the overall interaction with the client and is a normal function of business dealings; there are costs to operate a business and the consumer must pay for what they get. If the terms aren't agreed upon, either party can move on.

    Do accountants and lawyers, those who are commonly referred to as professionals, not get paid for their time? It’s the work they do that is the measure of their professionalism, not their remuneration. The DSC load is just another, albeit more hidden, way of paying for service. Explain it FULLY and let the client decide if it’s fair, just as they would with their accountant or lawyer.

    Thanks for heating up this topic Will. I’m wondering though, could you maybe have us focus on really important topics, like why the heck is this band of nitwits that has power in the Ontario provincial government forcing the Ontario Pension Plan on the economy?? Clients would be better off in us uniting on this topic rather than debating how we choose to get paid or who is more professional. I don’t mean to ignore the rest of the country, just one suggestion.
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  • Robert Roby 2015-05-23 9:43:58 AM
    ETF,s serve as an important addition in a well structured portfolio. Given that the market reverts to its mean average combined with a high percentage of mutual funds that fail to meet market benchmarks it only makes sense to add not only index ETFS but sector specific ETFS in addition to dividend aristocrats to the mix. Most funds are so large that many mangers who claim active management are handcuffed by the inability to unload holdings in a timely manner.
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