Market conditions create new DSC worries

Market conditions create new DSC worries

Market conditions create new DSC worries If you advise your clients to invest in a deferred sales charge mutual fund, you could be restricting their movement at a time of increasing market uncertainty.

We’ve all heard investors bemoan the much hated DSC: a fund with an up-front commission that pays up to 6 per cent on the initial investment, plus a trailing commission of 0.25 to 0.5 percent per annum.

For one, DSC funds spike investment management fees and challenge the ability of advisors to recover a profit for their investors. Then there are clients’ underlying suspicions that advisors may not practice due diligence over the long term since their bread is being buttered up front.

But with growing fear that we are finally near the end of the bull market, some advisors are pointing to a new reason to be leery of DSC funds; specifically, the undue influence they can have on investment advice.

Martin Danielak, Associate Investment Advisor and Portfolio Analyst at Friesen Capital Management, believes that DSC funds ultimately make it more difficult for an advisor to manage a client’s investments.

“Unfortunately," he offers, "advisors are sometimes handcuffed to a DSC fund because of high up-front fees, which often influences clients to hold investments longer than optimal even if it is against the advisor's direction to sell due to changing market conditions ."


Market cycles happen on a six year basis, and most advisors will agree that not all funds are suitable to hold forever.

Danielak believes that commission-based advisors have more to gain with low load funds, where they’ll make up to 1 percent per annum, instead of 0.5 percent in the case of DSC funds.

  • Irv 2015-08-04 3:24:31 PM
    The DSC will only be an issue if steps haven't been taken to counter these types of problems. What about having a portion of the account in non DSC if cash is needed? What about a transfer to a MMF if you want to get out of the market? It doesn't matter DSC or not, if the accounts haven't been setup properly there can be problems.
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  • Bruce 2015-08-04 3:54:04 PM
    An advisor is free to move between differing DSC funds without a penalty to the client. Please explain why you see a problem.
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  • Susan McArter CFP 2015-08-04 5:40:35 PM
    This is a ridiculous article and obviously the writer does not understand Mutual Funds. Yes if you invest with Fidelity Funds DSC you have to remain with that Fund company until the DSC schedule has matured or cause unnecessary fees to your client to move to a new Fund Company. However I am not restricted to move investments from Equities to Cash or Bond or Balanced Funds if the market so dictates. This is called a switch and is done at no charge to the client. If you are a credible and ethical Advisor you would not churn a clients investments and you would see your clients on a regular basis. Because yes markets do change. In the IROC world every time a change is made a fee is paid by the investor. This does not happen in my world. All the nonsense concerning fees and DSC that is not accurate needs to stop. If your going to write something it should be un bias and factual.
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