Time to defend DSC funds!

Time to defend DSC funds!

Time to defend DSC funds! DSC funds too often forego the upfront work used to rationalize the fees and are instead using the investments to keep clients from bolting, says one investment advisor.

“In theory, DSCs compensate advisors for the considerable amount of work they do upfront,” says Dan Bortolotti, an advisor with PWL Capital in Toronto. “In practice, I almost never see DSC advisors actually doing meaningful planning upfront: they often just give their clients a risk questionnaire and then throw them into a bunch of mutual funds. A year or two later, when the client realizes that the advisor doesn’t actually deliver any service, it’s too late. They’re locked in, or they face huge penalties to leave.”

Those opposed to DSC funds such as Bortolotti and BC-based Raymond James advisor Ross Birney, whose comments appeared in an article last week, struggle to see the point in using a product where the fee structure prohibits a client’s ability to move assets without penalty.

Instead, they argue, an advisor’s service must stand on its own two feet.

In PWL’s case clients pay a percentage-based fee on assets managed while Birney uses zero per cent front-end load mutual funds that pay a trailer fee. Both believe that the initial work done with new clients such as providing comprehensive financial plans paves the way for ongoing, mutually beneficial long-term client/advisor relationships.

“I’m confident we do as much upfront planning with new clients as anyone, and there is always the risk that the client could bolt after we’ve completed their plan,” says Bortolotti. “That’s the risk we take, but it’s only happened once that I can recall. Almost every other time the planning process wins over the client and they’re excited about working with us. They stay because they want to.”
 
6 Comments
  • Tony De Thomasis 2015-05-04 10:34:47 AM
    re DSC fees
    On larger accounts there should be no reason for DSC fees as fees are big enough either flat fee minimum or based on size of assets.
    Most fee advisers have a minimum either in dollar size or dollars charged.
    But...who will want to service the $10,000 to $20,000 client?
    How much work will a a top adviser spend when the most they will make is say $150 at 1.% to 1.5% fee?
    Or if on a flat fee how much can they really charge that investor?
    This investor needs a top person to work with to do it right the first time.
    Lost time can never be taken back.
    Once they have large assets built up, everyone will be after them and want them as clients.
    But at that level they may only get a junior with very little actual hands on experience.
    So that 30 year of good compounding we all talk about in the industry may now only be 15 years.
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  • Shawn Flannigan 2015-05-04 11:09:02 AM
    There is nothing wrong with DSC fees and I have found that in some cases where there is an upfront fee or on going service fees clients are not getting continued advice and service. I follow a strict guideline with clients in order to make sure that there is a financial plan and clients continue to be in the correct risk portfolio based on their needs. 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. My clients are fully aware of the fees since the fees are they outlined in their plan and I have them sign a document that they understand the fees. I also feel that every advisor must have their clients sign the appropriate documents outlining all fees associated with their financial plan and funds in the plan. DSC fees are set and since this is how advisors get paid then there is no reason to charge clients additional yearly fees on their portfolios. There are many clients that set up their investments and do not make many changes over time so why in these types of cases are additional yearly fees warranted? Another main point is that I have many clients that have less than 100k in their portfolios and they cannot afford to pay an upfront service fee and yearly fees and they do not want too. However these clients understand the amount of work and time to look after their accounts so to them a DSC fee is the answer.
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  • Will Ashworth 2015-05-04 4:29:15 PM
    I've read several comments from readers on this subject that mentions some clients don't have the money for upfront fees.

    Advisors such as Ross Birney charge 0% front-end loads.

    It follows that if a client's paying an upfront fee for mutual funds, they're being charged more than 0% front-end which doesn't seem like a good idea, either.
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