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Wealth Professional | 14 Nov 2014, 12:56 PM Agree 0
Mutual fund companies argue that F-class shares are a reasonable alternative to ETFs. A closer look casts some doubt.
  • Mike | 14 Nov 2014, 03:50 PM Agree 0
    F-Class should really be referred to as F-Series, as many may interpret F-Class as a reference to Corporate Class funds which is a whole separate discussion in itself.
  • Donald G. Demchuk | 14 Nov 2014, 04:06 PM Agree 0
    Is there a corporate class ETF? As well how long will it take at 49 basis points to pay off the $5000 fee that a fee-based advisor charges.
  • Bob White, CLU | 14 Nov 2014, 04:53 PM Agree 0
    Re your comment " for the same advice".

    It is not the same advice. You did not discuss planning, you did not discuss tax issues if changes are required, which corporate class can address. You did not talk about income needs, or the correlation of ETF's. ETF's may play a role in planning, but they can not replace funds, as they can not replace stock and bond purchase, because if no stocks and bonds are sold, there will be no ETF's, as they are base on an index and if that index disappears or diminishes, then so goes the ETF.

    My issue is that too much is presented out of context or compared in an inappropriate manner, and advisor act on such information with out due consideration of cause and effect. The biggest effect is if you give up tax dollars that can never be gotten back, because you thought you would save dollars on fees.

    Any advisor worth their salt have to look at the big picture of all aspects of a clients life to determine what is the best value to them and their families and business at a given point in time and the direction their life is moving. That is the value of fees being paid, who is charging the fees, and what those fees are, are they tax deductible and if so then the net spread may not be as significant as illustrated.

    Clients who have common sense work on value for service, not on the "cheep" pitch.


  • Gordon Stockman | 14 Nov 2014, 05:33 PM Agree 0
    Bob, Not sure what you are getting at. Both this article and Rob's article have the same fictional planner attached providing the same great advice at 1.25%. Is there a comment about no Corp Class ETFs hidden in there? Have you seen a study, with math, that shows that deferring capital gains on rebalancing produces sufficient tax savings to offset higher fees?
    ps Thanks for the value for service reminder. We all need to keep talking about it. However, I do prefer fees over commissions.
  • Tim Affolter CFP CLU ChFC | 14 Nov 2014, 06:26 PM Agree 0
    The advisory fee of 1.25% in the example does, indeed, imply that there is an advisor who is being compensated and, hopefully, would look at the complete financial plan prior to making recommendations. So Mr. White's comments about it not being the same advice doesn't really hold up.

    The difference between the two options would be narrowed if the advisory fees could be deducted as with an Open Investment account. This would not be the case, however, if the account is registered (RRSP, TFSA, etc.) In these cases, the comparison above is correct.

    Tax-efficient investing, including rebalancing between asset classes, is achieved with the use of a Corporate Class structure, alluded to by Mike. The comment by Mr. Demchuck asks a good question: are ETFs available in a Corporate Class structure? However, his comment about the "$5,000 fee that a fee-based advisor charges" assumes a lot... $5,000 pays for a lot of planning in our firm, not just the investment advice. At 1.25% advisory fee, even a medium-sized account of $400,000 would incur a $5,000 annual fee.

    The term "fee-based" implies a charge on assets. A better term would be "fee-only" or "flat-fee", which is a much more professional, accountable and transparent option in our opinion. But, in either case, Mr. Ashworth's inclusion of an arbitrary (and rather high) advisory fee is a red herring; advice is a separate issue, and should be a separate fee.

    I think a better comparison would be to use one of the low-MER active investment pools inside a corporate class structure, such as those offered by at least one major Canadian mutual fund company. At .65% to .9% Management Fee for best-in-class active managers, these compare very favourably with ETFs, especially on an after-tax basis.
  • Will Ashworth | 17 Nov 2014, 08:44 AM Agree 0

    These are excellent comments.

    Whether the advice comes in the form of a percentage of assets or as a flat fee, my comparison would have been the same regardless of how the client is charged for the advice.

    Clearly, you feel there still is a place for mutual funds in client portfolios. Would love to discuss further.
  • Brad jardine | 19 Nov 2014, 01:37 PM Agree 0
    Dwelling upon the semantics of fees, structures, classes etc ignores the basic tenets of our role within the profession. Our value and service is certainly worth something and let the market determine what that will be. If clients want a flat fee, or fee for service and you are licensed and qualified then charge away what the market will bear. If you offer a true full-service platform (financial & estate planning, tax prep & planning, actual investment recommendations and implementation, insurance, etc) then you should be worth 1% per year. 1.25% seems a little high. If your current and potential clients don't perceive the value at that level, then its time to step up your service offering or pack it in. Holistic service seems to be the new mantra the last few years. many of us have been doing so for our entire careers. CRM-bring it on.
  • Will Ashworth | 19 Nov 2014, 02:47 PM Agree 0

    Thanks for your comments.

    You are absolutely right.

    Quality service, such as that provided by a great waiter/waitress in a restaurant, which is rare these days, will always be worth more.

    Constantly adding value while also remembering your fiduciary duty will reap rewards well into future.

    Indeed, CRM2 will be a boon to those already sweating the details.
  • Gordon Stockman | 20 Nov 2014, 12:38 PM Agree 0

    In the interest of clarity, we describe our work as "Advice for a Fee". We give advice and you pay us for that, just as you would any professional. You are charged additionally for management of your assets an "Asset based Management Fee".
  • Patrick | 12 Dec 2014, 01:59 PM Agree 0
    "Are there any corporate class ETFs"?
    The answer is yes through Purpose Investments. Even some fixed income ETFs in their line up are corporate class.
  • Will Ashworth | 12 Dec 2014, 03:32 PM Agree 0
    I make reference to Purpose Investments corporate class ETFs in a follow-up article.
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