A well-balanced portfolio will go beyond actively-managed mutual funds, often with an abundance of alternative investments such as ETFs, REITs and private equity to help mitigate downside risk. But what happens when, in the midst of CRM2 policy changes, clients receive a bill for one asset type and not the other?
Alternative investment advisors need to proactively prepare for this type of scrutiny says Peter Figura, director of sales at RISE REIT, especially as mutual fund commission fee structures come to light.
“While alternatives currently aren’t directly affected by CRM2, the general consensus is what’s happening in the industry is going to impact many areas - it’s a real game changer,” he says.
“Alternatives will have to follow whether they’re regulated or not… they have to get with the program, or they’ll be caught with fees that are ridiculous. Whether you have to report them, or not, people will start getting reports from dealers on other issues and those people will get their statements.”
He says that as clients start to look at mutual management fees for the first time, they’ll invariably begin asking questions of their advisors – and will be expecting concrete answers.
“I think give it a little bit of time - when people start talking about it, and analysis and discussion begin about impact of those fees , it’s going to become water cooler talk,” he says.
“It’s better to be forthcoming – there’s nothing wrong with higher fees if they’re justifiable, for example, international funds and equity funds; they’re going to be more expensive than the bonds,” he says. “And if advisors can provide that information, it’s better than waiting for the client to ask ‘How come you never told me this?’ and hearing, ‘Because I don’t have to.’”
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