Brondesbury report leaves advisors wanting

Brondesbury report leaves advisors wanting

Brondesbury report leaves advisors wanting The CSA released the first of two reports commissioned on mutual fund fees last Thursday and advisor reaction has so far been less than enthusiastic.

“I’m not so sure the regulators have been talking to the advisors,” Michael Gentile, president of Personalized Investment Planning told WP. “We have costs. Nobody is addressing those it seems. Nobody is saying, ‘Hey Mike, you run a business, you have rent, utility costs, staff payroll costs, research costs, licensing fees, you’ve got a ton of stuff that you have to expense.’”

In the days ahead we’re sure to receive more comments from advisors both pro and con about the details in the 81-page report.

Gentile has other thoughts on the report’s main conclusions but generally, the veteran advisor (got his start in 1974) feels the authors didn’t do their homework or put another way, failed to consider both sides of the discussion.

His three major points regarding report specifics:
1. How do you conclude that funds that pay a commission underperform? We offer numerous funds on a front-end zero basis that significantly outperform many funds with and without a commission structure.

2. There is a cost to doing business which of course involves distributions. Show me a business that doesn't have distribution costs.

3. Nothing like getting tarred by the same brush eh? We do not make recommendations based on compensation and never have. Our primary interest is in providing our clients with funds commensurate with their risk tolerance as well as consistent positive rates of return and meeting their short and long term objectives.
Someone going by the name of Wealth Advisor left some interesting comments at the WP website suggesting the report totally missed the boat when it comes to providing a full and balanced examination of mutual fund fees.
“What is the average trailer compensation for Canadian advisors under the current business model (embedded compensation)? What is the average fee compensation for Canadian advisors using the fee-based model?” asked Wealth Advisor. “If the hypothesis that compensation skews investment recommendations then statistically there would be evidence that average trailer income for Canadian advisors would be closer to 1.25% for equity mutual funds as advisors can choose to use a bank owned fund and get paid 25% higher than the "normal" 1.00% trailer. There would be also a hypothesis that the average fee could be much higher than the average trailer.”

“Where are those studies and statistics?”
  • Kevin O'Brien 2015-06-16 10:44:09 AM
    I agree the cost of doing business has been left out of the discussion. Especially when you consider that back in the beginning of this industry the application the trade tickets and the physical trades were executed outside of the advisor's office. Today all the paper, Administration and cost have been downloaded to the advisor with out regard to cost. I can remember when an account application was 3 pages long and had 4 carbon copies. Today it is in excess of 16 pages with a further 20 pages of compliance paperwork. The solution? Perhaps advisor's should be charging the mutual fund company's and ETF providers a fee for office supplies and administration?
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  • Terry Lynn Adamson 2015-06-16 11:15:11 AM
    I was discouraged as well by the report. I am a Financial Planner first and foremost for my clients. Compensation is not how I choose the funds I use, and I always put the needs of my clients ahead of my own, as most of my colleagues do. But we also have costs to run a business, and need to be paid.
    The average Canadian does not want to pay out of pocket for a proper financial plan. Yet it has been proven many times that clients with advice outperform those who do not have good advice. It isn't about which funds outperformed - that doesn't matter if the client doesn't stay invested. The study should compare the actual returns in the client accounts with an advisor versus returns in "do it yourself" accounts at online brokerages, not the fund itself. I'm positive the client accounts with an advisor outperform, and more of those clients actually achieve their goals.
    Of course funds with embedded compensation underperform their no fee version - what a ridiculous conclusion. Don't need a study for that! The client still has to pay for the advice and service. My confidence that the regulators understand this business and understand what Canadians need dwindles more everyday.
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  • Ken kivenko 2015-06-16 4:12:41 PM
    We have had our team review the report on detail.It will be posted on tonight.A recent FPSC return projection for the decade ahead came up about 5% so after fees , taxes and inflation , the advice industry will have to be very,very efficient.
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