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?”