The rank and file continue to defend DSC funds as the only way average Canadians can get good holistic advice.
“I deal with the mom and pops at the kitchen table, says Shawn Flannigan, an advisor in Peterborough, Ontario, with 35 years of experience. “I only have a couple of very wealthy people. The very wealthy, they can pay fee-for-service. They don’t want DSC fees because they do a lot of different transactions.”
Proponents of DSC funds argue that the fees earned by the dealer/advisor at the beginning of a client relationship allows advisors to provide comprehensive financial planning to clients; advice clients likely wouldn’t receive otherwise either because it isn’t worth the advisor’s time or the client simply can’t or won’t pay.
The argument against DSC fees is that it locks clients into funds for 5-7 years unless they’re willing to pay an onerous penalty of approximately 5.5 per cent when redeeming units of the typical equity mutual fund within the first 24 months of purchase. In most cases that’s more than the dealer was compensated in upfront DSC commissions.
“The service fees charged by advisors who deal with the wealthy are very expensive. They’re paying thousands of dollars for advice,” says Flannigan. “But the mom and pops at the kitchen table have people like me and the banks.”
Flannigan suggests those seeking advice from branch employees at a bank don’t receive a lot of advice because the employees only have so much time per customer. They might think they’re not paying a fee but they are.
“There’s nothing wrong with fee structures for certain areas. But if we go and do what England did and make all the advisors charge a fee for service you’re going to put 85 per cent of the advisors in Canada out of a job,” says Flannigan. “Because there’s only one per cent of the people that make huge dollars or say five per cent of the populous that can afford to pay fees.”
“With clients at the kitchen table, I’ve got clients putting away $25 a month, I’ve got clients putting $1,000 per month, I’ve got the whole gambit,” says Flannigan. “These people don’t want to pay an upfront fee.”