New reason to watch your back

New reason to watch your back

New reason to watch your back An advisor moving to flat-fee financial planning suggests mutual fund suppliers will inevitably go direct to consumer as a result of CRM2, putting traditional salespeople in jeopardy.

“If you are ‘selling funds’ you are history in this business,” says outspoken Ancaster, Ont., advisor Kevin O’Brien. “You should be focusing on honing your financial planning skills and not your sales skills. I see a future whereby the suppliers of funds will deal directly with the public.”

He joins a growing chorus of advisors suggesting some mutual fund providers would have little choice but to opt for disintermediation of advisors as a way of satisfying investor concern over MERs and embedded commissions.

O’Brien believes that the future for most professionals like himself (a certified financial planner) is in providing advice and not product. Financial planners will be paid for doing financial planning and commissions will disappear.

“CRM2 will come into play just as the markets have or are due for a correction,” he argues. “Many fund companies will bring out their own line of ETFs and they will flaunt ‘smart beta’ as their value add.”

Yesterday WP ran a story discussing the changing fee models in the U.S. where many advisors are moving away from the traditional fee-based model charging a percentage of assets under management to a quarterly retainer based on a client’s total investable assets. 

At the same time we also featured an article about UK crowdfunding success BrewDog, a Scottish craft brewer that’s recently raised almost $10 million in the span of 20 days as part of its continuing expansion without listing on the London Stock Exchange.

The two stories taken together point to the changes in compensation currently taking place within financial services, suggests one analyst. With new sources of direct-to-investor funding models cutting out the advisor middleman it’s become increasingly difficult for mutual fund salespeople to make a living selling mutual funds.

“I see a very changed market place,” says O’Brien.
  • Murray Schultz 2015-05-20 10:22:53 AM
    Agree. Both Mutual Fund companies and sales organizations, like banks and insurance companies, are facing higher costs and lower returns as a result of draconian compliance regulations. Something has to give and the distribution network is first in line to be trimmed. Mutual fund companies are much too clever, however, to allow fee-based financial advisors to, somewhat arbitrarily, overlook their offerings. Look for relationships that resemble those between doctors and pharmaceutical companies. In the end, nothing will change for the consumers except that they will have nobody to blame for changing markets and their propensity to chase yesterday's news.
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  • Ken MacCoy, CHS 2015-05-20 11:03:45 AM
    Kevin makes a very good point.

    If this happens, only the qualified 10% of advisors with a CFP designation or better and who use an engagement letter, investment policy statement and written financial plan will survive.
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  • Tony Battista 2015-05-20 11:18:29 AM
    There is no rationale on this B.S. about fees attached to Mutual Funds. I would like to ask to the promoters of this campaign and to the Governments that will eventually legislate, why change something that works well? Is there anyone in any other industry that works for free? Even disclosing the fees, I have no problem with this because I always talked about the fees structure to the clients. If this nonsense goes true, then we must also have other professionals, merchants, retailers or wholesalers to disclose the costs of materials, labor, processing costs, compensations of directors and laborers. It would be interesting to see a bill from a car dealer: Cost of break pads: $26.00, retail: $85.99. Cost of labor $22.50, cost of social benefits: $7.50. retail $135.00. Equipment and building use: $25.00, retail $50.00 Total cost:$81.00, Retail you pay $270.99. Profit $189.99.
    Or if you go to the butcher to buy a steak, do we disclose the cost of production of the cow or just the cost of the wholesaler and retail? But most of all we should know How much money the farmer gets for one liter of milk and what it costs to process and transport and what are the profits of each operator? Either our society goes all disclosed or we all keep our modus operandi. The changes in England and Australia have proven a big negative for the average investor and a big loss of financial advisers. So I said before and repeat, if we are in a capitalistic society let's follow the rules of capitalism. If we want to go Socialist, fine let's revise all salaries and profits and we will all live evenly happily forever.
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