Removing fees to ‘knock hundreds of thousands of advisors out of business’

Removing fees to ‘knock hundreds of thousands of advisors out of business’

Removing fees to ‘knock hundreds of thousands of advisors out of business’ The real danger of discontinuing embedded commission fees wouldn’t just be a burden for mutual fund providers – it could potentially knock hundreds of thousands of advisors out of business, says a financial services president.

“If they remove these fees overnight – we’re not going to get a shift, we’re going to get a tsunami of people put out of business,” says Rino Agresti, president of Precise Financial Services Inc. “It’s incredibly unfair and quite frankly, it’s so un-Canadian. Are we that harsh?”

The Canadian Securities Administration’s recent proposal to open consultation on the removal of the fees has been a divisive issue in the industry. While some say the removal of fees will improve investor transparency, others argue it will actually limit advice options for customers with smaller accounts. Others claim embedded commissions effectively allow unethical advisors to hide in plain sight.

“The vast majority of advisors have not done anything wrong,” says Agresti. “The only people this will really help are those with big accounts – but people with big accounts, if they’re motivated, they have access to fee-based advisors right now. Why do the regulators want to help fee- based advisors increase their pool of clients? It seems like it will cause extreme bias in the system.

“And are we going to assume that all the customers that are displaced, they’re automatically going to find a fee-based advisor? I don’t think so.”

However, he adds it’s clear that commission fees do cause some bias and that he’s for the standardization of such practices in order to “remove that bias from the financial advisor community.”
“But like in any other business, there are fees, there are profit objectives on the parts of the promotors and sales people and in theory it’s the way business works in our society ,” he says. “But ok, let’s pick on the mutual fund industry for whatever reason.”

While it’s currently unclear how abruptly the CSA may make changes to commissions, Agresti says it’s important the approach be gradual to give advisors adequate time to adjust to a new market structure.

“I believe the biggest-growing segment of investment market is ETF market, so that’s already causing a substantial shift in industry,” he says. “But that’s ok because it’s a gradual shift.”
So, if the removal of embedded commissions isn’t the answer, what would provide adequate reform for the advisor industry? Agresti says harsher penalties for those actually misappropriating funds would be a more effective approach.

“I’ve been at this for 26 years, and the wrongdoing I’m seeing are unscrupulous advisors that misappropriate funds and the sentences they get are jokes,” he says. “They may get a jail sentence for a couple years and then they’re back out – let’s focus on that, I think the industry would back that up big time.”

Related stories:
Will embedded mutual fund commissions go extinct?
Fees can be such a drag: Wealth president on needed reporting reform
  • Peter 2016-07-19 10:39:22 AM
    I for one see nothing wrong with "embedded commissions".

    As I have stated on this forum before, ethical advisors will always do what is in the best interests of their clients. Many times, I have spent a great deal of time doing work for which I did not receive any commissions.

    These regulators are obsessed with advisor commissions and trailer fees. Would these regulators please be transparent and disclose all of their salaries, bonuses and expense accounts to the industry!

    Perhaps these regulators should look at the fund companies / investment companies and ask why Canadians pay among the highest management fees in the world?

    Perhaps these regulators should turn their sights away from the advisors for a day or two and to the fund companies / investment companies and ask why Canadians pay among the highest management fees in the world? And why do the fund managers earn such huge bonuses when 90% of them do not outperform the benchmarks they are tracking?
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  • Niki 2016-07-19 11:59:46 AM

    Since they cannot touch the big abusers, they are going to stick it to the little guys and gals in the Industry--just because they can. I believe that what is going through their heads is that it is a difficult decision to make. They appear to be coming from a communist anti-profit perspective. At the end of the day, just because it is a difficult decision, does not mean it is the right thing to do. I do believe that this will create a fall-out as has not been seen in the Industry since 08/09. The ironic thing is that economic turmoil often results in people doing really drastic things as was seen. I had a colleague who attempted suicide. It was awful! He almost left behind his wife and children. I cannot imagine the fallout we are going to see and those who will be hurt. In effect, they will do wrong in the hopes that right will come.

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  • Steve 2016-07-19 12:22:30 PM
    Peter, If you are a good advisor, your clients will say you are worth every penny when they see all of your fees clearly and regularly.

    Regulators have been fully transparent for years... salaries, bonuses and expenses (and who paid them) are disclosed publicly (e.g. the Sunshine list). Try taking one out for lunch and see who has to pay.

    Fund companies charge high management fees in large part to cover these undisclosed commissions. Doing the math, it takes a few years of management fees (e.g. 2%) to recover deferred selling commissions (e.g.6%).

    The underperforming funds can pay their managers huge bonuses because they have large fees from the investors money they attract with these high commissions.

    Expose explicitly or eliminate embedded commissions and there is a better chance that the better managed funds would get the investors' funds...which is the point....Fairness to investors, particularly the ones that can be easily taken advantage of.
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