Commissions exist only as a choice

For clients, they can decide if they prefer to write a cheque for a service rendered, have a fee automatically deducted from their accounts, or pay via a mutual fund management fee. For advisors, trailer fees exist as an option to help all types of clients, even those who don’t have enough investible assets to qualify for services from advisors who won’t accept a client who doesn’t generate a minimum fee.

No method is inherently good or bad, but both methods can and have been used by unscrupulous and unethical advisors to cheat clients. Where are the safeguards to ensure fee-based advisors aren’t collecting a 1% fee for doing nothing? What stops advisors from moving clients to annual fee accounts to create income out of unprofitable buy-and-hold clients? With the new CRM2 regulations, there’s absolutely no reason why a client cannot look at what they’re paying their advisors and be able to evaluate whether or not they are receiving value just as easily as if they wrote a cheque for the service.

Finally, all the consumer groups need to understand that if these changes are implemented, advisors currently using commissions-based investment products will adapt in order to maintain their profit margins by whatever legal and ethical means available — whether by not taking on clients with less than $500,000 in investible assets or by directly charging the up-front fees that they used to receive from the commissions-based mutual funds.

Don Janzen
Senior Financial Planning Advisor
Bownman & Partners (Assante Capital Management Ltd.)
Windsor, Ont.