Mutual fund manufacturers disavow any bias when it comes to their distribution arms selling in-house or associated products — but there appears to be little doubt where their sales preferences lie.

In unison, executives at firms across the country deny having sales targets or higher financial incentives for the sale of in-house products, and they express the desire that advisors recommend only those products that are in the best interests of their clients. But advisors do feel a certain amount of pressure to focus sales efforts on in-house
products— even if they don’t always bow to that pressure.

Dave Pickett, head of practice management at TD Waterhouse Private Investment Advice in Toronto, says his company’s goal is to provide the absolute best solutions for clients without any pressure from the firm: “We want advisors to build and operate the business in the best way they see fit, the way that matches their personality and their interests.”

While the firm doesn’t dangle any carrots in front of advisors to lead them to TD-branded products, he says, the company does discuss with them the fact they share a business card with one of the most prestigious names in the country.

Dan Rolfe, president and CEO of Credential Financial Inc. , is of a similar mindset. He says the Vancouver-based company’s distribution channel doesn’t receive any incentives for selling its in-house products, Ethical Funds. “It’s all based on objectivity,” he says.
“Whatever the representative thinks the client needs to meet his or her financial needs, that’s the recommendation the advisor makes.”

National Bank Financial Ltd. does not put a dollar value or percentage production targets on proprietary products because such a practice is counterproductive and displays “questionable” ethics, says its senior vice-president and managing director, Gordon
Gibson, in Montreal.

While the firm may provide more sales support for in-house products, he says, there isn’t a monetary benefit or exotic trip awaiting advisors at the end of the sales period.

“Our challenge is to make the in-house products good enough and compelling enough and attractively priced so that advisors want to talk about it to their clients and so that clients want to buy it,” he says.

But one Western Goldkey advisor at Winnipeg-based Great-West Life Assurance Co. , says the industry is just saying what it thinks clients and the media want to hear. Despite what they say, companies all want to maximize the sale of in-house products and, in some cases, he says, find ways to make in-house products more attractive than third-party alternatives.

In fact, the entire industry has been focusing on manufacturing product — rather than distributing it — for the past several years. As a manager at Toronto-based Dundee
Wealth Management Inc. says, it doesn’t take a PhD in business administration to understand it’s more profitable for a firm to convert assets under administration to assets under management.

But that doesn’t play well with the GWL advisor: “I feel financial planners should use whatever product best fits the clients’ needs. All the regulatory and compliance issues have enabled the dealers to flex their muscles a little bit. They’re saying: ‘We need you to follow suit in a number of areas.’ Sales is one of them.”

There is extra pressure on smaller producers, he adds, because they have to establish themselves by meeting certain targets.

There are other, more subtle incentives for advisors to pick in-house products, says the
Dundee advisor: “If you’re a shareholder at Dundee or any other publicly traded company, [selling in-house product] could be beneficial because the share price goes up.”

But, he says, Dundee doesn’t provide any additional compensation for selling its own products for a number of reasons, not the least of which is the growing sophistication of clients. “If a client finds out a proprietary product has a trailer that is 25 basis points higher than a non-proprietary product, and the non-proprietary one has performed better
— if I was in that client’s shoes, I’d leave the advisor instantly,” he says.

One advisor for Toronto-based Assante Capital Management Ltd. thinks his company is genuine in its attitude. He says there is no pressure or incentive to sell in-house products.
Because he and the other three advisors in his office came on board after the company was bought by CI Fund Management Ltd. slightly more than two years ago, such products would have been a “big carrot” for the company because the advisors’ books were made up of entirely non-Assante products.

@page_break@“There is no agenda or skewing of the advisor’s thinking,” he says. “There is no extra benefit at all that I would get by selling Assante products over those of another manufacturer.”

Assante does have an incentive program that rewards advisors for their sales and lets them put the points they’ve earned toward expenses for their practice, from buying a filing cabinet to a new laptop. The matrix that determines the amount of sales has nothing to do with who makes it but rather the type of product.

“If I sell a portfolio program that integrates a financial plan better and it’s better for the client, that’s the product [the firm] rewards with more points than if you’re out there flipping mutual funds,” he says.

On the other hand, there are those firms that sell only proprietary products — State Farm
Canada being one of them. Derek Fee, senior public affairs specialist, makes no apologies: State Farm agents don’t feel restricted. “We feel this benefits the customer because the agent is focused on what’s best for the customer at that point,” Fee says.
“There are no competing demands from various companies such as you have in a broker-type situation. The focus for the agent is: ‘How can I best serve the customer and what coverage package is best suited for the clients that are a part of my agency’.” IE