save-my-money

While some advisors are choosing a fee-based service model instead of commissions, others are going the other way. So how do you keep clients when you change how you’re paid? By being transparent.

Janet Baccarani, CFP at Dedicated Financial Solutions in Mississauga, Ont., started switching clients to fee-based last year. “We told them it’d actually reduce their fees,” she says. “We did calculations showing the amounts the MERs would be reduced on the F-class funds compared to regular advisor-series funds.” She notes switching to fee-based will save clients about 1.1% on the MERs.

Because many clients still have deferred sales charge funds, Baccarani can only switch the front-end units. Each year, she’ll take the additional matured units and move them over as well. This way, she says, their savings increase annually. She estimates in year one, clients with about $800,000 in assets have saved $300 to $400 on average. And clients with non-registered funds save more because the fee is tax deductible.

Read: 3 tips to explain compensation

Since she sees the industry is headed toward fee-only advice, she says she’d rather transition sooner than later. “We like to be a step ahead so we’re not being forced into something that’s time-sensitive.”

Meanwhile, Bruce Cumming, senior investment advisor with DundeeWealth in Oakville, Ont., made the switch from commission-based MFDA to IIROC five years ago so he could offer indexes through his firm’s fee-for-service account.

“I had to close clients’ old accounts and open up new ones to get their money into [the account],” he says. “This means mutual funds were sold and we purchased ETFs in the fee-for-service account.”

Read: Follow the U.K. on compensation reform, says OSC panel

Cumming recalls it being an easy transition. “I explained they’d previously purchased all the mutual funds on a front-end basis at zero, and my sole compensation came from the 1% trailer fee earned from the mutual funds,” says Cumming. “Now that same 1% was going to be charged in the [new] account. So their expenses were going to be lower because the ETFs had a lower MER, but my compensation remained exactly the same. This wasn’t a grab for me against them, and they were totally neutral.”

He also told clients their statements would show the actual cost of his advice so they could judge whether it was worth it or not.

Advisors who aren’t in a fee-based practice expect their revenues to decrease an average of 1% if they convert, says Advisor Group’s 2013 Salary Survey.

I object

Getting clients to switch isn’t always easy, and they usually wonder if it’ll cost more. And this happens whether clients choose fee- or commission-based services, says Natalie Jamison, associate director, Wealth Management Wealth Advisor at ScotiaMcLeod in Oakville, Ont. She offers both compensation arrangements, depending on client preference (see “Should clients choose fee or commission?”). “We alleviate fears by producing a detailed report analyzing the cost benefits of making the switch,” she says.

Read: Supreme Court upholds investor rights

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Shane

It was my understanding that any withdrawals from an RRSP, RDSP, RESP would be taxed. I’ve also heard that in 2018 the new rules will be, “Fees paid from outside accounts for RRSPs will be considered a contribution towards the RRSP”. If thats true that causes problems with possibilities of over contributions. I want to make the switch but it seems the rules are changing in favor of keep front end loads with 0% front commission.
Please correct me if I am wrong.

Wednesday, Sep 27, 2017 at 12:20 pm Reply