fees_calculator

Advisors are some of the least-trusted professionals in Canada, and high fund fees are driving away clients, says Beth Hamilton-Keen, director of private client management at Mawer Investment Management, and CFA Institute’s incoming board of governors chair.

She cites a 2013 CFA investor survey, which looked at consumer trust levels for various industries in Canada. Financial managers rated  the lowest, with just 52% of investors surveyed saying they trust the industry, below banks, telecommunications and pharmaceuticals. And she notes a more recent study shows the results have barely changed.

Read: Transformation of industry will benefit investors: Unigestion CEO

“For a profession that relies greatly on consumer trust, this isn’t great news,” she told advisors gathered at an ETF event held by S&P Dow Jones Indices in Toronto on June 24.

It’s a stressful time for the industry, which is facing greater competition from robo-advisors, as well as reforms spurred by CRM 2 which require advisors to provide more detailed fee disclosures.

Read: CSA releases mutual fund fee report

“Potential clients don’t see our value as investment management professionals,” says Hamilton-Keen (who serves on Advisor Group’s publications advisory boards). Relative to other developed countries, the 2.5% or 3% MERs for Canadian mutual funds are “a bit of an embarrassment.” She advocates following countries such as Australia, which has eliminated trailer fees, and passing those savings on to clients.

“No amount of indoctrination and regulation will lead to a cleaner investment management industry. For change to happen, we need to start changing the incentives people face,” she says. “Firms have to re-think the use of financial metrics as primary determinants of remuneration. Commissions, sales targets, create conflicts of interest that only reward product pushing, to the detriment of clients.”

Read: CSA wants Fund Facts for ETFs

Until the public feels they can rely on asset managers, she says regulators will increasingly intervene. Also, potential clients will hesitate to invest through advisors, choosing robo-advisors, or cash and self-directed accounts, instead.

In fact, Hamilton-Keen says almost two-thirds of wealthy clients say they expect to be able to manage their wealth digitally in five years, and they would consider switching firms if their current advisors don’t provide that service.

“The benefits provided, for instance, by a doctor or a lawyer are clear for the users of those services, but it isn’t clear for the users of investment professionals,” she says. “In essence, we need to do a better job of explaining ourselves to our clients, and justifying the fees that we charge.”

Originally published on Advisor.ca
See all commentsRecent Comments

PLKCMA

Since when does a CFA who is also a Money Manager get to say “our fees are too high”?

First, the CFA’s do not run the advisory business they run the portfolio management business.

So here is an idea.

Let’s talk about management fees which are the real culprit.

Very hypocritical and self serving.

They could take all the advisory fees away, pay them nothing and it would not affect the size of her pay cheque in the least!

So start with the fund management business which is the domain of CFA’s, not the advisory business which you have zero credentials to comment on.

Unbelievable.

Friday, July 31 @ 9:46 am //////

DOUG

Fees, fees, fees the mantra of the financical press and thereafter Regulators. Of course fees are important as is the integrity brought to an Advisory relationship. However, its time to look at what a client gets for the fees paid. Investing is easy, investors are not. They are hard wired to self destruct unless guided by the steady hand of an Advisor. Vanguard did a study on the value added to ETF investors by using a competent Advisor – about 3% annually. Taxes area another issue. All the focus is on fees which can pale in the face of rising taxes that are not properly managed through appropriate asset allocation between Registered and Non Registered accounts and the use of Corporate Class. It’s overdue for the industry to start to show the value pyramid of an Advisor relationship. At the same time, all Advisors should be immediately moved to a Fiduciary Standard from the prevailing Suitability Standard to clean us the industry.

Friday, July 31 @ 7:26 am //////

PLKCMA

The industry is cleaned up as much as any industry. Take lawyers for example. Far more money is lost to dishonest lawyers than anything that happens in this business.

And lawyers have a fiduciary standard. And no regulation except for the law society. They call us a “self-regulated” industry. What nonsense. Everyone knows the MFDA and IIROC are run by the Securities Commissions.

So I would gladly accept a fiduciary responsibility provided we were unregulated like the lawyers or accountants.

In fact I would argue ours is de facto a much higher standard so the addition of a fiduciary onus would just make the already ridiculous persecution of our business even more absurd.

This is evidenced by the fact that no one is interested in this as a profession any more. It is virtually impossible for a new person to make a living unless they are salaried.

And still it is not enough for the persecutors.

Friday, July 31 @ 10:52 am

VSIVA

It is really confusing as what is the core reason for the new CRM II process – clients complain about higher fees on funds, helps to reduce total fees paid by the investors, or transparency?

– MER of funds are already provided specifically, loud and clear in fund facts documents and fund prospectus that include the trailing commission;
– DSC charges on the redemption can be a shock to investors if unexpected and affect the reported fund performance in client statements; Hence either DSC should be banned or client statements should report pre and post MER fund performance, fund performance after DSC charges (may change each year due to change in the rate of DSC charges), Benchmark /index performance, quartile ranking;
– If the outcry is about higher Mutual fund fees (trailing /advisor compensation), there are advisors charge up to 1.50% (Fee For Service) for large accounts that portfolio includes money market and fixed income. In this situation, the investors pay very high fees to advisors compared to the usual trailing commission; The fee for service is only helps many advisors as they receive very high compensation than receiving trailing commission;
– If Bank products pay no trailing commission to their salaried staff but staff bonus, salary increase and promotion may be based on the total sale of proprietary products, why would their funds have higher MERs? How one draws a line for “Conflict of Interest” and whether the fund recommendation is objective, independent and “in the best interest of the client”?
– Why bank funds pay higher trailing commission (up to 1.15%) to independent advisors than usual trailing commission paid by the large mutual fund companies?
Any step or change in the industry should be meaningful and benefit the investors in the long term.

Tuesday, June 30 @ 12:22 pm //////

VSIVA

It is very important to have rules to protect investors and also reasonable participation of small investors; Having said that minimum investment amount ($1,000-) and the PAC amount ($100-) to be increased to control the fund expenses. Instead of too much noise without any sense, the regulators should demand for a full disclosure of fund performance (1, 3, 5,10 Years and since inception)and comparison with index performance, pre and post MER to decide a client what is best for them. Every product cannot be weighed equally as performance matters most.
It is absurd to compare doctor’s services as no one knows how much they bill the OHIP and is there any added benefit to these services for the high tax payers?
DSC fund sales should be banned or 10% free units switch abolished as it simply increases expenses (confirm mailing) and increases too many transactions (mostly using LTA to process, discretionary trading)on the statement and number of funds as clients have FE and DSC of the same fund, DSC charges should be charged back to the advisor as it is a failure of suitability on the part of the advisor, and rules must reduce fund expenses, reduce number of transactions, not confusing or misleading the clients. Some advisors are actively involved in active churning from mutual funds to Seg funds (DSC to DSC as there is no firm rule that only once commission can be generated) and vice versa and the first thing that the regulators should do to join hands to have a single regulator in the best interest of the investors.

Saturday, June 27 @ 7:46 am //////

Add a comment

You must be logged in to comment.

Register on Advisor.ca