Full Disclosure - Commissions

 


Subject: Full Disclosure - Commissions
From:jd
Date: 15-Sep-97-03:09 PM

I know about load fees that the client pays and the trailer fees that the fund company pays (and the client ultimately). But I have been told by colleagues that there is often a one-off percentage commission that some fund companies pay to the planner/broker for the sale.

I don't know whether this co-worker is telling porkies or not - a bit of a blowhard. Anyone in the industry care to answer this query?


Subject: RE: Full Disclosure - Commissions
From:Madelyn
Date: 15-Sep-97-03:48 PM

Hi jd. I'm not exactly sure what you are getting at, but if you buy a front-load, the dealer gets the full percentage that you were charged, and the planner gets a percentage of that. If you buy a deferred-load, the dealer gets a percentage, usually 3 - 5% upfront, and again, the planner gets a portion of that. If you don't redeem from the fund family for the prescribed period, usually 5-7 years, you don't pay a commission, but the dealer and planner got paid when you bought. If you do redeem, the fund company keeps the commission you had to pay to redeeem.

In addition, the dealers and planners also split the trailers.

All of this is fully disclosed in the prospectus.

I hope this is what you were looking for.


Subject: RE: Full Disclosure - Commissions
From:jd
Date: 16-Sep-97-10:22 AM

Thanks Madelyn. That is probably what he was referring to.


Subject: RE: Full Disclosure - Commissions
From:David Silcox, Scion Securities Corp. member of ING
E-mail: invest@promobility.net
Date: 16-Sep-97-03:47 PM

Find a broker that gives you the kind of service and advice that you don't mind paying for and get on with your life. You have better things to worry about.


Subject: RE: Full Disclosure - Commissions
From:jd
Date: 16-Sep-97-05:19 PM

Thanks for that hot tip, David. I'll give it some thought. :-)


Subject: RE: Full Disclosure - Commissions
From:Madelyn
Date: 16-Sep-97-05:49 PM

jd, ... :-) , it's appreciated,...and understood.


Subject: RE: Full Disclosure - Commissions
From:???
Date: 16-Sep-97-10:13 PM

So nice to see such polite treatment of David Silcox, Scion Securities Corp. member of ING. David, other contributers may not be so polite in the future. Please contribute, but don't pretend to be solicitous. Okay?

Stick around, pay attention, and then give your 2 cents worth. Then you may be welcome.


Subject: RE: Full Disclosure - Commissions
From:Warren Baldwin
E-mail: wbaldwin@compuserve.com
Date: 16-Sep-97-10:34 PM

Hi,

>Find a broker that gives you the kind of service and advice that you don't mind paying for and get on with your life. You have better things to worry about. <

Unfortunately, this translates as forget the cost. As an investor and as a FEE ONLY planner (takes neither commish up front, nor any part of trailers), I find this comment the main reason for the Stromberg Report - my advice, do be well aware of what the broker makes, stress a desire for funds with low MER (Management Expense Ratios) and preferably no-load funds, do not ever purchase a DSC fund, always pay a load up front and NEGOTIATE this entry fee (it can go as low as zero) - I have no arguement with people getting paid for their efforts but $5,000 to $8,000 for the investing of $100,000 is a bit over the top - BTW, never ever forget that it is ONLY your money (and the investment return on it) that we are dealing with - IOW, every dime that the broker/dealer makes comes from your funds. Caveat Emptor !!

Warren Baldwin CFP RFP.


Subject: RE: Full Disclosure - Commissions
From:Really confused
Date: 16-Sep-97-11:05 PM

You may be a CFP RFP Warren, but apparently you do not listen, or pay attention, which I would consider to be the most important attribute of an FP.

Caveat Emptor!


Subject: RE: Full Disclosure - Commissions
From:jd
Date: 16-Sep-97-11:23 PM

Oh, my, my! I honestly didn't intend to start a flare up! Really. It was a stupid question. How do I reverse this thing?

I feel like Richard Dreyfuss in the shark cage :-)
Help.


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 17-Sep-97-09:30 PM

Really Confused:

>You may be a CFP RFP Warren, but apparently you do not listen, or pay attention, which I would consider to be the most important attribute of an FP. <

Sorry, if I confused you further, but I was trying to make a succint comment on the best and most reasonable way to pay for your investment acquisition and management through mutual funds - IOW, answering the ?? about the issue of DSC fees, F/E Loads, no loads & trailers. Confusing perhaps but well worth understanding. Any of the comments I made would serve to help trim several percentage points off the cost of your investments - IOW, as with any transaction, financial or otherwise, confusion can be an expensive state .

Warren.


Subject: RE: Full Disclosure - Commissions
From:Brian Gomke
Date: 18-Sep-97-01:34 AM

Warren:

Wow, I AM impressed. Stick around, we need you here!

Few FPs seem to let the cat out of the bag re: their compensation and where it comes from, and how it affects their advice, and ultimately their clients bottom line! Non fee-only financial planners should come with warning labels on their foreheads.


Subject: RE: Full Disclosure - Commissions
From:Brian
Date: 18-Sep-97-01:53 AM

Thanks Warren, I also appreciate the honesty. Sounds like the other two entries on the thread maybe fell off their medication!!! Nice to hear straight forward advice from someone who can fight back.


Subject: RE: Full Disclosure - Commissions
From:Brian
Date: 18-Sep-97-01:53 AM

Thanks Warren, I also appreciate the honesty. Sounds like the other two entries on the thread maybe fell off their medication!!! Nice to hear straight forward advice from someone who can fight back.


Subject: RE: Full Disclosure - Commissions
From:RonB
Date: 18-Sep-97-07:20 AM

Warren - can you please answer one question? You say not a dime from trailers. I had the impression from other things I have seen here that trailers are paid automatically by the funds. So I thought they were unavoidable. Are you saying that an FP can turn them back, or do you just not recommend participation in funds that pay trailers?

And for want of any better place to draw attenion to it, let me mention here that those interested in what they should expect from planners in the way of professional service could visit the Canadian Association of Financial Planners site at

http://www.cafp.org


Subject: RE: Full Disclosure - Commissions
From:jd
Date: 18-Sep-97-12:25 PM

Warren,

Now I am confused. If you don't "take any part of the trailers" then who does?


Subject: RE: Full Disclosure - Commissions
From:Rob
E-mail: keystone@leth-theboss.com
Date: 18-Sep-97-12:37 PM

Warren, first, who pays $8,000 on a $100,000 purchase? You've been off in la-la land if you believe that's the case. DSC is typically 5% - of which the rep gets a cut anywhere from 40% - 90% depending on the dealer.

Fee-only planners vary, some charge their fees based on assets, others by the hour. Which are you?

jd, the broker that Warren referes you to gets the trailers. See, that's part of the problem with fee-only - you pay twice. You pay once to get your "independent" advice - which might mean you miss out on some great funds because he won't recomend load funds, or he recomends load funds, won't take those evil trailers that have allowed reps to lower their up-front commission to you (which way do you want it??) so he refers you to a broker, or commission based fp. This person collects the trailer, and charges whatever their rate is for access.

My guess Warren is in a big centre, and is somehow related to an accounting firm?? Warren, are you licensed with a securities commission? And what province are you in?

Amazing how things are never as clear-cut as they initially seem, eh?


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin
Date: 18-Sep-97-09:33 PM

Stirred up a few issues, eh?

>I had the impression from other things I have seen here that trailers are paid automatically by the funds. So I thought they were unavoidable. Are you saying that an FP can turn them back, or do you just not recommend participation in funds that pay trailers? <

Correct - BUT - while my clients will be paying the trailers on their funds, I take not one dime of it - our philosophy is that if we accept anything from an investment we recommend, it sullies our objectivity - IOW, my clients pay me a fee to advise them, this is all I make - accordingly, it makes no difference to me wheather a fund pays a high trailer, a low trailer, or no trailer - hehe, ever try to get a commission-based FP into a discussion about PH&N, Bissett, ot TD Greenline Index funds - the answer is that most often they say "no load equals no advice and no results" - OTOH, run the comparisons of the returns (note the low low LOW MER on these funds) and you will find many of the so-called hot funds (read load) woefully underperform by comparison.

>that those interested in what they should expect from planners in the way of professional service could visit the Canadian Association of Financial Planners site at

http://www.cafp.org <

Good advice. An RFP member of the CAFP also carries insurance against O & E and has passed a day-long exam, agrees to abide by a code of ethics, and has taken credited courses in FP. If your planner is not a member of the CAFP, ask him or her why not.

>If you don't "take any part of the trailers" then who does? <

We work with brokers who supply load funds to our clients on a no-load basis and who will also purchase any of the no-load families we specify (without the usual protests). Look at it this way, the broker gets the business, needs to make no recs to the client (we do that) and the broker keeps the trailers - the client has no cost of commission up front and gets low MER on the portfolio as well as having the flexibility of none of the dreaded DSC.

>first, who pays $8,000 on a $100,000 purchase? You've been off in la-la land if you believe that's the case.<

OK Rob, here goes - many DSC funds have a 5% payment to the broker dealer up front (some have 6% from time to time). Coupled with this the trailers reach 1% in many cases - add 1% on an increasing value of the fund to the 5% up front and over a couple of years the broker dealer has had about 8% on the original investment - BTW, this example is frequently cited by Glorianne Stromberg. As for who pays it, why the investor of course - high MER's fund a lot of this and the heavy DSC cut if you exit early (often 4%, 5% or 6%) puts the balance in place to pay these fees. Just look at the MER's on the funds that pay no trailers - PH&N, Bissett are examples - the MER runs at just over 1% instead of just over 2.5% for many of the others - who pays the extra 1.5% cost, why YOUR investment return that's who.

>Fee-only planners vary, some charge their fees based on assets, others by the hour. Which are you? <

Both - I can work on a pre-agreed fee, charge an hourly rate or charge a monitoring fee based on the asset being planned.

>You pay once to get your "independent" advice - which might mean you miss out on some great funds because he won't recomend load funds, <

Nope. You pay a fee and we recommend funds sorted for us according to their long term performance (PalTrak does the data crunch) and about 80% of the funds we recommend are traditional load funds - we simply arrange to buy them for the client with no load .

>he recomends load funds, won't take those evil trailers that have allowed reps to lower their up-front commission to you <

Hmmm, which reps have been rushing to lower those front end fees? BTW, the reps I work with have their load set at ZERO - can't get much lower than that, eh. FWIW, I often work with brokers who a client has known for some time and when I ask "how low can you go" I am often told that 2% or 3% is the best they can do - and these folks KNOW why I am asking.

>This person collects the trailer, and charges whatever their rate is for access. <

Nope again, see above - the dealer (often a discount house like Action Direct) or the broker gets the trailers (not on the no-load funs of course, like PH&N and Bissett) but charges no load charge on any of the Templetons, Trimarks, Fidelity, BPI, etc.

>My guess Warren is in a big centre, and is somehow related to an accounting firm??<

Yes, I am in Toronto but my firm has offices in Montreal, Quebec City, Oakville, and Calgary and we are a fee-only FP firm exclusively, not an accounting firm.

>Warren, are you licensed with a securities commission? And what province are you in?<

Yep - I have an "Advisor" registration with the OSC and work in Ontario - many of our senior planners are similairly registered (I do not use the term license, since we are not eligible to "sell" funds - this subtle difference is in fact, deliberate) in Toronto as wels as other offices. Some on staff are CFA's.

>Amazing how things are never as clear-cut as they initially seem, eh? <

I hope this has helped clarify things.

Warren.


Subject: RE: Full Disclosure - Commissions
From:Curious
Date: 18-Sep-97-09:53 PM

Warren, as long as we are talking about full disclosure, how much per hour do you charge, and what is your monitoring fee?

FYI, I do know fee& commission planners that recommend PH&N and TD...oh, & I here that TD pays trailers.


Subject: RE: Full Disclosure - Commissions
From:Rick
Date: 18-Sep-97-11:36 PM

Warren:

My guess is that you are with T.E. Financial Consultants Ltd.--a company with an excellent reputation in fee-only personal financial planning.


Subject: RE: Full Disclosure - Commissions
From:Rob
E-mail: keystone@leth-theboss.com
Date: 18-Sep-97-11:37 PM

Warren, you obviuosely haven't been around here for long, so I'll give you a quick update. There are LOTS of planners here who will do 0%FE purchases. I can't think of the URL right now, but there's one that's bandied about here that lists a number of them I'm sure someone here will post it.

There's also a pile of planners here who will recomend funds like PH&N and Bissett - so be careful with the "all commission based planners" do this approach.

I'm curious, what is the name of your firm?? Again, I said big centres. You won't find any fee -only based planners in the small centres in Alberta (Leth, Med Hat, Red Deer)

So, you do charge a percentage of assets to administer? Isn't that just a way of getting an trail fee off of funds that don't pay them?

Funds that pay 1% trail are all FE, not DSC. It's one of the reasons why planners LIKE ME will do 0%FE purchases, I get paid a higher trail (1% instead of .5%). I have seen a few funds that have gone as high as 6% on DSC, but have never sold them (my big problem with Hyperion funds was that when they were first launched, all the advertising was "hyper-commissions" I still can't get that out of my head when I hear "hyperion")

PH&N and Bissetts low MERs are a factor of more than just no trails.

Specifically, what courses do you have behind you? Again, just curious. What is minimum requirement to work for your firm.

Just to clarify your first comment - as far as the fund company is concerned, you are not the rep of record, the broker/planner who is collecting the trail fee is. You're not turning it away, it's never being offered to you.

BTW, TD pays trailers. I've had clients there before.

Care to give specific examples of what you're comparing?

>You pay once to get your "independent" advice - which might mean you miss out on some great funds because he won't recomend load funds,

Nope. You pay a fee and we recommend funds sorted for us according to their long term performance (PalTrak does the data crunch) and about 80% of the funds we recommend are traditional load funds - we simply arrange to buy them for the client with no load .<

In other words the client IS paying twice. Once to you, and the second time through the trail fee. Now, what if the client could get that same advice for 0%FE on his own? There's lots that will do it. Now your fee has been eliminated.

Again, it's not as simple of an answer as it seems. Ask yourself, would ANY of those planners / brokers be willing to do ANY purchases at 0%FE if there was no trail fee on anything? Of course not. That's what I meant. Front end commissions have been coming down for a long time (I remember when there was no DSC, and everything was 9% FE - it wasn't all that long ago!)


Subject: RE: Full Disclosure - Commissions
From:David McGruer, CFP, RFP
E-mail: DaveMcGruer@Ottawa.com
Date: 19-Sep-97-12:08 AM

I am quite certain Warren is with T.E. (Timothy Egan) Financial Consultants. He has been active at the executive level of the CAFP. My impression is that he has both experience and depth of knowledge.

Having said that, this is not a paid advertisement for Warren. He has a right to position himself as a professional according to the philosophy he espouses, and deserves respect for having a well defined philosophy to begin with. Many do not.

What I do find disturbing, Warren, is the broad brush you wield when coloring others in the field. Rob is a frequent contributor to the forum, expresses himself very well, demonstrates advanced knowledge, has a different philosophy than yours, but no doubt serves his clients extremely well (thanks for the ten bucks Rob)!).

It seems to me that the main issue here is whether the client is well served, helped to set and achieve appropriate goals, receives guidance over the years, and forms a relationship with a trusted advisor. You can buy a Chrysler or a Toyota, with significant differences in quality and price, but no car manufacturer will give the car away for free. It is a question of what the consumer needs and wants, and whether that is held in the highest regard.

As a commission based planner I am not ashamed to explain to prospective clients that I earn a commission on first time investments, a service fee for providing advice over a lifetime of investing, that the service fee is directly related to the change in the client's wealth as a result of my recommendations, and therefore that I have a vested interest in seeing my clients achieve all the dreams which financial freedom brings.

I could choose to offer only funds which pay neither initial commissions nor service fees, and volunteer my time to help people achieve their goals, but I would not be able to feed my family. I have a well defined philosophy of how to build financial freedom, and my clients are those people whom I have met and wish to share in that philosophy. I see no reason why you should castigate me and tell my clients I am not working in their best interests when it is patently untrue.

For anyone still reading this tome, remember that the actual performance of your funds will be nowhere as important to your life as whether you owned the right type of investments and the quality of the advisor relationship you have.


Subject: RE: Full Disclosure - Commissions
From:TIM
Date: 19-Sep-97-06:58 AM

Great thread!! Thanking all of the above for their thoughtful advice. Two very different approaches explained so even I understand them.


Subject: RE: Full Disclosure - Commissions
From:Rob
E-mail: keystone@leth-theboss.com
Date: 19-Sep-97-12:02 PM

David,

The cheque is in the mail :) Thanx, and well said.


Subject: RE: Full Disclosure - Commissions
From:jd
Date: 19-Sep-97-12:27 PM

Warren,

The upshot is that you provide the advice on a fee basis and get a zero broker like MF Direct to carry out the transaction. This looks like an attractive option for people with large portfolios. Attractive because the client has full information regarding remuneration, and the planner has no incentive to recommend one type of fund over another.

Question. What if you set up a client with, say, only or mostly PH&N & Bissett funds? They don't pay trailers - so how do you convince the zero load broker to handle that account? Or do you simply provide advice and let the client handle all the transactions?


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@copuserve.com
Date: 19-Sep-97-08:26 PM

Hey, GREAT thread, now some more answers to the questions posed above.

>Warren, as long as we are talking about full disclosure, how much per hour do you charge, and what is your monitoring fee? <

OK, "Curious" - the irony of answering "full disclosure" questions from someone who will not even use their name is interesting - the following is a comment on my/our hourly rates:

When we charge by the hour, our fees for consulting time range from about $115 per hour to $270 per hour - my personal rate (due to my 25 years in the financial industry and 17 years as a fee-only financial planner) is at the $270 level.

When we do charge a monitoring fee, it can range from 1/4 of 1% to a full 1% depending on the amount of dollars being dealt with and the type of service being provided (a mutual-fund-based program is more expensive than the investment-counsellor-based program).

> FYI, I do know fee& commission planners that recommend PH&N and TD...oh, & I here that TD pays trailers. <

I'm sure there are and I am sure that TD is at least paying the branches something for the sale of their funds - if nothing else it has to be part of the branch's business plan to achieve a certain amount of sales of funds.

>My guess is that you are with T.E. Financial Consultants Ltd.--a company with an excellent reputation in fee-only personal financial planning. <

Correct you are Rick, thanks for the compliment, BTW.

>There are LOTS of planners here who will do 0%FE purchases. <

Thanks Rob, I know many others accross Canada who do also and in some cases have done so for over 5 or 6 years. In fact for some clients, I use a planner here in Toronto who has been doing 0% FE for my clients for at least 4 years.

> You won't find any fee -only based planners in the small centres in Alberta (Leth, Med Hat, Red Deer)

<

Right, fee-only needs a large market to work in, generally.

>Isn't that just a way of getting an trail fee off of funds that don't pay them? <

Not really - the fee we charge is for the monitoring and the general investment advice provided to set up the program (and maintain it) - the trailers from the funds go to the broker or the discounter and help pay for their backroom operation (statement processing, etc).

> Funds that pay 1% trail are all FE, not DSC. <

Hmmm, I have been told by some brokers that the trail on some DSC funds is 1%, if the broker has enough money with that fund co.

>PH&N and Bissetts low MERs are a factor of more than just no trails.<

Yes, they don't advertise as much, but high trailers are certainly a large factor in the expensive MER's we experience in Canada.

> Specifically, what courses do you have behind you? Again, just curious. What is minimum requirement to work for your firm. <

Myself, a BA, CSC, CIF, CFP, RFP are the major ones, for our firm, I assume you are asking about consulting staff, so I will give you a cross section - universally we have RFP, many have also the CFP and other designations include CA, CFA, MBA, Peng, and of course many investment courses such as the CSC and CIF as well as CIM. OK, enough letters?

>you are not the rep of record, the broker/planner who is collecting the trail fee is. You're not turning it away, it's never being offered to you.<

Well Rob, it has been offered, we just do not choose to take it - we leave it with the rep of record to help with their back room costs. I assume you ask what we compare when we look at funds, the answer is we set filters based on some criteria and then run the compare against all of the other 1700 funds in Canada. You suggest that lots of FP's out there sell funds for 0% and no fee like we charge and you suggest that the client is paying twice through us - I fail to see this. Most portfolios I see that clients have had placed by other FP's are seldom 0% and also seldom have any significant portion of "no-load" (low MERs) funds, and also use bond funds that pay trialers rather than purchasing strip coupons (as we do) or using direct bond ownership to enable a better control on the "duration" of the fixed income side of the assets. I submit that the client pays us to report to them on a regular basis and to provide the asset mix monitoring (sure if there were FP's out there that did the same thing for no fee, and 0% load, it would be more cost effective - but, as yet I have not seen this anywhere).

>Again, it's not as simple of an answer as it seems. Ask yourself, would ANY of those planners / brokers be willing to do ANY purchases at 0%FE if there was no trail fee on anything? Of course not. <

Of course - but here we are comparing apples and oranges, I think. Our service is a form of "wrap" account for mutual funds (in effect) and provides significant reporting and advice on a quarterly basis. I am used to the 0% approach with a number of FP's and they generally do not provide any additional reporting beyond the back room stuff and the fund reporting send-outs.

>Having said that, this is not a paid advertisement for Warren. He has a right to position himself as a professional according to the philosophy<

LOL. Thanks Dave, yeah, I hate spam as much as any other - that's why I am only trying to answer the ??'s here.

>Rob is a frequent contributor to the forum, expresses himself very well, demonstrates advanced knowledge, has a different philosophy than yours, but no doubt serves his clients extremely well <

Thanks Dave, but I never said any different and I definitely never said anything to denigrate Rob either personally or professionally - most of what I have said is in response to the earlier comments in the thread that suggest 1) there is no commission paid on a DSC purchase >"If you don't redeem from the fund family for the prescribed period, usually 5-7 years, you don't pay a commission"< and 2) that one should ignore commissions >"You have better things to worry about. "< On this latter point, I agree partially that a good planner you can trust and who has helped you is valuable, I only question the cost in some cases.

As for the "broad brush" I wield on others in the field - I certainly did not generally malign any group, I am only proposing a tough line of questioning that I think any investor should ask his or her advisor (and should fully comprehend the answers) and THEN be the judge of the cost benefit relationship.

> It seems to me that the main issue here is whether the client is well served, helped to set and achieve appropriate goals, receives guidance over the years, and forms a relationship with a trusted advisor. <

Absolutely - as per the code of ethics of the CAFP. I couldn't agree more.

>As a commission based planner I am not ashamed to explain to prospective clients that I earn a commission on first time investments, a<

OK, since we are on the topic of disclosure, do you tell the client how much is the amount of the commission/trailer paid to you or your dealer on their behalf. FWIW, I have seen proposals that suggest it would be most fair if the client received a statement from their planner/advisor detailing to the penny how much financial benefit had been transferred to the broker/advisor by the fund cos - IOW, commissions, trailers, soft-dollar offsets, co-advertising sponsorship costs, etc (even trips to Hawaii ?? like those criticized in the Financial Post early this year).

>I see no reason why you should castigate me and tell my clients I am not working in their best interests when it is patently untrue. <

First I never castigated you and I never said you do not work in your client's best interests. In fact, I never said anything remotely like this about anyone. Dave, I think you should provide an apology here.

>remember that the actual performance of your funds will be nowhere as important to your life as whether you owned the right type of investments and the quality of the advisor relationship you have. <

Sorry Dave, my clients may enjoy my company but if their plan fails or their investments are weak or poor performers, I'm fired. No doubt about it. You sure have it good with the folks you work with.

>Question. What if you set up a client with, say, only or mostly PH&N & Bissett funds? They don't pay trailers - so how do you convince the zero load broker to handle that account? Or do you simply provide advice and let the client handle all the transactions? <

Thanks jd, these funds sell direct to the public and do not need to be processed through a broker so the client can simply fill in an app and attach a cheque (an RRSP is a little different, of course). FWIW, I generally diversify beyond only one fund family, in spite of low MER's etc.

Whew, thanks for all the comments, folks. I hope this has clarified some of the information.

Warren.


Subject: RE: Full Disclosure - Commissions
From:David McGruer
E-mail: DaveMcGruer@Ottawa.com
Date: 19-Sep-97-09:27 PM

Warren,

I wrote up my piece in the middle of the night, and apologize to you and all readers for a few of my verbs. I just get annoyed at the degree of bad press out there which appears targeted towards reducing my value to zero.

Did you see the Canadian Business mag cover in Sept. issue? It basically sensationalized the issue of MER's vs. performance as if it was about Oprah's underwear. Pretty tabloid type reporting for a business mag.

Re: "do you tell the client how much is the amount of the commission/trailer paid to you or your dealer on their behalf" Yes. In every proposal I indicate for each fund: the applicable DSC, the years until DSC declines to zero, the approx. MER, and the exact service fee.

Re: "do not ever purchase a DSC fund" This was one of your statements which I found to be unfair. If someone is going to invest in a fund like Templeton Growth, the client will experience the same return if bought FE or DSC. In the second case, the advisor has the chance to earn a commission, yet the investor has no different cost. Many funds work this way, so I dispute your statement's sweeping conclusion.


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 19-Sep-97-11:24 PM

Thanks David, for your comments.

>I just get annoyed at the degree of bad press out there which appears targeted towards reducing my value to zero. <

This was of course nothing like any intention I had - I was simply stating a position and providing a second point of view to the comments I cited.

>It basically sensationalized the issue of MER's vs. performance as if it was about Oprah's underwear. Pretty tabloid type reporting for a business mag. <

Yes pretty shabby I agree - in fact the article failed to look at the commission/trailer and style of the fund (domestic, international, etc) to explain the severe differences in MER's - indeed, I was shocked to see how they had managed to foster their absolute conclusion that higher MER equates to lower performance .

>n every proposal I indicate for each fund: the applicable DSC, the years until DSC declines to zero, the approx. MER, and the exact service fee. <

Excellent, as I would expect from an RFP - BTW, as you no doubt undertand, our fee is always discussed with the client who pays us and, in fact, where investment monitoring (non-RRSP of course) we provide reconciliation of the fee for tax purposes at the end of the year.

>If someone is going to invest in a fund like Templeton Growth, the client will experience the same return if bought FE or DSC. In the second case, the advisor has the chance to earn a commission, yet the investor has no different cost. Many funds work this way, so I dispute your statement's sweeping conclusion. <

Here we disagree. If Templeton has a failure in management, or the performance otherwise suffers (BTW, how happy are you with them this year so far - to be fair, all that cash they have been holding has been a drag on performance, eh) the client is then hit with an exit fee if they wish to switch to another fund family. Believe it or not, I will recommend a client pay 2% up front if a fee must be paid (IOW, $200 for a $10,000 investment) - in many cases we can arrange for 0% f/e. Overall, I find the heavy initial exit fee in DSC to be too onerous - OTOH, to pay 4% or 5% up front to me is also very high. I may take only $200 to $500 of time (say, up to 1.5 hours of discussion) to decision $50,000 to $100,000 (since we are trying to price services) and yet a 4.5% commission is more in the range of $2,000 to $4,000 (approx). If, OTOH, the client is looking for a full detailed, comprehensive, written plan (about 20 pages) instead of just a one-shot investment decision, then the fee for us would be perhaps $3,000. Still, this seems to be a modest fee in relation to commission structures. Sorry Dave, but am I missing something here?

Warren.


Subject: RE: Full Disclosure - Commissions
From:Chrissie
Date: 19-Sep-97-11:24 PM

I had thought that the dsc was charged by the fund company - not by the broker. If this is the case how can the broker offer a fund with no dsc?


Subject: RE: Full Disclosure - Commissions
From:TIM
Date: 20-Sep-97-07:42 AM

Warren, when preparing a Financial Plan, do you recommend individual equity purchases in addition to MFs, Strips etc.?? I am partial to Dividends without any associated fees with strictly conservative equities. I do have MFs on 0% or 2% frond end load as I want flexibility to move. Example, I have Marathon Resource because I sinserely believe that Wayne Deans will outperform other Resource Funds. However, he may decide to do something else with his life and exit from this Fund and the resultant manager may be a poor choice. A DSC could keep me locked up for years as I watch my investment diminish. Thoughts please.


Subject: RE: Full Disclosure - Commissions
From:Rob
E-mail: keystone@leth-theboss.com
Date: 20-Sep-97-07:09 PM

Chrissie,

The broker usually has the option of charging 0%FE or DSC, not 0%DSC.

Warren, I'm going to print out your comments and reply later - you brought up some interesting points, and made some astute observations. I'd like to clarify a few things, and don't have the time right now...


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 20-Sep-97-10:04 PM

More answers .. er.. comments...

>I am partial to Dividends without any associated fees with strictly conservative equities.<

OK, Tim, we do not recommend specific equities and therefore do not include this in an a client's portfoilio, he or she may choose to ask us to purchase a specific stock but we do not favor that - by and large, we prefer to let a pro (either MF mgr or Investment Counsellor) pick and choose and know "when to hold 'em and when to fold 'em"

As for a div portion of an account (IOW, the tax-effective form of fixed income for a taxable (read, non-RRSP) account), why not look at a low-MER div fund from someone like PH&N (MER of about 1.15%) or Bissett, or even one of the Bank funds - we would normally run a PalTrak for comparison of the relative performance on any fund, of course.

I like your thought on the 0% or 2% FE - this was the point I was making above - ever wonder what happened to all the Fidelity investors (who tagged along to get Ms Hersh to be their manager and opted for the DSC) when Veronika left (or what about the others who bought her on a DSC basis when she was being heavily advertized at the previous co "Veronika's Secrets"). Flexibility is important, I agree.

Hmmm, while we are on disclosure - I might add, I do indeed "walk the talk" - I personally never pay front end loads (ie, 0%, IOW) except for a few funds I purchase from a full-service broker who will not go below 2% (then, yes, I pay 2%) but, through her I also purchase PH&N and therefore "average down" on my loads.

>Warren, I'm going to print out your comments and reply later<

Thanks Rob, I look forward to your comments.

Warren.


Subject: RE: Full Disclosure - Commissions
From:RonBullock
Date: 21-Sep-97-06:23 AM

True North up 26% since Jan 2. I doubt they're too distressed. I also doubt they want to follow her further!


Subject: RE: Full Disclosure - Commissions
From:Rob
E-mail: keystone@leth-theboss.com
Date: 21-Sep-97-02:44 PM

Like many others, I have a disclosure form that specifies EXACTLY what I'm paid. I also cover off the information in the prospectus with each client. I've even gone so far as to include the "little" things fund companies do like 50% co-op advertising and stuff. Disclosure does two things 1)makes for a fully informed client (which makes my job easier) and 2) covers my a** legally.

The Templeton question: If the client is going to be exiting within a short time frame, then one of a couple of things has happened. 1)Client doesn't know what they're doing, or 2)rep doesn't know what they're doing. I wouldn't be throwing clients out of Templeton because of their high cash component right now - and I somehow doubt you would be, either. There's usually not much reason to bail from a high quality fund like Templeton.

Fidelity and Veronika is a perfect example of a fund company handling things well - they offered ALL investors in the True North fund the opportunity to leave and pay NO DSC fees. (And as has been posted earlier, those who stayed aren't exactly hard done by.) Personally, I never liked Veronika, so never "followed her" from anywhere.

I choose not just good funds, but good fund families - if you do that, you can usually find a pretty good fund within the family. Which comes back to what someone else was saying re: being in the right KIND of investment. No one can tell you which fund is going to be the #1 performer. So, do you hold an AGF Resource, or Univ Resource? Long term, the difference between the two is pretty neglible.

Personally, I don't have ANY clients that invest $100,000 and only get 1.5 hours of my time. Over a year, closer to 12. In some cases, I spend that much time every couple of months! (Obviousely, there's alot more than 100k there)

I like the idea of fee-only. However, because I'm in a smaller centre, there's no way I would ever be able to make a living doing it. What I'd like to see is the ability to do fee or commission (like is available in Ontario) - the ASC is loosening up that way a bit, and I hope to be able to do it sometime in the next year. That way, a client could choose which way they want to pay me. Nice thought, eh? Give the client the choice?

Like yourself, I prefer to let the pros make the individual security selections, and stay away from that myself.

BTW - a big thanks to everyone on this thread, some "hot" issues discussed, and it's stayed remarkably "nice".


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 21-Sep-97-05:38 PM

Rob, Professional comments, thanks:

> I wouldn't be throwing clients out of Templeton because of their high cash component right now - and I somehow doubt you would be, either. There's usually not much reason to bail from a high quality fund <

Without a doubt, but I object to the rational for the DSC being sometimes expressed as a way to protect the cient from themself - a broker once said this to one of my clients (a senior executive, IOW, no neophyte to investing and finance ) - the result, she was fired and lost the account . In fact, Rob, you are correct, the client and the rep should be in sync on the long term nature of any commitment.

Sometimes, things change however and I still believe in maintaining a high degree of flexibility if the cost to do so is 0% or relatively modest. BTW, imagine the happy faces on the beneficiaries of an estate where a client has just invested say, $100K and is killed in a car accident - the DSC still applies if they wish to redeem the funds for the estate distribution plan, they could be hit with a $6,000 surprise .

>Fidelity and Veronika is a perfect example of a fund company handling things well - they offered ALL investors in the True North fund the opportunity to leave and pay NO DSC fees. <

Yep, they did, but for how long? I recall the investor had a couple of weeks to make up their mind and bail, or stay in place and hope for the best.

BTW, a couple of comments (your included) suggest that those that stayed in FTN have been well recompensed: per PalTrak, July 1997 the following results would lead me to suggest differently - FTN for 6 mo did 14.5%, Scudder Cdn Equity (no Load) dis 23.2% in the same 6 mo and the TSE 300 index was up 13.6% itself - IOW, FTN performed approxmiately 1% point better than the index - not my definition of "good performance". Is it yours?

>but good fund families - if you do that, you can usually find a pretty good fund within the family.<

You might want to take a look at Ranga Chand's book, The World of Mutual Funds - he finds that in many cases, some of the widely diversified fund families have very few relatively good performers in their "suite" - IOW, fine to buy a DSC fund from a group that has 50 or 60 other funds but if there are only 4 or 5 that have any sort of quality of relative performance, where would you move to within the family - to one of the slow performers?

>Personally, I don't have ANY clients that invest $100,000 and only get 1.5 hours of my time. Over a year, closer to 12. <

Yep. I would hope so - if we are doing a plan, the time up front is likely 20 to 25 hours, and then the client is free to invest with us and pay for the monitoring or not, their choice - in any case, the loads are generally 0% or very very low (1% perhaps) through their broker or one we recommend. The fee to us would be significantly less than 4.5% or 5% of the $100k.

>However, because I'm in a smaller centre, there's no way I would ever be able to make a living doing it. What I'd like to see is the ability to do fee or commission (like is available in Ontario) - the ASC is loosening up that way a bit, and I hope to be able to do it sometime in the next year. That way, a client could choose which way they want to pay me. Nice thought, eh? <

Good point - the levrage of Fee Only is low and therefore it is hard to make a go of it in a smaller center. Funny thing, clients are quite sensitive to "paying" a fee and yet they blithly assume that commissions are minor (or paid by the mutual fund company - what rubbish "yes, Virginia, there is indeed a free lunch"??)

>a big thanks to everyone on this thread, some "hot" issues discussed, and it's stayed remarkably "nice". <

Ditto here from me - a very good debate.

Warren.


Subject: RE: Full Disclosure - Commissions
From:TIM
Date: 21-Sep-97-06:32 PM

Warren, The Estate consideration has never occurred to me with regard to DSC Fees, thanks!! Rob, 6-7% in addition to the MER, doesnt leave much for the investor??


Subject: RE: Full Disclosure - Commissions
From:Warren
Date: 21-Sep-97-06:56 PM

I have been reading that there is some sort of large animal lurking in the shadows that is going to rip large numbers from the major markets. It appears that this particular animal loves big Financial companies the most ie. Banks. Many of the Mutual Fund companies have large holdings on this area in their balanced {safe?} Funds and a Fund less weighted might escape this animal?? Does this make sense?


Subject: RE: Full Disclosure - Commissions
From:TIM
Date: 21-Sep-97-07:20 PM

Warren, sorry didn't mean to put ur name on the thread and I don't know how to fixit. Anyway, noone will confuse us.


Subject: RE: Full Disclosure - Commissions
From:Rick
Date: 21-Sep-97-07:21 PM

Warren and Rob:

Good discussion from both sides of the fence.

I would like to throw another issue into the fee-only vs. commission-based financial planning discussion.

On the "Good Bond Fund" thread,David McGruer made the following statement:

I challenged his statement with pertinent facts relating to the average 10 year returns on Canadian equity funds vs. Canadian bond funds,and the average three year standard deviation of Canadian equity funds vs. Canadian long/mid term bond funds.

But David's statement also got me thinking about whether commission-based FP's have a conflict of interest when developing a properly balanced portfolio for their clients.

Many mutual fund companies pay a trailer fee on equity funds that is twice as high as it is on bond or income funds eg.Templeton,BPI,Guardian.

In light of this isn't the commission-based FP going to be more inclined to recommend equity funds over bond/income funds?

The difference can be substantial for the FP.For example,David likely has his clients 100% in equity funds,in light of his statement which I quote above.If he earns $50,000/yr. in trailer fees with his clients 100% in equity funds,he would earn only about $42,500 if his clients were on average 70/30 equity/bonds,and about $40,000 if his clients were on average 60/40 equity/bonds.

Do I want someone with this sort of bias determining for me, or with me, the equity/bond balance in my investment portfolio?Wouldn't I want to hire a fee-only FP at least for this purpose?

Please don't take my comments as an attack on the integrity of commission-based FP's.I must say that I have the highest regard for regulars on these threads such as Rob,Madelyn,Screaming and Reg.


Subject: RE: Full Disclosure - Commissions
From:RicK
Date: 21-Sep-97-07:26 PM

Sorry,didn't pick up David's statement from "Good Bond Fund".Please refer to that thread.


Subject: RE: Full Disclosure - Commissions
From:Wnarre
E-mail: wbaldwin@compuserve.com
Date: 21-Sep-97-09:11 PM

LOL. Tim, masquerading as "Warren" ... must be Halloween

Tim said: >It appears that this particular animal loves big Financial companies the most ie. Banks. Many of the Mutual Fund companies have large holdings on this area in their balanced {safe?} Funds and a Fund less weighted might escape this animal?? Does this make sense? <

Yep. Thar's a Bear in them there markets - and yes Banks and other Fin cos could be impacted - but like every piece of china in the proverbial "shop" when the "Bull" comes through, all the different stocks in the market will be impacted if there is a major Bear roaming around - IOW, there is a law of financial gravity out there and few can be up when the market as whole is going down. If the impact comes as a result of an uptick in interest rates, Fin cos may be more impacted than others, perhaps .

>Do I want someone with this sort of bias determining for me, or with me, the equity/bond balance in my investment portfolio?Wouldn't I want to hire a fee-only FP at least for this purpose? <

OK, Rick this is a good point but you must also realize that Trailers often vary according to the amount of $$$ the advisor has on his or her "book" with the fund co in question - this can sometimes be used to explain the "favorites" catagory - think of it this way - the "marginal trailer" potential of the next $10,000 (let's say) will depend on the placement of these funds with a fund family: if the client wants to place the funds with a co through which the broker has limited funds, the trailer may be low (perhaps 1/4%) while if the client places the funds with one of the usual ones the advisor uses (and we assume the advisor has >$250K with that co) then the trailer may be high (perhaps as much as 3/4%).

Is this a conflict? There are almost 1700 MF's in Canada - the advisors I often talk to seem to keep to only a small core of fund cos as their favorites. Now I agree that the large cos are great at their business of managing $$ - and there are a lot of funds in these organizations.

OK, disclosure, lets ask one of the commission based FP's to comment on the trailers and the relative levels of such (assuming a book of >$250K or even >$500K) with Mackenzie, O'Donnell, Trimark, Templeton, AGF, and any others you'd care to mention. How 'bout it?

Warren.


Subject: RE: Full Disclosure - Commissions
From:Katie
Date: 21-Sep-97-09:52 PM

Warren, It's good to see you have a sense of humor! :-) Stick around.

What you're saying about trailers is interesting. I had thought it was as you described but awhile back there was a discussion on this topic. I may be mistaken, but I thought the conclusion was that the trailers were all basically the same. Of course, my brain may be a little fuzzy, as I have a hard time remembering absolutely everything I read here. :-)


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 21-Sep-97-10:53 PM

Katie, yer right ...

>I thought the conclusion was that the trailers were all basically the same. <

They are but the agent may get more or less depending on their "commitment" (level of their dealings) with the fund family - this issue has no bearing on the investor - the MER you pay to the Fund co will be the same, regardless of if you deal with an advisor who only has a few $K with the fund group or if you deal with one who has $Millions with that family.

However, speaking of MER, here's a story that was heavily criticised in the news media early this year - a Financial Planning firm (one of the big ones, who often "sponsors" the "free" seminars ) went around to their major fund suppliers and ASKED them to "kick in" $100,000 apiece so that the FP co could take a group of the "top producers" and their spouses to a meeting in Hawaii (or Maui, same diff) - in any case, the "tab" for this little get-away was reported to be $1,000,000 - according to some of the math I heard discussed, this translated to about $10,000 per Rep. (work it out, 2 air fares, 5 star accomodation, meals, entertainment, tours, golf, etc.).

As Bruce Cohen at the Financial Post put it: imagine your rep went away on this trip and when he or she came back, they sent you a bill for $100 for your portion of the meeting cost ....

To be fair, the fund cos were the ones that protested and I would suspect this is how the media got onto it. The point is, they still paid some or most of the $100,000 each and the reps (and spouses) went on the trip - the cost of this has been funded out of some of the MER for these fund cos since (investors should be aware of this as more of this will only decrease the returns on their invested funds). BTW, any guessing as to how happy the Reps were to be on this trip? How would you feel - pretty nice. Some might argue that "they earned it" - fair enough, but did they not get a commission when the sold all these funds that qualified them as "top producers" in the first place (and then there are those trailers ...).

Warren.


Subject: RE: Full Disclosure - Commissions
From:Rick
Date: 21-Sep-97-11:25 PM

Warren:

Are the trailers all basically the same?

The prospecti that I have disclose the following:

Templeton:equity funds-0.5%;bond/income funds-0.25%

BPI:equity funds-1.0%;bond/income funds 0.5%

Guardian:equity funds-0.5%;bond/income funds-0.25%


Subject: RE: Full Disclosure - Commissions
From:Rob
E-mail: keystone@leth-theboss.com
Date: 22-Sep-97-02:02 AM

Okay, here's the scoop, folks. There USE TO be a bias of which Warren is referring to, the more you had with SOME fund companies (like AGF) the higher your trail was. That is ALL gone now. (And so it should be - it was a bias that I always hated. Actually, the one I hated the most was Altamiras - you had to have $10Million with them before they STARTED paying trails.) Trail fees are level, and are paid from dollar one now. Some companies wanted a min. of $100K so that thier costs would be lower, but that has been kiboshed, as well.

The bias mentioned between equity and bond funds is a REAL concern. It's not a conflict for me -and I know others on this forum are the same. I distinctly remember a conversation with Madelyn where we discussed this very issue. We both feel that there are SOME reps out there who lean heavily on equities because of the higher trail fee.

I would hope (but know that it's not so) that all reps out there would put the clients first. The guys who've been in the business for a long time usually do - they've got a long-term committment to seeing that their clients do well.

In regards to bond funds - there was another thread on this awhile ago where a few of us expressed some of the same ideas that Warren mentioned WAaaaay back there. MOST of the time I prefer for a client to buy thier fixed-income portion of their portfolio directly. Avoid the management fees and have more control on the maturity dates. One of the few exceptions to this is PH&N's bond fund - the MER is low enough that I figure it's worth paying to avoid the hassle.

Regarding our Fortune friends.... there's a whole thread on that one.

Something that I find interesting, the number of $100K is thrown around as the amount that the fund companies paid. I've talked to a number of the companies, and the MOST they have ever paid for any conference is $50k, and usually it's between $5K and 25K. Most company conferences are not the exotic ones that Fortune decided to throw. They are an example of how the system can be abused.

But, again, all of this is discussed at length on the Fortune thread. I'll see if I can bring it up again (much to the disdain of all the Fortune reps who have integrity - and there are some of those!!) hehehehehe

Well, it's late, methinks my wife has already gone to bed without me, maybe I'll just curl up in the dog house.......


Subject: RE: Full Disclosure - Commissions
From:Rick
Date: 22-Sep-97-09:30 AM

Rob,thanks for your response,clear and professional as usual.

I recall that the limits on when trailer fees kick in was to be eliminated.In fact,Cundill used this as the main reason for capping their Series A funds and starting the Class B funds a couple months ago.

I hope the dog house is heated.:)


Subject: RE: Full Disclosure - Commissions
From:Reg Borrow
E-mail: reg.borrow@gbd.com
Date: 22-Sep-97-04:23 PM

Warren, U wrote above:OK, disclosure, lets ask one of the commission based FP's to comment on the trailers and the relative levels of such (assuming a book of >$250K or even >$500K) with Mackenzie, O'Donnell, Trimark, Templeton, AGF, and any others you'd care to mention. How 'bout it?

Warren.

See Financial Planner's Trailer Fees thread below. See


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 22-Sep-97-09:23 PM

Thanks Reg,

I did and posted a comment on it - a terrific thread, I read much of it .

Warren.


Subject: RE: Full Disclosure - Commissions
From:Madelyn
Date: 25-Sep-97-02:32 PM

Well, for a simple question, this thread sure took off. Good stuff though, and still civil!

Warren, just a couple of questions and comments. I don't understand how you have been offered trailers, if you are not licensed as a dealer. Could you clarify please?

Also, you suggest that you spend 20 - 25 hrs on a plan for a $100,000 account. At $270/hr that's billing for at least $5,400. This is somewhat more than the 4-5% on DSC. Also, if the client doesn't redeem from the fund family they pay no fee. On top of your fee of $5400 they also end up paying the trailer to your broker through the MER, and paying you to monitor on top of it.

I realize that they are getting unbiased advice for it, and I believe that fee-based planning is the way of the future. However, I do know that many folks would rather pay the DSC, rather than pay 5.4% up front. This of course is why DSC is still so popular.

Choices are great though!


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 26-Sep-97-10:24 PM

Hi Madelyn, to clarify your assumptions, I'll need to restate a few of your comments.

First, thanks for the note and I hope what follows is helpful to you and others browsing this thread.

>I don't understand how you have been offered trailers, if you are not licensed as a dealer. Could you clarify please? <

Absolutely - numerous fund cos have asked why we don't become liscensed in order that we could take trailers. Hence the "offer" aspect of my comments. Our position on this is simple: no way will we take commission of any sort, trailers, included - period. FWIW, in a recent survey of our clients fully 90% of them responded strongly to one of the series of questions that asked about our fee only status. It is clear they want us to maintain that focus. This has been a central issue in our business philosopy and our client relations for 25 years, we are not about to change it now. BTW, a while back, a broker asked me to accept a pair of Raptor tickets - I'd love to go, but first I asked how much the tickets were worth when I was told they were about $250 for the pair, I declined the tickets.

>Also, you suggest that you spend 20 - 25 hrs on a plan for a $100,000 account. At $270/hr that's billing for at least $5,400.<

Sorry, you are putting together some comments above that were not related. Let's clarify - I said that if I had to ONLY help discuss asset mix, and recommend some funds, I might only spend 1 to 2 hours on this - IOW, about $500 of fees (tax deductible, as well ). The client would then get implementation through a referral to a broker at no commish (the client would deal direct with the broker, I would not spend any more time on the file).

OTOH, if the client wants the monitoring service, she would only pay the monitoring fee, no hourly charges (at all), and the commish on all funds would be 0% - high service, low cost, no loss of flexibility due to DSC (and NO exit fee whatsoever).

Finally, if the client wants a full-blown plan for all aspects of her finances, that is, A & L, debt struture comments, life insurance review and adequacy calculation, estate plan, detailed will recomendations, cash flow analysis, disability insurance review, retirement income projection, asset accumualation at retirement, and a detailed review and recommendation on asset mix for today's economic climate. All this takes the 20 to 30 hours I was referring to - the fee for this is set in advance with the client, but assuming they bring us a well organized data picture, the fee is in the range of $3,500. Then, if she wants, the client can continue to use the service we provide to implement the investment changes (no commish) and she would pay for the monitoring - OTOH, she is then free to deal with her own broker (likely she would pay a commish then) or she could implement the recs by herself through a discounter or using no-load funds sold direct (PH&N, Bissett, etc).

> Also, if the client doesn't redeem from the fund family they pay no fee. On top of your fee of $5400 they also end up paying the trailer to your broker through the MER, and paying you to monitor on top of it. <

First, we don't charge $5400 (see above) - I agree that no redeem = no DSC triggered. But, see some of my other comments above, check out Ranga Chand's book "The World of Mutual Funds" - he points out that many fund families who feature huge numbers of funds >50, let's say, have in fact very few that are any good - so, what is your suggestion, transfer from a fund that has proven to be a soft performer to a fund that is equally poor? By paying no F/E or not selling your financial soul to the Devil DSC, the client is free to choose from any other fund in Canada, or in fact any other investment vehicle - bond, GIC or LP.

Second, let's be clear on the "trailer" issue - the dealer (say Action Direct or Greenline) gets what trialers are paid, yes. But, some investments we recommend pay no trailers (PH&N, Bissett) so on average trailers are lower this way anyway. We charge a monitoring fee, yes - but even at the high end of 1%, this is far below the cost of DSC (even if the client stays in the fund forever and pays no exit fee)- for example, purchasing all DSC funds results in a portfolio of, on average, much higher MER's - instead using a mix of no-loads, index funds, and 0% F/E (BTW, ever compare the MER of Trimark Funds to Trimark Select Funds ?? 60 to 75 bp in the client's pocket/investment portfolio).

Now, for your contention that no DSC is paid, or, if you hold for 7 to 9 years, you pay no commish. In my book this is just wrong, period. How do you expect that the fund co pays the broker/agent/rep 4.5% or 5% up front? Simple, higher MERs to "amortize" the cost of the up-front payment or a heavy exit fee if the investor leaves the fund group early. Bottom line, Madelyn, "there ain't no free lunch" the investor always eats this cost - the fund co is not a charity, and they are not paying the up front commish out of their own pocket.

>I do know that many folks would rather pay the DSC, rather than pay 5.4% up front. This of course is why DSC is still so popular. <

Well, perhaps. My opinion is that DSC is "so popular" simply because it is so easy to sell - I'm sorry but the number of times I have heard the phrase "all your money is working for you" or "my broker is paid by the fund company" is ridiculous. Most brokers say "why pay 4% up front when you can invest all your funds this way" - I agree but I have not used a F/E fee greater than 2% in about 10 years - why are these dinosaurs still assuming that 4% is the market - imagine asking a client for $400 to invest a paltry $10,000 - outrageous, forget it, yet this is BELOW the amount paid to the agent through the DSC option.

As for DSC being "popular" I often wonder about this when I look at Trimark - why would a well-informed investor CHOOSE to pay 60 to 75 bp per year more in MER on an increasing (we hope) asset when she could simply pay anything from 0% to 2% up front - the break even analysis is dramatically persuasive in favor of low F/E. Mkes you wonder why Trimark Select is so much larger than Trimark, eh. I wonder if DSC funds are being "sold" not "bought" .

I hope this clarifies things a bit. TIA for any comments you may have.

Warren.


Subject: RE: Full Disclosure - Commissions
From:Matador
Date: 26-Sep-97-11:56 PM

Warren, I'm not a financial advisor and feel very refreshed by your comments.

It's clear that many good advisors must keep food on the table. The problem occurs when the same tactics are used by individuals or companies that have access to a large number of clients.

What sort of feedback do you get from your clients and what keeps them coming back? Is it the returns, unbiased advise, or professionalism thats your strong point.


Subject: RE: Full Disclosure - Commissions
From:TIM
Date: 27-Sep-97-07:52 AM

To all on this thread, Thank you!!!!


Subject: RE: Full Disclosure - Commissions
From:Matador
Date: 27-Sep-97-01:46 PM

I read this excellent thread a second time and feel like a David among a group of Goliaths but i'll give the sling a few spins and shoot a pebble into the air and see what happens.

Rob it wasn't that long ago (91) that the cost of getting out of Fidelity Far East which was purchased on DSC basis was 9% in the first year.

I have over 200K in mutual funds and they were all purchased DSC until I starting buying PH&N outside the SDRSP.

If I was a FP I wouldn't have a problem using Paltrak to search funds and choose the one with the highest monetary gain for myself assuming the return on both funds was the same. The individual investor isn't hurt but collectively all investors suffer by such practises.

I don't believe for one instant that my FP has any motivation to put me in funds with lower trailers if he had the choice. I thought the trailers were fixed. 1% on FE and .5% on DSC.

I have a substsntial portfolio and until this year (8 years) I never met the FP or broker (Wood Gundy & Scotia McLeod). Always the same story, buy & hold, buy & hold, ........ Warren is right all purchases were DSC funds. I'm not saying I wasn't given good advise, I'm saying personal gain factored into the recommendations

My biggest unresolved gripe is the money my FP put on a DSC basis into Regent, which became Admax, which became Invesco, which became AIM. The money went from income, to global RSP, without my knowledge. This is an index fund (TIPS, S&P Index units, HIPS etc.) with an equity fund type MER. I ask them why the MER was so high and they said "its because of the money they have to pay in commissions.

Sorry for the intrusion.


Subject: RE: Full Disclosure - Commissions
From:Jurgen
Date: 27-Sep-97-03:53 PM

This is coming down to a discussion if fee based or commission based is better.

Matador, if someone is knowledgeable enough , to do it himself than the answer is deep discount. But if you need help, and have someone spend his time and talents for you it got to be paid for. One way or the other.

There is probably no one size fits all solution to which road one should take.

I am not a friend of DSCís, but I assume there are investors who had good picks and held them for many years and had no problems with them. Not always is the MER higher. Also there are ways to cover for problems arising if someone has to sell early and we had a thread about DSCís, which was not so bad, with FPís describing how they handle these things without a loss for their clients.

Fee based is better for some and commission based better for others.

All pro bono publico? It is unrealistic to expect that there is a way somebody is doing the work for you but it is all free.

Anyway this was one of the best threads I read here so far.


Subject: RE: Full Disclosure - Commissions
From:Call me stupid but ....
Date: 27-Sep-97-05:06 PM

It seems to me that an investor with a mid to large size portfolio (>100K or maybe >150K+), would be better served by approaching someone like Warren, and a smaller investor (<75K) would likely be better off with an advisor who might accept trailer fees etc. The smaller investor benefits from "the tragedy of the commons" (i.e. higher MER's but seemingly free advice), whereas the larger investor is punished by that higher MER required to pay these commissions.

Comments, esp. Madelyn and Warren?

On another comment: I think all financial advisors (as Rob does) should disclose exactly what their commission costs are (including "lifetime" costs) and exactly how these fees are paid to them (i.e. higher MER's). If financial planners are truly helping people understand their financial world, then it behoves them to extend that to their own compensation.

The primary difference I see, as Joe Investor, is that I definately know what Warrens advice costs me, but with a less principled fp than Rob, it could all be a big mystery.

If everyone wants this business to continue growing, then greater and greater transparency will be needed.

Thoughts anyone?


Subject: RE: Full Disclosure - Commissions
From:jd
Date: 27-Sep-97-05:35 PM

Stupid,

All investors pay the trailer and loads whether they deal with Warren or a commissioned planner such as Rob. Warren might not get the trailer since he's not listed as the agent, but the discount broker will, along with the load commission. The only advantage Warren offers over Rob's service is that he can claim that his fund choices are unbiased. This is an informational advantage perhaps, but it isn't apparent to me that there are any direct cost savings. In fact, choosing Warren would likely entail higher costs. For wealthier clients this informational advantage might outweight the higher upfront cost associated with commission planning.

In any event, like someone said earlier, choice is good. More choice is better.


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 28-Sep-97-12:10 AM

When are people going to understand? Is what I am saying so radical that it seems like another language. Man oh man ..... OK, here goes again:

>What sort of feedback do you get from your clients and what keeps them coming back? Is it the returns, unbiased advise, or professionalism thats your strong point. <

Well Matador, they like the returns, the overall monitoring on a quarterly basis (for those who use this part of the service) but most of all the fact that we are FEE-ONLY (see additional comments on this focus below, directed at the comments of others).

>If I was a FP I wouldn't have a problem using Paltrak to search funds and choose the one with the highest monetary gain for myself assuming the return on both funds was the same. The individual investor isn't hurt but collectively all investors suffer by such practises. <

Heck, you can do this yourself easily - buy a few issues of PalTrak during the year - it's only $39 for one month's data - you can buy them month by month if you want .

>I ask them why the MER was so high and they said "its because of the money they have to pay in commissions. <

Sure, they have to amortize the DSC - the 4.5% or 5% paid up front to the broker is not money that materializes out of the air - amazing how some brokers and some clients believe that this is the case, however.

>This is coming down to a discussion if fee based or commission based is better. <

First, Jurgen, let me fine tune your reference here - our firm is FEE-ONLY, not fee-based: FYI, the difference is that "fee-based" often entails a structure where the FP charges a fee but then takes commissions or trailers and either keeps them or "offsets" them against the fee that had been charged or otherwise would be charged. "FEE-ONLY", OTOH, means just that, fees are charged only, no commissions are taken, PERIOD !!

>Not always is the MER higher. Also there are ways to cover for problems arising if someone has to sell early and we had a thread about DSCís, which was not so bad, with FPís describing how they handle these things without a loss for their clients. <

Hang on, I was using Trimark and T Select as an example - OTOH, I would submit that the MER is generally higher on all load funds, regardless of FE or DSC (compare PHN, Bissett, with many load funds) - to be fair, with a co like Fidelity the MER is identical no matter which way you buy the fund FE or DSC - so many would say buy DSC, then all the funds are invested - me, I look at it differently and say, OK, pay 0% FE if you can get it (then you have no exit fee later) or if your broker has been a strong source of advice and you value the relationship, pay 1% or 2% up front and let the broker provide future service based on trailers and future additioanl investments (BTW, if we assume a $20K investment, 1% is still $200 for writing up the ticket - with trailers to "follow").

>All pro bono publico? It is unrealistic to expect that there is a way somebody is doing the work for you but it is all free. <

Just what I have said all the long - it's all a question of cost and service - IOW, the WIIFM issue from both the client's perspective and the broker/planner's perspective.

>It seems to me that an investor with a mid to large size portfolio (>100K or maybe >150K+), would be better served by approaching someone like Warren, and a smaller investor (<75K) would likely be better off with an advisor who might accept trailer fees etc.<

Largely true, but for very simple or limited investments that need to be placed, we do the planning and then refer the client to a no-load broker who will implement at no cost - our fee would be negotiated in advance for the planning - so even as little as $20,000 or $30,000 would benefiit from a consult with us, as we would perhaps recommend a no-load like PHN or Bissett and the client would not only pay no load but also benefit from low MER.

>he primary difference I see, as Joe Investor, is that I definately know what Warrens advice costs me, but with a less principled fp than Rob, it could all be a big mystery. <

Yep. We agree to the level of fees in advance and we send you a bill as we go or on a periodic basis during the course of the relationship - we have some clients who have been paying us fees for almost 1/4 of a century (I guess they find value in the relationship, eh).

>All investors pay the trailer and loads whether they deal with Warren or a commissioned planner such as Rob. Warren might not get the trailer since he's not listed as the agent, but the discount broker will, along with the load commission. <

Sorry jd, but you are absolutely wrong here. I have said many times above we operate independant from the broker, discounter, or MF agent who will supply the product to our client - BUT, the person or firm who provides product to our client for us ONLY (please note, **ONLY**) gets the trailer - no FE or DSC is involved.

Perhaps you have trouble understanding why. OK, we want our client to get the best deal going, if she or he wants to go to their own broker and accept DSC or pay 1% or 2% FE then so be it - OTOH, if a broker is working with us, he or she may get a call and end up with an account worth $100k or $200k or $500k (and they do no work to bring the account in - it just arrives, and they or their assistant or office completes the paperwork based on our recs). Bottom line, it's a great deal for our referral network since the volume is high and the build on their book (and updraft on the overall trailers they get) is phenomenal - even though we usually sprinkle in a few investments in PHN & Bissett, etc (on which there are no trailers) - basically, it's "found money" for these folks. Gee, now do you understand that ZERO means no commish, nothing, nada, zip, rien, .....??

>Warren offers over Rob's service is that he can claim that his fund choices are unbiased. This is an informational advantage perhaps, but it isn't apparent to me that there are any direct cost savings. In fact, choosing Warren would likely entail higher costs. <

, see above - No jd, our advantage is real and, yes, financially tangible. Unbiased, yes, since we run a review of all funds in Canada, without any limitation as to who pays better trailers or who pays commish and who doesn't. As to total cost, here's an example - a client consulted me about 18 months ago and had just worked with an "FP" who had reorganized their RRSPs - all in DSC equity funds, BTW. They came to me for a "plan" - I provided a 20 page analysis and spent many hours going over their assets and long range strategies - I believe the fee was in total $3,500 (plus GST, of course) - now ask yoourself why they chose to see me when presumably the "FP" they had been working with had done some "FP" work - in the end, we demonstrated (using PalTrak) that the choices of many of the funds were weak and we moved to make some changes - the client switched to our program of ZERO commission coupled with a monitoring fee. Here's the shocker: the client felt sorry leaving the previous "FP" (broker) and did not realize the amount of $$$$$ she had made on their investments - when I showed them the charts provide by Southam in the MF Source book that confirm that she made about $9,000 (minimum) (the assets in the 3 RRSPs in question totalled $200,000) they were quite surprised.

The point jd, should be clear - the previous "FP" simply sold the client investments, for which she made a commish that was almost 3 times what we charged - according to my calculations, that makes us so cheap (and recall, we actually did provide and an analysis here) that I feel embarassed.

Warren.


Subject: RE: Full Disclosure - Commissions
From:TIM
Date: 28-Sep-97-08:08 AM

It appears to me that the Mutual Fund Investor is becoming more sophisticated with his/her choices.Literature along with the net provides everyone with a least a little bit of knowledge. Every book that I seem to read does not go into great detail with regard to Warrens point of view as this is not the most common way to purchase funds. I live in a small retirement town with $$$$ being invested with the Banks, Money Concepts and Investors etc. Surely, someone could offer a fee based service and still make a comfortable living. This wouldn't be instant gratification but as the world changes I see this as a viable alternative. Maybe???


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 28-Sep-97-12:10 PM

OK, a "case study" of disclosure - jd, see which answer is more "expensive" - Madelyn, Rob, David, Jurgen, and any others feel free to reply.

First, I'll deal with Tim's comments which lead nicely to this real case, I will outline below.

>Surely, someone could offer a fee based service and still make a comfortable living. This wouldn't be instant gratification but as the world changes I see this as a viable alternative. Maybe??? <

Maybe Tim, but just because you are in a small town, it does not mean you cannot deal with a person like me in a larger center - I have many clients from about 2 hours away, they use phone, internet, email, and they occaisionally drop in when they are in the city for a review face-to-face.

And Tim, please stick to the term FEE-ONLY .... see my comments above to Jurgen on the diff between fee-only and fee-based.

Here's the example. About 6 months ago I started to work with a woman on investing $1M of cash into a 100% equity portfolio (asset mix is OK as other assets cover the fixed income side of the picture nicely).

We elected to go a MF route and used about 12 separate funds ($85K per fund, approx) - she preferred this although MER would be higher this way (compared to using a multi-manager investment counsellor program (where the total MER would be only 1.25% to 1.5%)). She likes the funds as "brand name" investments and appreciates the PalTrak comparisons and the ability for a larger manager diversification.

OK, our fee was nil to set this up - we charge an ongoing monitor fee of about 75 bp (yes, $7,500 per year) - this is all we make. The monitor fee amortizes our time to set up and the cost of on-going meetings and discussions.

Here's the issue: if she had gone to greenLine and paid front end, the cost would have been $20,000 up front or a DSC of $45,000 (plus or minus, less if she had used a few GL funds in the mix).

Now the disclosure question to the commissioned FPs reading this. Would you:

1) Sell the woman all DSC and take the $45,000 commish or,

2) Sell her only FE and offer to reduce the FE to only 1% and take the $10,000 off the top (or maybe 2% where the off-the-top FE would be $20,000) or,

3) Mix in some no-load funds to "average down" either 1) or 2) above or

4) Go with some funds on a DSC basis as an up-front payment for time spent - say, $200,000 out of the $1M (this would translate to $9,000 of commish) and then structure the balance on a FE 0% basis and even include a few no-loads in here as well

[Lest we forget, the trailers in all cases will be something in the order of $5,000 per year]

I look forward to your answers to this "case study".

BTW, for jd, commissions either on a FE or DSC basis are not as effective on an after-tax basis (since they are only partially deductible in the future or they are charged against income that would otherwise be tax favored) as investment advisory fees (which are fully deductible) - so please remember that the above commish structures and our fee structures are all "before tax", a tax saving would of course reduce the net-out-of-pocket cost.

Warren.


Subject: RE: Full Disclosure - Commissions
From:Bylo Selhi
Date: 28-Sep-97-12:58 PM

WOW! Like many others, I'm finding this discussion to be fascinating and very educational. It's also quite refreshing to see -- for the first time! -- the absence of flaming or other sophomoric behaviour to distract from the topic. Thank you to all participants. This thread is FundLib at its best.

For those who may be looking for a fee-only planner, the Canadian Association of Financial Planners (mentioned earlier) publish a directory of members that includes, among other data, how each is compensated (fees, commission, salary, etc.) You can request a free copy from CAFP by e-mail or call 1-800-346-CAFP (TROC), 1-800-465-0880 (la belle province).

BTW Tim, the directory does list a few fee-only planners who are located outside of major metropolitan areas.

Warren,

  1. Has your firm considered becoming "licensed" in order to receive the trailers -- so that then you could rebate the trailer revenue back to the client (minus an "at-cost" backroom administration fee)? Sounds like it could be a great benefit to your clients.
  2. When a client comes to you with an RRSP chock full of DSC funds, how do you get them out of those funds and into the PH&N/Bissett, etc. fold? It seems to me this is complicated by the long DSC hold period, maximum 10% annual "free" withdrawal, the need to consolidate accounts in order to maximise the 20% foreign content rule, etc.
  3. What advice do you offer to someone who comes to you with a portfolio that for many years has held relatively high-MER funds outside an RRSP. Although the funds are not top performers, over the years they have accumulated significant -- but unrealised -- capital gains. It seems to me one is "damned if they hold (sub-standard performance)" and "damned if they sell (a big tax hit)". This must be a common situation for you with new clients.
  4. Re your case study, TDGL charges only 1% FE for MF purchases over $25K. (2% for $5K-$10K; 2.5% for <$5K.)


Subject: RE: Full Disclosure - Commissions
From:Jurgen
Date: 28-Sep-97-01:11 PM

a) We have about 108K for 59 messages right now which is about double the usual size of a message and loading the thread becomes somewhat time consuming. Librarian, is it possible to cut such threads and still always show the old one on the list so that someone new can read the history and the others don't have to load it all??

b) Fee based ./. fee only, thanks for the fine tuning but this was what I ment, lets call it fee based only. Semantics. Sorry, its my 2nd language.

c) I don't know if you ever looked at the other thread but Lady M. showed there, that her clients never pay a DSC redemption fee the way she handles this. And while I agree that most of the FP's out there would probably have there commish in mind as the first priority, there is always the odd person who is looking at the client relationship on a long term basis and who would include a PHN or Bisset when appropriate, even making nothing on this part.

d) Version 5 of your list above: Take the 1M and invest it into Front Ends on the basis of "trailer only" with 0% load, and if there are 200K invested into a MF company without trailers the FP would still get the trailer on 800K which should be good enough. This is what I would be asking for.

No FP.


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 28-Sep-97-05:27 PM

>quite refreshing to see -- for the first time! -- the absence of flaming or other sophomoric behaviour to distract from the topic. Thank you to all participants.<

Thanks Bylo, I agree - and add my thanks to yours.

>Has your firm considered becoming "licensed" in order to receive the trailers -- so that then you could rebate the trailer revenue back to the client <

Yes we have and rejected it - the cost os a back room is covered with the suppliers we use and our clients have told us they really want us to stay fee-only.

>When a client comes to you with an RRSP chock full of DSC funds, how do you get them out of those funds and into the PH&N/Bissett, etc. fold?<

We don't necessarily, unless the funds are poor - then we look at redemption outright (after taking the 10% of course) - one thing I did recently was switch the funds out of the RRSP to a personal acct and then redeem - creates a capital tax loss and leaves more money in the RRSP

If the client has say Trimark Select, we may redeem 10% per year and repurchase Trimark @ 0% FE (we do like T Fund) so that in the future, if a full redemption is req'd the exit fee is at a minimum

>It seems to me one is "damned if they hold (sub-standard performance)" and "damned if they sell (a big tax hit)". This must be a common situation for you with new clients. <

Yep, but if the fund is DSC and has been a slow performer and has been held for several years, we look closely at an absolute redemption - don't let the "tax tail wag the portfolio dog" - if the fund is weak and we would not buy it today, we might as well sell (take 10% now for example and 10% in Jan,then exit) - the issue is long term, you may loose a lot more thanthe opportunity cost of a few tax dollars by staying with a sub-performer ( look how long a lot of folks have grimly held on to poor old Horizon - now that we are in the 9th year, the net asset growth for the fund in the last 12 months has been negative (in spite of strong markets), last time I looked)

>TDGL charges only 1% FE for MF purchases over $25K.<

Oops, I forgot about their scale - OTOH, I believe they charge on no-loads as well (ex their own funds, of course)

>108K for 59 messages right now which is about double the usual size of a message and loading the thread becomes somewhat time consuming. <

I find it loads ok - but I am on a 28.8 modem - I think others would like to see this history in allits glory

>her clients never pay a DSC redemption fee the way she handles this<

I am aware of this technique but have seldom seen it used by brokers - I would say she is the exception rather than the rule

>odd person who is looking at the client relationship on a long term basis and who would include a PHN or Bisset when appropriate, even making nothing on this part. <

I would certainly hope so - they are becoming more common, too

>Take the 1M and invest it into Front Ends on the basis of "trailer only" with 0% load, and if there are 200K invested into a MF company without trailers the FP would still get the trailer on 800K which should be good enough. <

Good point, an even better suggestion than the ones I had made - in this case, you are as low as our fee or even lower since I assume you will provide the monitoring without the added 75 bp charge we levy. Bravo!!

Warren.


Subject: RE: Full Disclosure - Commissions
From:RSC
Date: 28-Sep-97-06:18 PM

>OK, a "case study" of disclosure - jd, see which answer is more "expensive" - Madelyn, Rob, David, Jurgen, and any others feel free to reply.<

Reccommendation A ) Private Portfolio Mgmt / segregated securites . Never any loads of any kind. Mgmt fee tax deductible money is non-registered.

Mgmt fee = 150 - 200 bps. includes asset allocation, monitoring and rebalancing. reporting, tax package etc...

Reccommendation B ) If funds are preferred then 6 funds 0% FE. No Fee billed.

Ongoing Account work done for trailers only.

Great discussion !


Subject: RE: Full Disclosure - Commissions
From:Stupid
Date: 28-Sep-97-07:20 PM

How come this industry has disclosure rules which allow for such lack of clarity. Is it because commission-based fp's are against it? Or why? (note: I am not an fp) - Just an honest question. Thoughts, please.


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 28-Sep-97-09:47 PM

Hi RSC, good answer - I certainly agree with the Counsellor for 150 to 200 bp, and I too like your thought on the funds at 0% FE - would you also include a few no-loads in the mix (to reduce the average MER)?

One issue with the Counsellor is that $1M with one firm would be a little concentrated, eh (of course one would diversify within that firm - Cdn Eq, US Eq, EAFE or Emerging Eq) - it is hard to get the specialization in the various areas and many counsellors follow a fundamental philosophical approach with all their sector mgrs - in the end, even the very large firms >$10B assets are not that broadly specialized - also, with limits of at least $150K for the pools, you would have at best only about 6 holdings (perhaps a bit thin?) - counsellors are difficult to run as a multi-manager approach now as many of them require $1m to $2m as their minimum account size (pool fund requiremants notwithstanding).

Warren.


Subject: RE: Full Disclosure - Commissions
From:Bylo Selhi
Date: 29-Sep-97-06:34 AM

RSC and Warren, where does one find private portfolio managers or investment counsellors who are willing to manage a $1M portfolio for 150-200 bps? I thought the "going rate" for that sized portfolio was more like 1%.


Subject: RE: Full Disclosure - Commissions
From:randy currie
E-mail: rcurrie@brightside.com
Date: 29-Sep-97-09:34 AM

Warren,

>would you also include a few no-loads in the mix (to reduce the average MER)?<

Yes, for 30% of assets. I need service fees on 70 % of assets to keep the doors open and actually provide the service.

>One issue with the Counsellor is that $1M with one firm would be a little concentrated ...<

Good point and fair comment on most.

We have long since recognized this and therefore only manage the North American Equities and Fixed Income side. The International Equities, REITS and Int'l Bonds are advised by outside specialist firms.

>with limits of at least $150K for the pools, you would have at best only about 6 holdings (perhaps a bit thin?)<

Not sure where this came from. I was referring to funds. Why only 6 ? I think diversification is usually overdone. Okay mayyyyyyyyyyyybe 8 ; but no more.

Bylo,

150-200 bps = 1.50 to 2.00 percent

Many money mgmt. firms quote their fees exclusive of any trustee, custodian, asset allocation, reporting, or tax work costs. This often makes them look veryyyyyyy cheap vs. funds. Fees from an investment counselling firm are tax deductible and this is often the most meaningful difference.

Regards


Subject: RE: Full Disclosure - Commissions
From:Bylo Selhi
Date: 29-Sep-97-09:50 AM

Randy, thanks for the "wakeup call." When I read Warren's post this morning somehow I (mis)took a basis point to be 1/1000th of a percent. Silly me! [If it sounds too good to be true, it probably is.]

Nevertheless, the tax deductability of management fees effectively cuts them in half. Does this deductability also apply to the "trustee, custodian, asset allocation, reporting, or tax work costs"?


Subject: RE: Full Disclosure - Commissions
From:Randy
E-mail: rcurrie@brightside.com
Date: 29-Sep-97-10:20 AM

Bylo,

Yes, but for non-registered accounts though.

Okay, gotta go make a living now.


Subject: RE: Full Disclosure - Commissions
From:RSC
E-mail: rcurrie@brightside.com
Date: 29-Sep-97-10:33 AM

Noticed another randy in the forum. I'll go back to RSC.


Subject: RE: Full Disclosure - Commissions
From:Rick
Date: 29-Sep-97-01:14 PM

Bylo,you may be interested in the free booklet by KellyRodgers entitled "Investment Counselling".Her phone # is 416-967-4816.

It deals primarily with B.C. investment counsellors but includes PH&N,TAL,CT Private,Leith Wheeler and 4 others.

I've just ordered a copy so I can't give you much more info on the booklet.


Subject: RE: Full Disclosure - Commissions
From:Bylo Selhi
Date: 29-Sep-97-01:37 PM

Thanks Rick,

Also, the Investment Counsel Association of Ontario (416/504-1118) publishes a booklet that explains how ICs differ from FPs. It includes a directory of members (in Ontario, of course).


Subject: RE: Full Disclosure - Commissions
From:Rob
E-mail: keystone@leth-theboss.com
Date: 29-Sep-97-04:41 PM

Wow, go away for a couple of days and it takes me half an hour to read the posts!!

Warren, in you above example, I'd look at 0-1% FE for the majority of the portfolio - with approx 20% looking at funds like PH&N, Bissett, etc.

There are a few cases where I might look at DSC for a small portion of the account, and use that to get 0% on the rest. 1)If it's a fund that has the same MER on front and back end, and a fund with a solid management team that's been in place for some time. Has to be a fund that I feel REALLY comfortable with.

The example used of Madelyn re: DSC fees is used by LOTS of reps. I'm dissappointed to hear that there aren't many you've run into. Maybe I live in another world??

Maybe that's the difference, the FPs I "hang-out" with are all ethical guys (and gals) - I wouldn't feel comfortable with them otherwise. I do know of a few FPs in our area here who are NOT ethical. Amazes me how they stay in business!

Stupid:

Your questions aren't stupid - you should change your name.

The reason why "disclosure" is so confusing is because it's all done by lawyers. It's written in legal terms, and anytime you put things in writing you risk having someone circumvent the "spirit" of the law - so they add more writing - and eventually you end up with what we have now. There is a move a-foot to have things simplified (lead by FPs, by the way) so that joe-average can understand what's being said. Compare a '97 simplified prospectus from a prospectus 10 years ago - we are making progress.

Warren,

I think what this whole discussion boils down to is exactly what you've pointed out - choice. More important that HOW your FP is paid, is that you have a GOOD, ETHICAL FP working for you. At that point, it really doesn't matter.


Subject: RE: Full Disclosure - Commissions
From:Reg Borrow
E-mail: reg.borrow@gbd.com
Date: 29-Sep-97-06:57 PM

>Bylo wrote:Take the 1M and invest it into Front Ends on the basis of "trailer only" with 0% load, and if there are 200K invested into a MF company without trailers the FP would still get the trailer on 800K which should be good enough. <

Warren. wrote: Good point, an even better suggestion than the ones I had made - in this case, you are as low as our fee or even lower since I assume you will provide the monitoring without the added 75 bp charge we levy. Bravo!!

Reply: Finally. It's exactly what Rob & I have been saying here for several months now. For those who know where they want to invest & feel they don't need an FP, both of us will gladly take the order. I will also send out my personalized statements & quarterly newsletter as a bonus. I have a substantial book & can live off the trailers. Call this a solicitation if U want want but the facts still remain the same.

It's surprising how few will take up this offer. I wonder why? How about U Rob? Many takers?


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 29-Sep-97-07:55 PM

Service, performance & cost are the issues of the choice here - they don't have to be mutually exclusive but it takes a bit of work and knowledge to bring 'em all together.

Investment counsellors run at about 0.75% to 1.00% (75 to 100 bp) and on top of that is custody and trading costs and possibly monitoring fees (through someone like us) - our total all in is about 1.75% (incl our fees, etc).

Randy (AKA, RSC) I like your point on the 30% no-load and the rest at service fee - I assume this is all done 0% FE ?? BTW, the 6 funds I refferred to was a reference to the fact that in pooled funds through the counsellors (the only way to multi manager a "mere" $1M, due to "seg" account hurdles at the counsellors, now) the minimum in Ont is $150,000 under the OSC rules - these are effectively privately run mutual funds with broad diversification and very low costs - but this way you can pick and choose a few different mgr styles. OK? Divide $1M by $150k and you get about 6 - in fact we did about 12 funds at about $85K each for the diversification and the breadth of something to watch .

Bylo, all fees are tax deductible - the issue might be the "tax work" - if the return is not complex, RC might question the "cost" for the "preparing" of the return - OTOH the "accounting" for investment returns and cap gains is usually not disputed. As was pointed out, for non-RRSP assets only .

Rob, nice to see 0% to 1% FE on the majority - hmmmm, say that means an average of 0.5% on $800k, this is still $4,000 just to set up the portfolio and then the trailers on the $800K would flow on top of that - would this be on average another $4,000 or $6,000 per year (increasing with portfolio performance) - some funds might also be DSC. I realize that nothing ties the client to you and she could transfer to another agent next week (so no FE = no pay) but is this really a risk that a client would trust you to invest based on your recs and then move anytime within say at least 3 to 5 years? Sorry, just seems a bit "top-heavy" in the front, IMHO.

Yes, I seldom see clients who are given a offset on the DSC - more frequently, I see clients who are doubly cursed by the actions of their advisor - he or she not only has stuck them in a poor-performing DSC fund but, leaves them ther because they don't want to face the arguement that will erupt when the exit fee is levied. Example, I switched a clent out of a fund about 3 months ago and into Bissett - in the 3 months since, he has recouped the 4.5% exit fee in better performance on the Bissett - his ex-broker left him langishing in the previous fund for 2 years and probably cost him 4 or 5 times any exit fee of 5% that he might have paid then to exit (loss of better performance is a cost, too, eh).

>Compare a '97 simplified prospectus from a prospectus 10 years ago - we are making progress. <

Yeah, but what client reads it, even now - this is why I bitch so much about disclosure - clients have to be told and even perhaps sign off on the commission structure, to say "it was in the prospectus" is an unfair expectation of sophistication level, interest or understanding that the client may have.

>More important that HOW your FP is paid, is that you have a GOOD, ETHICAL FP working for you<

Absolutely. This is why FP's are now starting to have to have a code of ethics (the CAFP has had this for their members for over 12 years - I think the code is reproduced on their site at www.cafp.org) - this is being built in to the CFP and PFP designations. About bloody time!

>I have a substantial book & can live off the trailers. <

This is the way of the future - this is exactly what has happened in the US FP industry - the one difference is that many down there go one step further and take no trialers but charge a monitoring fee (do I hear the term FEE-ONLY, again). The growth in this has been phenomenal, chiefly as a result of the huge industry of very excellent no-load funds available (Vanguard, T Rowe Price, Scudder, to name but a few) they pay no trialers but have great performance and are widely known and easy to sell - as I have said before, Vanguard Funds alone exceed the size of the entire Cdn MF industry.

Warren.


Subject: RE: Full Disclosure - Commissions
From:Jurgen
Date: 29-Sep-97-08:07 PM

Hi Reg,

1. I always enjoy Bylo's comments, but his was mine. 2. Thanks for the offer.

Warren,

usually no charge for no loads at all with TDGL, exemption Bissett and PH&N, but Cundill is a no load (who knows why) and of the 1% FE load you safe 1/4 if you enter order by computer.


Subject: RE: Full Disclosure - Commissions
From:Rick
Date: 29-Sep-97-09:58 PM

Jurgen, unlike Bissett and PH&N,Cundill pays trailer fees.That's why Greenline does not charge a load on Cundill funds.The same is the case with Sceptre funds.


Subject: RE: Full Disclosure - Commissions
From:Still stupid but ...
Date: 29-Sep-97-11:58 PM

The difference, it seems to me, between the respect car salespeople are generally accorded, and money lenders, is the disclosure. Money lenders once were probably as despised as car sales people, but the lending industry disclosure is now so much more superior (one knows the total cost of the payments, et.al) to car dealers that image has virtually totally disappeared. Car dealers seem to think that obfuscation (esp. re: lease costs etc) somehow helps them.

I hope the financial industry follows the lenders and not the car dealers. Clearer explanations, it seems to me, can only help build the industry even larger. Let's face it, alot of these clients are not really sophisicated, otherwise they would probably be building their own portfolios, rather than buying mutual funds. Agree or disagree?


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 30-Sep-97-09:51 PM

Jurgen, the TDGL fee on no-loads like PHN & Bissett, I find awkward since I use these funds a a lot - I would think they charge on Scudder too? I was aware of Cundill Value and Sceptre no charge (likely Altimira, too for the same reason) as small trailers are paid. BTW, I find I can get all funds (incl the likes of Templeton, Fidelity, Trimark, etc) for 0% FE elsewhere - TDGL is tough to deal with below the 1% or 2%.

>Let's face it, alot of these clients are not really sophisicated, otherwise they would probably be building their own portfolios, rather than buying mutual funds. <

OK, you get about a 25% grade on this - right on about the lack of sophistication (= time to read prospectus ) but DEAD WRONG on the rest. I find many very high level clients who prefer to have the money managed for the right cost and achieve a performance they can live with - IOW, building your own portfolio is not an option, if you want to do the job right. It's OK if you just want to "futz about" with a little bit of fun money, but for serious investing, read on.

For example - out of the 1,000's of equity positions available in Canada, what do you choose, when do you hold and when do you fold a given position? To say this is a full-time job is an understatement - how many $$$ are needed to make the pursuit of a specific, self-managed portfolio effecient, ie, worth the time and commitment .... $100K, $1M, $5M, $10M ..... now take a portion of this (Canada is only 2% to 3% of world equity markets) and allocate some to US, EAFE, Emerging, etc ..... you see, almost an impossible task.

OTOH, here's an interesting manifestation of the FP advice that is being dispensed out there - today, I spoke to a woman who is shopping for an advisor for a pool of $1.2M (currently all in cash) - her advice so far was from a "planner" who suggested 6 funds ($200K each), do all the investing now (market correction? year end distribution?), and all of it would be done on a load fund DSC basis (BTW, for those numerically challenged reading this, the up front commish would be $54,000 and trailers to come ).

I applaud the comments from the FP's above but the advice this woman has had so far sure is pretty poor . OTOH, look on the bright side, she is coming in to see us, and given the perspective we have seen that she has had so far, our discussion should be very fruitful for her . Heck, I love a relationship where I can save somone $50K as I get started - sure makes any fee I would be charging look pretty paltry. But, as some above have said, it's nice to have choices.

Warren.


Subject: RE: Full Disclosure - Commissions
From:Rick
Date: 30-Sep-97-10:13 PM

Warren,Altamira is no load wuth Greenline because of the trailer fee.

Scudder is also no load with Greenline because it is an authorized dealer of Scudder Funds.You will notice in the Scudder prospectus that Scudder "reserves the right to pay service fees to authorized dealers".The service fee may be up to 0.50%,and is subject to change or termination at any time.


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 02-Oct-97-09:34 PM

Rick, no-load trailers are becoming more the norm these days, thanks for the note on Altimira (BTW, glad they're now clear of their divisive takeover controversy ) I was aware of the trailer, but I was not sure about Scudder.

In effect, a hearty to Scudder for their policy of low MER's and yet they still manage to pay a trailer of up to 0.5% to TDGL - this I think will become more commonplace in the future, and more and more reps and FP's will find little to argue against the sale of a solid no-load.

Warren.


Subject: RE: Full Disclosure - Commissions
From:Mike
Date: 02-Oct-97-10:03 PM

Wow what a thread. I read it with interest and Warren , try as I may I just don't get it!

There is no way that you do what you do on a flat fee based structure and without biases. I also don't understand why you sell mutual funds to your clients. A good manager is one that you should hold for the long term. You can't tell me that you know better than the likes of Krembill or Templeton or Coleman or Goodman and Company or ??? as to when is the right time to sell or buy a fund.

I think a good fee based (and I do mean Front end/Back end fee based), advisor is still the way to go!


Subject: RE: Full Disclosure - Commissions
From:Still Stupid but ...
Date: 03-Oct-97-01:04 AM

Not to insult Mike *above*, but he does sound like a commission based fp.

Mike: If you can't understand it, here are the terms:

"DSC" relates to a "deferred sales commission" which is typically paid to the advisor at 5% of the clients investment. Ultimately, this fee does not come out of "thin air" but is paid by the client (see MER explanation below) "FE" refers also to a sales commission, but the client has chosen to pay it up front.

"bp" refers too "basis point" each 100 basis points = 1.00%

"MER" refers to "Management Expense Ratio", the amount that the fund manager skims off the top in order to manage the fund (i.e. research and buy & sell the equities).

Lower MER's are typical of "no-load" funds; funds which DO NOT pay DSC's or charge FE's. All other things being equal, lower MER's puts more of the market returns into the CLIENTS pocket, not the financial advisor (planner or broker, etc.)

If you don't understand, I suggest reviewing Ricks comments of Sept 21. and Warrens comments of Sept 26 & 28th, keeping in mind the meanings of the above terms.

What else don't you understand, because it's probably been answered in there and we can just refer to the appropriate persons comment and applicable date.

I'm sure you will start to understand. If you can't understand, be very very careful with who you chose as a FP, because you could easily be taken advantage of.

Good luck and happy thinking! Go "hang out" in the comments for awhile.


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 03-Oct-97-06:47 PM

Hell, I love it when people throw me a straight line like the following:

>There is no way that you do what you do on a flat fee based structure and without biases.<

Well, Mike, believe it - flat fees, no commish, no FE, no DSC & yep, the trailers go to Action Direct or GL to pay for the back room or permit the inclusion of a healthy dose of no-loads in the mix (featuring low MER's , see below for the bucks this would mean to the client ). We've been doing this for many years now and have a significant base of clients accross Canada (in fact outside of Canada too) who use the service. PLUS, this is only the MF based program - the program we have using investment counsellors (in some cases, multi-manager strategies) is even cheaper for the client (about 150 to 200 bp, all in - manager, custody, trading costs, and monitoring fees ).

OK, why would I be biased - I charge the same regardless of whether the client purchases one fund or another, a load or no-load, an equity fund or a bond fund or even just an MMF. OTOH, here's the "bias" if the mix is wrong, or the funds look like hell relative to others in the market, or the monitoring is poorly packaged, then the client will leave and my fee from them stops (note, no "exit" fee or rear end cost) - so I better make them money. My bias is to ensure they are happy, well-informed and appreciate the value of our service - I ahve no need to sell to make my fee, I only need to ensure that the service and performs as expected.

So Mike with a well-characterized structure like that above, you still believe this is a dream - well, pinch yourself it's true. As for "selling" funds - no we do not sell, we purchase the funds for a client based on our recs - yes we invest in Trimark, Templeton, Bissett, PHN, GL, & the like - we value their expertise, but we will move to sell when the fund performance falls behind and is lagging the pack in a relative sense - OTOH, we do not sell based on a difference of one month's return, we follow the funds consistently and have PalTrak provide us with analysis of the relative returns - we also speak to fund managers to determine and issues that might be impacting performance (Altimira, for the last year or so?).

>good fee based (and I do mean Front end/Back end fee based), advisor is still the way to go! <

Sorry, this is a commission structure, not a fee (if you are a commissioned FP, as someone has suggested, look at the decription of the income on the T4 slip) And I do not agree with your statement - you might be interested, higher MER's result from the need for funds to pay out (up front) commissions on a DSC purchase and the cost of trailers - Scudder Canada recently released a calculation that shows that a difference of 1% in the MER on a fund growing at 10% per year over 25 years results in a difference in future value of $15,885 - quite a cost to ring up from your retirement savings pool.

>"Management Expense Ratio", the amount that the fund manager skims off the top in order to manage the fund (i.e. research and buy & sell the equities). <

.... and, to pay out the commish of 4.5% or 5% to the broker up front when the DSC version is purchased - in other words, "amortize" the cost of the sale (a new LP coming to market to fund the DSC pool for about 6 fund cos expects the funds to pay out 50 to 60 bp in order to "pay back" the investors for the "loan" they have made to fund the DSC payouts) - in addition the trailers will also add about 50 bp to the cost of running the fund (MER) - so, adding these together, you see that about 1.0% or 1.1% of the MER on a DSC is solely attributable to the commissions/trailers.

Warren.


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 03-Oct-97-08:15 PM

>Scudder Canada recently released a calculation that shows that a difference of 1% in the MER on a fund growing at 10% per year over 25 years results in a difference in future value of $15,885 - quite a cost to ring up from your retirement savings pool.<

OOPS forgot one minor detail - this was on a one-time initial deposit of only $10,000!!

Warren.


Subject: RE: Full Disclosure - Commissions
From:TIM
Date: 04-Oct-97-07:30 AM

Warren, ODM stock is not yielding a profit thus far due to the cost of trailers paid to date. True?? If a MF company doesnt have constant dollar input to amortize the trailers would the Mers go up to cover this cost??? Do Mers ever go down as the Funds grow??? I have O'Donnell Cdn Emerging Growth on a DSC (never again) and I thing I would leave except for the DSC. The DSC must protect some underperformers from redemtion??? I'm always FE or No-Load now as I learned the lesson early and you have reinforced it. Thank you


Subject: RE: Full Disclosure - Commissions
From:B.Soro
Date: 04-Oct-97-08:35 AM

Hello--I'm new to this I would like to know why the commissions (if we could find out how much they were) are not tax deductible. Aren't they a business expense? Aren't they similar to the expense you incur when buying stocks? What about the administrative expenses as well??


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 04-Oct-97-09:57 PM

>ODM stock is not yielding a profit thus far due to the cost of trailers paid to date. True?<

Sorry Tim, I could not say. I would suspect theat ODM had participated in the LP's for the DSC payouts, so these should have eased the "hit" of this cost - FWIW, ODM is one of the group participarting in the partnership I saw described the other day. OTOH, ODM has been in start up and may have had heavy costs in the beginning to get infrastructure stuff up to speed - perhaps this had an impact?

>If a MF company doesnt have constant dollar input to amortize the trailers would the Mers go up to cover this cost<

Sorry Tim, but here you almost accuse the MF cos of participating in a type of "ponzi" scheme (using cash from one client to pay some of the costs or return from another later client) - of course, this is not the case - in fact, the MF cos either fund the cost of the front payment in a DSC purchase internally, and then get the amortized return from higher MERs or the exit fees or, they in the past have used the LP rout and the investors in the LP "prime the pump" with cash to make the payments (in return, the LP investors get part of the MER and part of the exit fees). Ironically, because the leverage of the MER is more powerful, the LP investor does better if the fund goes up strongly and no-one redeems.

>The DSC must protect some underperformers from redemtion?<

Yeah, ask anyone who held and held and HELD on to Industrial Horizon for, say, an extra five years or so because of the DSC. Ironically, this is "penny wise and pound foolish" - I redeemed a client from a DSC Cdn equity fund 3 or 4 months ago (we both agonized over the 4.5% exit fee ) he reinvested in Bissett and has made about 5% more than the other fund in 3 months (not a bad break even).

>why the commissions (if we could find out how much they were) are not tax deductible.<

Well, they are - in the case of a FE, you are right it is part of the ACB so the cost of the commish offsets some of the future gain. OTOH, in the case of a DSC, the exit fee, if you get hit with it, would reduce gains, the amortized cost of DSC and any Trailers paid (both via the MER) would reduce on-going taxable income distributions - in effect, a tax deductible expense.

BTW, never use the words "business expense" - would you like Rev Can to consider you in the "business" of investing and tax 100% of all investment returns (including capital gains) as straight business income .... I doubt it .

Warren.


Subject: RE: Full Disclosure - Commissions
From:Still Stupid But ...
Date: 04-Oct-97-11:59 PM

Warren:

I show the difference in a 1% return on a $10,000 base over 25 years as $22,116 (the difference bewteen a 9% return or 10% return). Did I miss something, or has Scudder miscalculated?

Oh, re: MER I believe I mentioned the effect in the paragraph below the one you speak to in your posting.

What does "LP" and "FWIW" stand for?

Thanks, Still Stupid.


Subject: RE: Full Disclosure - Commissions
From:TIM
Date: 05-Oct-97-09:27 AM

Warren, I didn't ever think that MFs were in any way shape or form a "Ponzi". OTOH do Mers ever decrease as a percentage as funds grow larger??


Subject: RE: Full Disclosure - Commissions
From:Bylo Selhi
Date: 05-Oct-97-10:58 AM

do Mers ever decrease as a percentage as funds grow larger??

Yes, but ironically it's the MF companies with the lowest MERs like PH&N and Vanguard (US) that have reduced their MERs over time as their funds got larger.

OTOH, some of the highest MER companies have maintained -- and even increased -- the MERs of their funds as they grew in size. One prominent example is AIC Advantage. The MER of the original fund is 2.45% but for Advantage II, which is a virtual clone of the original fund, it's risen to 2.71%. So much for economies of scale.


Subject: RE: Full Disclosure - Commissions
From:RSC
Date: 05-Oct-97-04:32 PM

Bylo,

The sole purpose of a business is to make money. It's called capitalism. If the no load companies thought they could get it, they'd raise their fees too. Don't kid yourself that they are somehow " on your side '


Subject: RE: Full Disclosure - Commissions
From:Kathy
Date: 05-Oct-97-07:15 PM

Gee Warren, I see that you have very much to contribute to this commission thread. I haven't seen you contribute much anywhere else.

Makes me kind of wonder where your head is, when all the other FP's are contributing elsewhere..., fee/commission/combination,... they seem to have something to offer...except yourself.....


Subject: RE: Full Disclosure - Commissions
From:Warren
E-mail: wbaldwin@compuserve.com
Date: 05-Oct-97-08:55 PM

>I show the difference in a 1% return on a $10,000 base over 25 years as $22,116

Thanks, Still ..., so did I - the number from Scudder may assume 24 periods (or some such, I did not test sensitivity). LP means Limited Partnership, FWIW is For What Its Worth.

Tim, MERs do decrease for some of the funds as they grow - Trimark has lower MERs today I believe than when they were smaller. OTOH, I believe that some MERs have increased (AIC is mentioned above).

>If the no load companies thought they could get it, they'd raise their fees too.<

Well, RSC, perhaps you are not aware of the impact of DSC commissions or trailers on the MER of the fund - the trailer adds 0.5% to 1% to a MER (depending on DSC or FE) and the recent comment on the new LP coming out for DSC funding suggests that 0.5% to 0.6% will have to go to the LP to amortize the DSC commish paid out up front - IOW, roughly 1.1% added to the MER just for the commission alone on a DSC - bottom line, the "fund co" is not the one who gets the benefit of the higher MER, the broker gets it.

>. they seem to have something to offer...except yourself..... <

Thanks for noticing Kathy. You're right, I have only contributed in a couple of the other threads. As for something to offer, with 17 years in this business, and a further 8 years before that in banking/trust I can certainly contribute. Time is limited and I have put in efforts on other sites over the last few years, I jumped into this thread because some of the original comments like "forget the commission, just pick an FP you like ...." and , "if you hold a DSC fund for the required period, you pay no commission" struck a nerve with me - I am generally sick and tired of this kind of rhetoric being fed to the unsuspecting client - I see no reason why anyone should feel the need to conceal the true cost of investment services this way and I chose to spend a bit of time in here to outline the choice people have out there - BTW, I have noticed that few dispute the costs I have outlined, and many have expressed gratitude at the frankness of my comments.

Warren.


Subject: RE: Full Disclosure - Commissions
From:TIM
Date: 05-Oct-97-09:35 PM

Kathy, this thread in my opinion has been the most informative ever in a large part due to Warrens considerable input. Previous threads have somewhat glossed over some of the facts as noone with Warrens level of expertise has contributed from his perspective. Warren. you dont have to apologize to Kathy for not contributing to IBIC # 4 million.


Subject: RE: Full Disclosure - Commissions
From:Rick
Date: 05-Oct-97-10:01 PM

Tim,I agree with you completely.

Warren,thanks for your participation in this thread.

As far as Kathy s concerned,I can't remember anything of substance that she has contributed to any thread on this forum.


Subject: RE: Full Disclosure - Commissions
From:Still Stupid But ...
Date: 06-Oct-97-03:38 PM

Hey everyone, let's not attack Kathy just because she was rude. Then we'd be doing what she did.

My opinion Kathy, for what it's worth - you owe Warren an apology. I don't see anywhere that it's his job to hang out here at the FundLib, and the info he's given here has helped a great many understand FP fees, et.al.

Warren: Thanks for all the info. I have another question. I understand that MER's & commissions tie in together, but there are something like 1700 MF's in Canada.

What would you do if you felt that one of the funds (Say AIC) which does not have a no-load, was the best for your client. Do you recommend and then return the DSC or FE to the client, as well as the trailer fees. Or would that still cost the client? And what would happen to that commission. Or is it your policy (!) simply not to recommend load funds?

NB. Approx how many no-load funds in Canada are there?


Subject: RE: Full Disclosure - Commissions
From:Rob
E-mail: keystone@leth-theboss.com
Date: 06-Oct-97-05:20 PM

Still,

Read all the above comments again - it's there. Basically, Warren doesn't actually process the purchases - he refers the client to a broker to have it done at 0% FE - in other words, every fund in Canada is available at a "no-load".

There are lots of reps willing to do this - especially if all they have to do is take the order (someone else is doing all the planning).


Subject: RE: Full Disclosure - Commissions
From:Bylo Selhi
Date: 06-Oct-97-05:59 PM

Do you recommend and then return the DSC or FE to the client, as well as the trailer fees.

To add to Rob's response Warren doesn't get the trailer either -- the broker who sells at 0% FE gets the trailers.

What would you do if you felt that one of the funds (Say AIC) ... was the best for your client.

I believe from Warren's previous comments, if he felt AIC was best for a particular client or situation then he would indeed recommend it. The point is that since Warren gets remunerated by you -- and not by the fund -- his only reason for recommending a specific fund is that it is the best.


Subject: RE: Full Disclosure - Commissions
From:Bylo Selhi
Date: 06-Oct-97-06:38 PM

This thread has grown to the point that it now takes an awfully long time to load -- even on a fast line.

So perhaps we can continue it here: Full Disclosure - Commissions II


Subject: RE: Full Disclosure - Commissions
From:
Date: 06-Oct-97-06:41 PM


Subject: RE: Full Disclosure - Commissions
From:Accounting department
Date: 14-Dec-97-03:15 PM

This is a good thread that's worth keeping in the public's eye


Subject: RE: Full Disclosure - Commissions
From:Investor
Date: 03-Jan-98-09:43 PM

Thought I would revive this thread for our newer members.


Subject: RE: Full Disclosure - Commissions
From:Bill
Date: 03-Jan-98-10:29 PM

A great thread,worth a read!


Subject: RE: Full Disclosure - Commissions
From:mike-1
Date: 04-Jan-98-12:31 AM

Investor .. agree absolutely! This is an excellent idea for people like myself. I hooked up to the internet very late in 1997 so this is all new to me, as it will surely be to others.

I skimmed through Parts 1 and 2 and only one word decribes it: FASCINATING

At one stage in Part 2, I did notice something which bordered on the comical: I believe it was Warren (who had already been chided for minor spelling errors by somebody who was obviously more interested in form rather than content) who uses the adjective "sophomoric". In retrospect, he could just as easily have used the word "soporific" instead, since the thread was about to die at that point.

Seriously though folks, here is a classic study in human behaviour. A thread which had started well, was informative, and provided a forun for a variety of differing opinions, unfortunatelely but predictably, deteriorated to the point of uncalled-for rudeness and plain stupidity. This however, in no way detracts from the wealth of information contained in both Parts One and Two.


Subject: RE: Full Disclosure - Commissions
From:Chad
Date: 04-Jan-98-07:05 AM

Thanks investor,first time for me as well.Great idea.


Subject: RE: Full Disclosure - Commissions
From:Chad
Date: 04-Jan-98-07:05 AM

Thanks investor,first time for me as well.Great idea.


Subject: RE: Full Disclosure - Commissions
From:Linda
Date: 04-Jan-98-11:12 AM

thank you Investor,what an eye opener for a average investor like me.thanks also to all the contributors,you deserve high marks for keeping it clean.


Subject: RE: Full Disclosure - Commissions
From:Liz
Date: 04-Jan-98-08:40 PM

Never mind commissions, what about the freebies fund salesmen get from the fund companies. That doesn't appear anywhere in the prospectus and NO FA or fund campanie will talk about. In the prospectus it usually falls under " educational expenses". Sounds innocent enough, but in reality it could (does?) sway the FA one way of the other. Especially if he is interested in maintaining trailer fees, or better still, really wants to attend a seminar in Hawaii, or some or wretched place.


Subject: RE: Full Disclosure - Commissions
From:PJM
Date: 04-Jan-98-11:36 PM

Wow! Thanks to all for a great read.


Subject: RE: Full Disclosure - Commissions
From:Rob
E-mail: keystone@theboss.net
Date: 05-Jan-98-12:15 AM

Liz, your information is based on events of the past, and steps have been taken to correct these things. (for example: NO mutual fund company sponsors educational conferences like the once famous Mackenzie conferences. Most DO participate in conferences sponsored by the dealer - but no fund company can carry a significant portion of the costs.) Anyway, there's been piles of threads on this one, too.


Subject: RE: Full Disclosure - Commissions
From:wow
Date: 07-Jan-98-08:37 PM

and the guy at fortune financial said it would cost me nuthin!


Subject: RE: Full Disclosure - Commissions
From:Bemused Lurker
Date: 08-Jan-98-02:51 PM

3rd time through, and still great.

This is to any of the FUND Companies out there that may be reading this - How about the following:

On my statements, add in one additional line that would include year to date, and total compensation paid to my dealer/dealers. That would perk up the old eyebrows in some cases.

BL

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