Columnist sparks DSC debate

(March 5, 2004) An online news article criticizing advisors who sell back-load or deferred sales charge (DSC) mutual funds provoked an angry response this week in Advisor.ca’s Talvest Town Hall.

The article, written by columnist Wayne Cheveldayoff and distributed to various financial Web sites by CP Online, was titled “Investors should avoid advisors who insist on back-load mutual funds.”

In the column, Cheveldayoff — a former advisor who writes weekly on financial matters — argues that DSCs “stop investors from doing the right thing,” such as diversifying their portfolio and leaving poorly performing funds.

“Advisors’ interests are much better aligned with investors’ interests in front-load funds,” he maintained.

Several advisors stepped up to the plate in support of DSCs. “The advantage of a DSC fund over a front-end charge is that the client’s investment is not reduced by the amount of the front-end commission,” wrote Mike H. “Every dollar goes to work for the client.” For those with a long-term planning horizon, DSCs work well, he added.

“DSC funds are the right choice for the right investor,” wrote Wayne. “They give unqualified investors professional help for 50 basis points — a bargain, I’d argue.”

The advisor also refuted Cheveldayoff’s argument that DSCs stop investors from “doing the right thing.”

“I feel that DSCs encourage investors to stay invested,” Wayne said. “It encourages them to do the right thing, when their emotions are telling them to do the wrong thing.”

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Some advisors felt that although the article was confrontational, it does raise the larger issue of compensation disclosure. Judith M. said many advisors take the DSC route to avoid telling the client exactly how much they are being paid. “Commission is not a dirty word,” she said. “Where there is a taint here is that the DSC system makes it easy for advisors to avoid the discussion with their clients and in doing so, reduce their perception of their value.”

Advisor Mike H. complained directly to Cheveldayoff and posted the columnist’s unapologetic response: “I stand behind my views,” Cheveldayoff said. “I don’t like DSCs, I think they foster ignorance and abuse of investors.”

The controversial article appeared on several fund company Web sites, including Mackenzie’s and Fidelity’s. One advisor complained to Fidelity, but a spokesperson for the fund firm said the article was part of an automatic news feed from CP Online, which Fidelity has no control over.

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Join the DSC discussion or post an opinion on any other topic concerning the advisor community in the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com

(03/05/04)

The opinions expressed in the online messages posted to any of the forums of the Talvest Town Hall are strictly those of the participants and do not necessarily reflect the views and opinions of the staff of Talvest Fund Management, Advisor.ca or Rogers Media. Material contained in the Talvest Town Hall forums is for information purposes only.

Doug Watt