E-Trade controversy stirs advisor debate

(April 23, 2004) E-Trade’s forced about-face on a program to sell F-class funds directly to the public generated some strong opinions from advisors this week in Advisor.ca’s Talvest Town Hall. The discount brokerage had to suspend its FundPlus program after the two participating fund companies pulled out.

“Steve K” started the debate, calling the demise of the E-Trade program “disappointing” and a “step back” for the fund industry. He noted that making a clear distinction between management and advice fees “can only be good for reputable advisors and will help flush out those advisors who hide fees or do not disclose the total costs.”

Another advisor pointed to the E-Trade controversy as an example of a “corrupt” industry.

But not all advisors believe that the public should be allowed to access F-class funds.

“E-Trade and their competitors provide a service which ultimately harms much of the public,” wrote one forum participant identified only as “ALB.” “Their own statistics show that the majority of account holders lose money over the long term.”

“As an advisor, I spend much of my time trying to stop clients from shooting themselves in the foot with their own ideas,” ALB added.

Another advisor agreed that the majority of people are likely not properly qualified to do their own investing. But “Lephturn” added that doesn’t mean the industry should stop those who want to use F-class funds. “If they are going to do that, they should be free to choose their own weapon. A rare few will either get lucky or have the chops to be successful on their own, and the rest will have to learn the hard way.”

The debate also generated a response from author and advisor John De Goey, a fee-based planner with Assante in Toronto.

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“The recent E-Trade fiasco really has me steaming,” De Goey wrote in an e-mail to Advisor.ca. “Fund companies say they work on behalf of their unitholders, but in fact are working for their distribution/sales forces — the advisors who recommend their products.”

De Goey says he believes most investors are better off using a financial advisor, but he suggests those who are comfortable making their own investment decisions should be free to choose that option.

“If financial advice costs money, then surely to goodness forgoing that advice should cost less money,” he says. “It seems mutual fund companies have such a high opinion of financial advisors that they insist their valued clients pay for advice whether they want it or not,” he concludes.

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Join the E-Trade debate or discuss 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

(04/23/04)

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