Fee-based flap flourishes in Talvest Town Hall

(April 25, 2003) A discussion on the merits of fee-based versus commission advice took flight this month in the Talvest Town Hall. A participant in the online forum argued that since the advent of the mutual fund and its various commission structures, clients don’t really know what they’re paying for, or where their money is going.

An advisor who identified himself as Steve says although he’s not against commissions and trailers, he’s taking steps to move to a direct billing system. “This will allow clients to see how much they are paying advisors and make advisors accountable to clients for the services that they provide,” he wrote.

“I use low-cost pooled funds, index funds and F-class shares, and bill clients directly on an hourly basis or a pre-agreed annual fee,” he explained. Steve says he also sets up an Investment Policy Statement for each client that spells out his responsibilities as an advisor. “If you do this you will find that clients are very appreciative of the service and disclosure and the fact that they know the exact costs and are not left in the dark about fees.”

In an angry response, Cary Mitchell accused Steve of adopting a “holier-than-thou” attitude. “Just because I receive a regular trailer doesn’t mean that I’m unethical because I don’t disclose to clients every penny of that trailer,” Mitchell argued.

An advisor identified as U. Kerry, CFP, says while he is not against fee disclosure, he doesn’t want to see it mandated by regulators. “I don’t tell clients how much I am making on each transaction unless they ask. However, I always go over the fee as stated in the prospectus including what gets paid to the dealer.”

Talvest Town Hall participant Dan H. says he finds it sad that some advisors are afraid of showing clients how much their service costs. “Besides, do you really want a client who is motivated by finding a cheaper not necessarily better deal?” he asked.

“It all comes down to what you provide your client in return for the fees they pay and the level of confidence you have in the value you’re providing,” Dan H. added.

Join the fee-based debate or weigh in on other topics currently being discussed, including Advocis versus Independent Financial Brokers of Canada, and the pros and cons of segregated funds, “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca