Letters to the editor

Re: Compensation does not determine good advice, July 10, 2009

Reader Shawn Flannigan writes as if he doesn’t get a fee for service. Of course he does. It’s just embedded in the management fee. The trailer on a mutual fund is as much or more than what the average advisor charges in fees.

The real issue is that the trailer fee isn’t enough to cover the cost of the smaller client. It’s the main reason why the banks are taking over that space entirely. I don’t think that there’s an independent advisor out there who can service the smaller client in a cost-efficient way, unless they’re DSCing the client.

We have to divert the argument away from “to get a commission or not get a commission” to educating smaller clients to the fact that, if they want the services of an educated, experienced financial advisor, they will have to pay additional fees. You can do that through using DSC or charging an additional fee. The problem is some advisors DSC everyone, regardless of the size of the account. This is the kind of practice we need to stop but not put a blanket ban on all DSC or commissions.

Of course, in a perfect world, it’s hard to argue against compensation for transactions. The only way that the client’s interests and the advisor’s interests can be perfectly aligned is to stop compensating advisors when they transact.

Susan F. LeRoy, CFP, RFP, senior financial advisor, Assante Capital Management

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Re: Compensation does not determine good advice, July 10, 2009

Full disclosure and working with clients to determine which model best suits their needs is the correct solution. Those dealing with high-end clients perhaps have the luxury of using a fee-only model, but many family-oriented advisors may ultimately use a combination compensation model: part commission and part fees.

There also comes a time when it truly does make sense to switch models due to assets invested. This should be outlined to clients in advance. This, in turn, depends on each client’s unique situation and circumstances. Having been an advisor for almost 30 years, I have seen many models in existence, however, each still leaves itself open to abuse.

The “rogue advisors” who abuse each type probably would have done so, no matter what model they utilized. Yes, sometimes company products do push certain products and compensation models. However, most advisors are in a unique position where they can choose to follow the masses or develop their own strategies. Those strategies include putting the client first, full disclosure and working with clients to see which model is best.

That means documenting that process and having the client sign the appropriate forms to move the process ahead. A huge part of the problem today is that many advisors talk the talk, but few actually walk the walk. With minimal education, a shingle can be hung and voila, a new advisor is created. However the client also has to do his or her due diligence and decide what qualification perhaps they need from an advisor.

Robert McEachern, CFP, CLU, chartered financial consultant, LifePath Transition Strategies, Barrie, Ont.

Read a letter about individual pension plans.

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(07/17/09)