Webring
Renegade advisor John De Goey has just published the second edition of his book, The Professional Financial Advisor II. Like the original, it's a call to action to move the mutual fund industry away from commissions and trailer fees to a fee-based or fee-only model. Bulkier than the first edition of three years ago, the updated version sports a catchier subtitle: "How the financial services industry hides the ugly truth."
Which is? In De Goey's opinion, it's that stock picking and actively managed mutual funds add no value to investors. But it's precisely such funds that use "embedded compensation" to pay advisors handsomely -- in the form of upfront commissions and annual trailer commissions. He likens these payments to "bribes" that taint the advice dispensed. Yes, he actually uses the term on page 233, adding that the dictionary definition of bribe is "something given or promised to a person to influence conduct."
As long as this state of affairs exists, he believes the financial advice "industry" cannot be called a true "profession" the way law, medicine or accounting can be. He wants FSPs (he uses the term financial service providers throughout) to "unbundle" parts (financial products) and labour (advice). Clients would be presented with a monthly or yearly invoice for services rendered...
And on Altamira's new wrap program:
Speaking of embedded compensation, a new fund wrap program unveiled by Altamira is being aimed at advisors. There is some irony here. Back in its heyday -- before it was acquired by National Bank -- the no-load fund company was a thorn in the side of independent advisors.
Frank Mersch's Altamira Equity Fund used to regularly outperform other Canadian equity funds. It was amusing to see fund salespeople downplay Mersch's stock-picking prowess. Back then, Altamira sold direct to consumers, paying a modest 25 basis points trailer to the rare advisors who recommended them.
Now things have come full circle. Altamira has unveiled the Meritage Portfolios, a mutual fund wrap account aimed at the same advisors who used to scorn Altamira. But, as with most bank-owned wraps, advisor comp is well beyond what Altamira paid out when it was independent... Unlike Franklin Templeton's Quotential, Meritage tacks on extra fees above and beyond the MERs of the underlying funds, most of which go to advisors. Commissions range from 22 to 53 basis points above the weighted trailer of the underlying funds, Meritage says.
Naturally, this buys advisors and investors all sorts of goodies, such as fund monitoring and rebalancing.
So if these funds include "all sorts of goodies" like "fund monitoring and rebalancing," then why are the trailers on the FE load versions 25% higher than the standard 1%? Shouldn't they be substantially lower than 1% because the advisor is relieved from doing a lot of the work for which those trailers are supposed to be compensation?
