First and foremost, the investment industry argument is that if advisors do not get paid well, there will ultimately be fewer of them and that could lead to a lack of "retirement saving advice" which could hurt retirees.
Check it out:
That is courtesy of Rob Carrick (from yesterday's G&M):
Old fashioned style stock brokers (commissioned salespeople in reality) who charge a per transaction commission have an inherent conflict of interest in trying to "sell" as many transactions as possible, especially new issues (IPO's) that have a hefty commission incentive paid by the issuing company.
Ever wonder why your "broker" highly recommended a new issue and a few months later turned and suggested that it was time to get out? A commission grab (both on the buy and the sale). I saw it all the time from colleagues in the "advisory" business (border-line "churning").
Finally the regulators (as of July 15 this year) are going to force these folks to show the total annual dollar value of all of these types of costs that the client is charged.
Then there was the "advisor" who sold Deferred Sales Charge (DSC) mutual funds. No cost up front to the client, the advisor received 5% commission on the sale from the mutual fund company, plus a trailer commission each year. The client had to hold on to the fund for 7 years or face a penalty when selling.
The mutual fund also charged an MER of something in the vicinity of 2.5% annually.
Ever wonder why those did not work out so much?
I say good riddance to those folks.
The industry encouraged them because the investment dealers and banks got 50-60% of the "advisor's" commissions.
I say welcome transparency!
However, it is not yet "total" transparency.
There are still "hidden" costs associated with mutual funds and ETF's that, as of yet, do not have to be declared.
Do the math on an extra 1% - 1.5% of additional costs that you may or may not be aware of (on top of whatever you are paying the advisor). It adds up over time. For retirees, I think they might rather have the additional cost savings? What do you think?
I / we believe in "total" transparency, so at High Rock, we are a step ahead of where the regulators suggest we need to be and state, up front, what your total costs will be. That is one of the many things that make us different and better.
If a bunch of over-charging "advisors" leave the business, because it is not lucrative enough for them (or the banks and investment dealers that they work for), we are happy to take up the slack. We are in the business of helping people, getting appropriately compensated for doing so and independent of the large institutions (with their targets for revenue and "asset gathering". )
Your feedback is always welcome: firstname.lastname@example.org
If you would like to receive this blog directly to your inbox, please email: email@example.com
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist