Our normal process when we sign up new clients involves a pretty in-depth analysis of their goals and objectives, their current financial situation and their current investment holdings.
When we look at the statements that they put in front of us (from their previous advisor), it is often jaw-dropping.
Why would anyone put a client into a large bank (no load) balance fund (approx. 60% equity) with a 5 year return of 5.65% (10 year return of 3.75%) and an MER (management expense ratio) of 2.36%?
Do the math on this: the manager gets paid, the advisor gets paid (trailer fee) and what about the client? There is not much left over for them.
And yet this balance fund has over $6B in assets under management!
That is just the tip of the iceberg.
I can't name names (oh I wish that I could) because I would so like to out some of the "bad" advisors out there.
They are not bad because they are breaking the rules, they are bad because they do not have the client's needs in mind (that is "skirting" the rules). The only thing that they want is to get paid (their fee/commission/trailer)!
We see these "orphan's" all the time when we look at new clients old statements: be they stock IPO's, closed-end funds, structured funds.
Why were they put into the client portfolio in the first place?
Selling fees paid to the the advisor (so that the issuing institution can also make their fees). Often when these purchases turn into "dogs", there is no liquidity available to move them out of the portfolio. When there is liquidity, the advisor will often use it to "flip" it out to make room for the next new issue and get paid once again (a commission on the sale and on the next new issue).
Certainly some advisors do not have their client's best interests in mind, but the client needs to pay attention too.
Here is some good reading on that:
Wake up, Canadians - you need to start asking more about investment fees - ROB CARRICK
It's webinar Tuesday at
A recorded version will be available after 5pm.
If you happen to have a question or wish to provide any feedback (which is always enormously appreciated):
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist