Comments on: Should MFDA advisors be allowed to sell ETFs?

By: walter safety

walter safety — Sun, 31 Jan 2010 23:30:07 +0000

Chris
I share your disgust and I am an advisor.We have been useful idiots.The industries own stats show the average client earns less than half of stock market returns (Dalbar survey) and the industry wants to lay the blame on the clients. A mutual fund is such a distorted,abused ,overregulated,over compensating product that it is not even related to the stock market and the underlying returns. The industry will find a way to provide the same horrible results to EFT investors too.
Advisors have built in high costs to their practices that are no longer supportable in a shrinking industry they should be able to live on EFT compensation but can’t and so add fees. It’s their problem to solve.
Find an advisor you like that can afford to give you free advice which in combination with your do it yourself efforts and some transaction based business with that advisor will make you money .

By: Chris Godfrey

Chris Godfrey — Fri, 29 Jan 2010 21:54:58 +0000

I am a mutual fund holder who is feeling ripped off by the industry and MFDA advisors who are chained to it, however, I am having great difficulty finding an advisor who is willing to give me general planning advice such as I get from my TD MFDA. I am a small potato with $100,000 and brokers on commsions for stocks or ETF’s can’t make sufficent compensation to spend the time on small accounts.
Small Independant advisors do not appear to have the research capabilities of the larger firms and leave me feeling uncomfortable.
Whast are the options for people like me?

By: Joe Dolan

Joe Dolan — Sun, 17 May 2009 11:11:44 +0000

The whole thing seems ridiculous. I am an unlicensed investor and yet I can buy any sort of ETF that I want through a discount brokerage.

However 75% of the advisors out there cannot sell something that the average investor off the street is allowed to buy on his/her own.

Getting back on topic. IMHO the problem with MFDA advisors selling etfs is that most of their clients have low asset levels. These clients are caught in no man’s land so to speak.

The only way way that the MFDA advisors can make a living is to sell these low asset level clients mutual funds. When I’m talking low client asset levels I’m mainly talking about clients with a net asset level of below $100000.

By: Thicken My Wallet » Blog Archive » Is it your fault or your investment advisors?

Thu, 14 May 2009 08:57:57 +0000

[...] would also be remiss not to point out that not all advisors can sell mutual funds and stocks). Conduct your due diligence of what they can buy and sell for [...]

By: Preet

Preet — Tue, 05 May 2009 15:26:31 +0000

@Thicken My Wallet – a good point. And I’m all for upping the entrance requirements. It would be nice to have a structured streaming into the profession like a doctor or lawyer – years of schooling, articling/residency, and then everyone is a CFA or something.

@Ink-Stained Gorilla – Also good points. The great MFDA advisors to which you refer would be able to adapt quite easily. I’ve met some great planning groups that outsource the management to third party ICPMs. Allows them to focus on planning, and get reduced fees in bulk for their clientele. Perhaps that is one solution that we need more of.

I agree that the MFDA has seen better days. It will be interesting to see how the industry changes in the next 10 years.

By: Preet

Preet — Tue, 05 May 2009 15:17:01 +0000

@Henry – using the normal 2.5% commission on a low load with 0.50% trailer for the first three years, then increasing to 1.00% thereafter, the advantage is still to the low-load, but not by as much as you have calculated by the time the redemption schedule has lapsed. PPNs sold well for a while, but have really died off. You can’t really purchase a PPN in a fee-based account (although some advisors did double dip), and some PPNs are offered on an f-class basis (rare). Claymore does have non-commission purchasing of their ETFs as long as you already own one share and enroll in their auto PAC – neat feature.

Really what it comes down to is that no matter the structure, there are ways to exploit it (not to the investor’s advantage). So it comes down to the advisor, or a massive overhaul of the system (not likely anytime soon).

By: Ink-Stained Gorilla

Ink-Stained Gorilla — Tue, 05 May 2009 14:03:44 +0000

Better question is should the MFDA exist period? My understanding is if you’re serious about being an investment advisor you need to be securities licensed or work with somebody who is.

There are two many Chartered Financial Analysts and serious investment professionals entering the personal management space now for advisors to offer out-dated buy-and-hold mutual fund plans.

High-net-worth clients are increasingly moving towards diversified asset allocation strategies – which means middle-class clients will want to go this direction down the road.

My sense is the MFDA is dying a slow death. I’ll be surprised if it’s around in a decade.

Having said this, I know some incredible MFDA-licensed only advisors. Truly great planners. Even many of them are turning to third-party investment counsellors for high-net-worth portfolio creation.

By: Thicken My Wallet

Thicken My Wallet — Tue, 05 May 2009 14:00:56 +0000

Have you not pointed out the real regulatory problem? You have two regulators governing a relatively small body of professionals and, in doing so in the manner that they have, have restricted the public’s access to certain products.

Why not up the criteria for all in the financial industry and let them sell whatever they can? The public can vote with its feet if advisors continue to try to peddle high fee products. The issue now is that you cannot move from advisor to advisor to purchase a ETF but advisor to IDA regulated advisor (and most members of the public could not distinguish between MFDA or IDA) so the public is trapped by out-dated regulatory scheme.

By: Henry

Henry — Tue, 05 May 2009 13:13:47 +0000

The problem is that most advisers (aka mutual fund salesperson) are not happy with 1% asset management fees. I have calculated the compensation through low load (2 years deferred sales charge) funds and the commission compensation is equivalent of 1.5% to 1.75% of assets annually not 1%.

Anecdotal evidence suggests that some fee based advisers in Canada like to put their clients in PPNs, which has both a sales commission and a trailer fee. I do not know what the sales commission or trailer fee of PPN is. My gut feeling is that there is either a high sales commission with a lower trailer or a low sales commission with a high trailer. Either one should be incompatible with the idea of a fee based account. There is one exception where I feel that a fee based financial adviser should be able to get commissions: that is term life or whole life insurance.

I think that it would be great if Claymore Adviser ETF can be sold to clients without a trading commission. Even with the trailer fee, Claymore Adviser ETF (1.35% to 1.40% MER for equities and .65% to .75% MER for bonds) are really competitive against traditional 2.5% MER mutual funds.

By: Preet

Preet — Tue, 05 May 2009 13:12:24 +0000

@Mark Wolfinger – That would certainly be novel. Fee based advisory may not always make sense either though (unless you were referring to fee-only advisors). A fee-based advisor effectively selects their trailer which is independent of product, but still collects a percentage of assets. A fee-only advisor will charge by the hour or a flat rate and I think this is the best way to go for some investors (many investors).