Any push to use seg funds as a replacement for DSCs will depend on protecting clients from redemption penalties.
A seg fund fee structure offered by one insurance company in Canada could help protect clients from nasty DSC penalties.
“It’s a 60-month chargeback,” Frank Esposito, Industrial Alliance’s Director of Sales for Individual Investment and Retirement Products. “It pays the same commission as the seven-year DSC but the charge goes to the advisor rather than the client, which would be the traditional DSC,” says Esposito. “If the client needs to draw on any of the funds the advisor receives a proportional chargeback based on the amount the client is taking out.”
The biggest drawback of DSC funds is that they come with significant penalties for redeeming funds within the first seven years. It’s a problem that many opponents of the fund structure point to when suggesting they should be banished all together.
The seg fund product has been well received by advisors.
The chargeback model attempts to solve this concern for investment advisors who aren’t dually licensed in that it would still provide the upfront commission but better protect fiduciary standard.
“Is the DSC the perfect model? No, I think there’s a better model out there,” concedes New Brunswick advisor Dan Moore, pointing to one he wants to see adopted in the seg fund industry. “I use a chargeback system. It’s the same as a DSC but the charge [for early redemption] is on the advisor.”
“If I’m not doing a good job,” says Moore, “there’s nothing holding the client here.”
“It’s a 60-month chargeback,” Frank Esposito, Industrial Alliance’s Director of Sales for Individual Investment and Retirement Products. “It pays the same commission as the seven-year DSC but the charge goes to the advisor rather than the client, which would be the traditional DSC,” says Esposito. “If the client needs to draw on any of the funds the advisor receives a proportional chargeback based on the amount the client is taking out.”
The biggest drawback of DSC funds is that they come with significant penalties for redeeming funds within the first seven years. It’s a problem that many opponents of the fund structure point to when suggesting they should be banished all together.
The seg fund product has been well received by advisors.
The chargeback model attempts to solve this concern for investment advisors who aren’t dually licensed in that it would still provide the upfront commission but better protect fiduciary standard.
“Is the DSC the perfect model? No, I think there’s a better model out there,” concedes New Brunswick advisor Dan Moore, pointing to one he wants to see adopted in the seg fund industry. “I use a chargeback system. It’s the same as a DSC but the charge [for early redemption] is on the advisor.”
“If I’m not doing a good job,” says Moore, “there’s nothing holding the client here.”
