Ballooning number of mutual funds a marketing tool, says fee-only advisor.
The ballooning number of mutual funds on the Canadian market are little more than a tool to convince investors to hire commission-based advisors, says one fee-only player, arguing financial advisors are themselves victims to that system.
Loaded with complicated terminology, the 15,000 or so funds available across North America are set up intentionally to confuse investors, so they reach out to a wealth management professionals for advice, says Mike Bayer of Strategic Analysis Capital Management Inc. in Mississauga.
“The confusing terminology is to intimidate people,” he explains. “It convinces them (investors) that they can’t manage or control their investment portfolio. A lot of that is done on purpose.”
Ironically, the status quo also hurts advisors wedded to the traditional model, says Bayer, offering the same sort of analysis of a growing number of industry vets.
“I feel for advisors, I really do. There is a lot of cognitive dissonance. They know they are not doing the best thing for their clients, but they’re locked into this system,” he says. “A lot of advisors want to do the right thing, but they can’t because they’ll get fired.” (continued on Page 2.)
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Bayer also feels the fees associated with mutual funds are too high, especially when there is no way to accurately predict how well (or badly) these products will perform over the long term. He says that the industry is driven by profit alone, inevitably placing the client’s needs in the backseat.
“Incubated funds will have great results for the first year or two and then, of course, after a few years their performance will be pathetic,” he says. “Active managers never stick to their mandate ... they go with their intuition, or forecast or whatever their crystal ball tells them to do…It’s about revenue, that’s their primary concern and pleasing the executives and their shareholders.”
Although, Marta Stiteler, a Hamilton-based independent financial planner, agrees fees are too high, she says the industry is shifting in a positive direction and that investors, over time, will see fees come down. Stiteler – who considers herself a solution-driven educator, not a sales person – believes the advice she offers is invaluable and worth every penny her clients spend.
“People outside (the industry) are looking in to throw stones, but we have to get paid somehow,” she says, adding that many of her clients are surprised by how little she makes on the products she sells. “People have to get used to the idea that if you want help, you have to pay for it.”
Bayer – who shifted to fee-based advising in 2002, and strictly fee-only in 2012 – isn’t convinced self-professed altruism is widespread, suggesting 95 per cent of commission-based financial advisors act as salespeople because the industry demands it.
