It’s an odd position for a staunch fee-based advisor to take, but one player is arguing against the need for a ban on embedded commissions – that’s if regulators make a key change.
It’s an odd position for a staunch fee-based advisor to take, but one player is arguing against the need for a ban on embedded commissions – that’s if regulators make a key change.
"The lack of standardized definitions … is incredibly frustrating," said Jason Pereira, a senior financial consultant for IPC Investment Corporation. "Trailers are basically a percentage of asset fee and not a commission, so dealing with a fee based advisor who charges a percentage of assets can be identical to paying a trailer in terms of net dollars compared to the advisor.
“I think that the options should be there on both sides and that the regulators need to provide more than a blanket approach, which is what we've seen so far."
His comments come in response to a growing number of media reports extolling the virtues of fee-based compensation. The atmosphere has promoted an us-against-them mentality with fee-based players on one side and transactional advisors on the other.
Pereira is positioning himself on the side of clients and choice. He is, however, a fee-based advisor, to be sure.
"It's nonsense (to say that) if people have to pay me $1,000 in fees directly versus $1,000 via a fee-based account or trailers, then they won’t do it,” says Pereira. “It’s $1,000 either way! The only time the client would and should protest this is if they don’t know that they are paying anything at all.”
In a 2013 survey from Vanguard Investments Canada Inc., which featured nearly 1,000 Canadian investors and more than 800 Canadian advisors responses, 83 per cent of investors believe their advisor’s pay is worth it while 43 per cent of investors said their advisor received a salary or a combination of salary and commission, fee or bonus.
What’s more, advisors believed that their compensation structure is going to change over the next five to ten years, with a shift away from commissions to fee-based compensation. Commissions currently account for the largest portion of compensation— about 67 per cent of an advisor’s annual income.
Advisors expect that percentage to fall over the next decade to 55 per cent, with fee-based income rising to about 30 per cent of annual income in 2023 from the current 17 per cent, according to the study.
"The lack of standardized definitions … is incredibly frustrating," said Jason Pereira, a senior financial consultant for IPC Investment Corporation. "Trailers are basically a percentage of asset fee and not a commission, so dealing with a fee based advisor who charges a percentage of assets can be identical to paying a trailer in terms of net dollars compared to the advisor.
“I think that the options should be there on both sides and that the regulators need to provide more than a blanket approach, which is what we've seen so far."
His comments come in response to a growing number of media reports extolling the virtues of fee-based compensation. The atmosphere has promoted an us-against-them mentality with fee-based players on one side and transactional advisors on the other.
Pereira is positioning himself on the side of clients and choice. He is, however, a fee-based advisor, to be sure.
"It's nonsense (to say that) if people have to pay me $1,000 in fees directly versus $1,000 via a fee-based account or trailers, then they won’t do it,” says Pereira. “It’s $1,000 either way! The only time the client would and should protest this is if they don’t know that they are paying anything at all.”
In a 2013 survey from Vanguard Investments Canada Inc., which featured nearly 1,000 Canadian investors and more than 800 Canadian advisors responses, 83 per cent of investors believe their advisor’s pay is worth it while 43 per cent of investors said their advisor received a salary or a combination of salary and commission, fee or bonus.
What’s more, advisors believed that their compensation structure is going to change over the next five to ten years, with a shift away from commissions to fee-based compensation. Commissions currently account for the largest portion of compensation— about 67 per cent of an advisor’s annual income.
Advisors expect that percentage to fall over the next decade to 55 per cent, with fee-based income rising to about 30 per cent of annual income in 2023 from the current 17 per cent, according to the study.
