Where’s the beef? It’s the question advisors critical of DSC funds are asking colleagues who use them, suggesting, too few are doing the heavy lifting needed to rationalize the fees.
DSC funds too often forego the upfront work used to rationalize the fees and are instead using the investments to keep clients from bolting, says one investment advisor.
“In theory, DSCs compensate advisors for the considerable amount of work they do upfront,” says Dan Bortolotti, an advisor with PWL Capital in Toronto. “In practice, I almost never see DSC advisors actually doing meaningful planning upfront: they often just give their clients a risk questionnaire and then throw them into a bunch of mutual funds. A year or two later, when the client realizes that the advisor doesn’t actually deliver any service, it’s too late. They’re locked in, or they face huge penalties to leave.”
Those opposed to DSC funds such as Bortolotti and BC-based Raymond James advisor Ross Birney, whose comments appeared in an article last week, struggle to see the point in using a product where the fee structure prohibits a client’s ability to move assets without penalty.
Instead, they argue, an advisor’s service must stand on its own two feet.
In PWL’s case clients pay a percentage-based fee on assets managed while Birney uses zero per cent front-end load mutual funds that pay a trailer fee. Both believe that the initial work done with new clients such as providing comprehensive financial plans paves the way for ongoing, mutually beneficial long-term client/advisor relationships.
“I’m confident we do as much upfront planning with new clients as anyone, and there is always the risk that the client could bolt after we’ve completed their plan,” says Bortolotti. “That’s the risk we take, but it’s only happened once that I can recall. Almost every other time the planning process wins over the client and they’re excited about working with us. They stay because they want to.”
“In theory, DSCs compensate advisors for the considerable amount of work they do upfront,” says Dan Bortolotti, an advisor with PWL Capital in Toronto. “In practice, I almost never see DSC advisors actually doing meaningful planning upfront: they often just give their clients a risk questionnaire and then throw them into a bunch of mutual funds. A year or two later, when the client realizes that the advisor doesn’t actually deliver any service, it’s too late. They’re locked in, or they face huge penalties to leave.”
Those opposed to DSC funds such as Bortolotti and BC-based Raymond James advisor Ross Birney, whose comments appeared in an article last week, struggle to see the point in using a product where the fee structure prohibits a client’s ability to move assets without penalty.
Instead, they argue, an advisor’s service must stand on its own two feet.
In PWL’s case clients pay a percentage-based fee on assets managed while Birney uses zero per cent front-end load mutual funds that pay a trailer fee. Both believe that the initial work done with new clients such as providing comprehensive financial plans paves the way for ongoing, mutually beneficial long-term client/advisor relationships.
“I’m confident we do as much upfront planning with new clients as anyone, and there is always the risk that the client could bolt after we’ve completed their plan,” says Bortolotti. “That’s the risk we take, but it’s only happened once that I can recall. Almost every other time the planning process wins over the client and they’re excited about working with us. They stay because they want to.”
