Blogs & Comment

“I thought I wanted a mutual fund” (III)

A reader sent in an email with an interesting supplementary to the claim thattrailer fees represent the cost of financial advice ( in Part I). As you may recall, MacKenzie Financials publicationclaimed that an apples-to-apples comparison of ETFs to mutual funds required that the ETF orange be converted into an apple by adding in the cost of financial advice (i.e. trailer fees).
I pointed out that several academic studies had found mutual-fund advisers added no value to the selection of funds (indeed, likely subtracted it).So why did ETFs need to be adjusted for trailer fees when doing comparisons with mutual funds? Reader John De Goey(a fee-only financial advisor) took this a little further. He noted:
Call virtually any discount brokerage in Canada you will find that they all require their investor clients to use A-Class funds. In other words, investors are obligated to pay the trailing commission on a product for advice that is neither received nor requested. This is scandalous! Imagine if Canadian Tire charged people for a muffler and installation if they simply bought a muffler! The Competition Bureau would step in.
This arrangement further raises questions concerning the view that trailer fees are the cost of financial advice. In this context, it appears to be more part of the cost structure of the mutual fund company. No financial advice or service is provided to the buyer.
In the discussion of trailer fees in Part I, attention hadalso been drawn attention to a survey that found a minority of financial planners did financial plans for their clients again raising questions about the value of services obtained through trailer fees. Since then I have come across a postby a financial advisor who paints an even bleaker picture. To quote:
While many financial planners claim to do financial planning and provide holistic advice, very few actually provide comprehensive planning with written financial plans, as taught in the CFP courses.