May 24, 2018 07:00
Alain Huard, François Bruneau
Advisors turning to the management fee, without giving up commissions. Many focus their practice on fund-series F for the wealthy clients. Other solutions at reduced costs allow them to serve smaller investors.
The struggle between the different distribution networks is fierce for the control of the 4.1 trillion dollars of money of Canadians, according to statistics compiled by Strategic Insight. The world bank weighs heavy, all-encompassing 1 444 billion dollars (G$) of the money in circulation in Canada. Dealers in securities full-year have 1 128 G$. The share of financial advisors amounted to 501 G$.
The independent advisors in mutual funds are trying to stand out against the banks, in a world of disclosure of the fees… and soon with no commissions. They turn to products to fees, which fund, series F. The challenge is of size. According to the most recent statistics from theinvestment funds Institute of Canada and the investment funds Council of Québec (CFIQ), the assets of mutual funds reached 1 339 billion dollars (G$) Canada on December 31, 2016, including 244,7 G$ in Quebec.
The sensitivity goes up a notch
With the detailed statements on the expenses and returns that are circulating since the beginning of the year due to the new model of adviser-client relationship (MRCC2), the sensitivity to fee increases. Advisors and clients will talk about more in addition to the cost of the investment products compared to their added value, » observes Benjamin Reed-Hurwitz, associate consultant and senior analyst of Strategic Insight. The mutual fund will be able to distinguish themselves in the eyes of the investor, which lends a value to being able to benefit from the personal touch of an investment manager, he believes. Each component of the cost will be, according to him, under a magnifying glass, for all the products.
Mutual fund series F benefit. This type of fund allows the advisor to negotiate the management fee with his client, according to the assets it manages for him. The client will pay directly for these costs. The cost of the investment then becomes transparent, rather than being embedded in the management expense ratio (MER). In addition, the manufacturing of the fund does not pay any commission to the advisor, which allows you to maintain a MER lower than funds with commission built in.
The effects of pressure regulatory
The pressure regulatory rekindle the discussion around the costs to produce its effect. The manufacturers reduce their costs of funds of series F. Among other things, SEI Canada has done this for 23 fund series F.
The sales profile of mutual fund redraws itself to many, including Invesco Canada, says its vice-president and regional sales director Alain Huard. «Our sales of the fund to series F, have risen sharply, both in the network of brokers and dealers in securities full-year than in one of the financial planners and mutual fund representatives. We sell less and less funds with exit fees. These funds have become a microscopic segment of our total sales. By contrast, funds without fee, are a good portion, » he confided to the Journal of the insurance.
Players on horseback between the independent network and the banking network also experience this trend. While the fund series F BMO global asset Management accounted for only 19 % of all sales of fund advisor series-October 31, 2014, they accounted for 51 % at October 31, 2017, revealed Leon Garneau Jackson, vice-president, sales, eastern Canada to the manufacturer. «The whole industry is home to almost the same phenomenon «, he adds.
Rise of the fund at a reduced fee
Traditional funds BMO continue to keep their marks despite the meteoric rise in the institution of another solution to reduced costs : exchange-traded funds (ETFS). «We’ve had a record year in sales of ETFS. Sales of mutual funds and segregated funds have also experienced a very good year, » said Mr. Jackson.
BMO also observed a decrease in products costs of output. «They now represent less than 5 % of our sales,» revealed Mr. Jackson. According to its statistics, these funds would account on average for 2 % of sales in the mutual fund industry.
«With MRCC2, advisors have realized that they had to show more transparency in their remuneration. Also, people are afraid of what may happen to the commissions of follow-up, while there has been much talk of their abolition in recent years, » says Mr Jackson.
He noted that several councillors have decided to convert their practice to the management fees. According to him, the fund of series F are well suited to this model, both investment advisors (full-time) that mutual fund representatives.
«Not madness» for the fund series F
Vice-president administration, investment of Groupe Cloutier Investments, François Bruneau also observe the trend of the fund at a reduced fee, but to a lesser extent with respect to the fund of series F. » We come across an application for the creation of accounts management fees through fund-series f this is not madness. These funds are still relatively little used by our advisers, » he says.
This could change. The fund F-series are growing in popularity. «The fund of series F were previously provided on a strictly in the framework of the accounts nominated (nominee accounts),» says Dr. Bruneau. The manufacturers now want to increase fund series F in a network such as ours. They offer to take care of the billing, which reduces the need to establish an account nominated «.
In the account nominated, it is the brokerage firm which owns and registers its name with the values of the clients, not the manufacturer of the product. For example, a stock, ETF or mutual fund-series F may be kept in the client’s account, which becomes the beneficiary. The firm facilitates the transaction and handles the billing. However, the structure of the account nominated is not within the reach of all firms, » said Mr. Bruneau. At her command, for example, to offer trust services.
«It was less accessible for the small players because the account nominated requires to retain the services of a trustee,» said Mr. Bruneau. The trustees who specialize in networks in which the asset is more modest and does not run the streets. »
In recent years, Groupe Cloutier Investissement on the other hand has seen a strong revenue growth of privately-run manufacturers. «Before, it was difficult to fight against large institutions. However, the products are priced at a fee may apply to clients whose assets oscilleront for example between 500 000 and $ 750 000 $, a segment often neglected by the major securities dealers to a full year. This niche has now become a large majority of the deposits that we receive, » points out François Bruneau.
Founder and president of Champlain financial Group, Sylvain De Champlain is convinced of the benefits of the fund of series F. These funds allow him to actually initiate a turn towards the management fees. «We make this shift for the past eight months. To date, 45 % of my business are passed to the management fees. I aim to ensure that by spring, all of my clients to have an account to fees «, he revealed.
The sake of transparency and fairness
Exacerbated by MRCC2, a concern for transparency has motivated this change of direction, and also a concern of fairness to the clients, » explains Mr. De Champlain. According to him, the management expense ratio (MER) approximate a balanced portfolio diversified is 2.3 %, regardless of the amount of the assets. It uses this ratio to compare to the traditional formula in its fund fees. «In the formula in fees, the more the assets are, the higher the management fees are low, while 2.3% of the diversified fund traditional never change, in the compensation committee «.
Fund series F, 1.15% of the 2.3 % will expire at the fund company, who will pay, among other fees. The advisor will charge its own fees of 1.15 %. «They are taken by my mutual fund dealer Investia financial Services, which will keep 0.2% 0,95 % ‘m back,» says the adviser.
However, it appears unfair and illogical to charge the same fees for a client who has assets of a million dollars and the other was for $ 500,000. «Because I do not work harder for one than for the other «, lance-t-il. In an example of the scale of fees depending on the asset, Mr. De Champlain illustrates how his model based on the fund series F provides a better fairness.
«For a client whose assets amounted to $ 500,000, the total cost will be instead of 2.1 %. The manufacturer will retain 1.1 %, and the broker 1 %. Compared to the traditional formula with the commissions built in, my client of series F saves approximately $ 1,000 per year, or 0.2 % of its assets of $ 500,000, » he says. In the model with the integrated commission to the MER, all is paid automatically and it is not transparent. In the formula fee, on behalf of the company and the broker are separated. The broker ensures itself to pay. The MER total becomes less expensive. «Mr. De Champlain recognizes, however, that the formula fees will cost more expensive than the average for the investors whose assets are less than $100,000.
The best of both worlds
Services financiers Eric F. Gosselin research, for its part, the best of both worlds. His Web site, Finances-Etc.comannounces that customers can choose between regular maintenance and fees. «I work with fund-series F for the wealthiest clients and with funds without fees for smaller clients. I stopped selling funds with exit fees there are five or six years, » stresses president Eric F. Gosselin.
In its submission in June 2017 to the canadian securities administrators (CSA), in response to the consultation on the option to abandon the commissions (81-408), Mr. Gosselin recommends, moreover, to abolish the redemption fee. It is also recommended to transform the commissions, tracking service fees, uniform, and eliminate according to him the appearance of a conflict of interest.
He advocates, however, the maintenance of the fund at a reduced fee. It would suffice, according to Mr. Gosselin to regulate the period of redemption and to control the use with investors more vulnerable. In the interview, he described these investors as » young people who have not yet bought a house or the customers of over 70 years of age «.
He adds that this type of commissions will help new recruits to settle. «If we abolissions any commission, we would find ourselves with a lack of succession and the possibility of small investors without advice. While, for their part, financial institutions have conflicts of interest on wall-to-wall with their in-house products, » snapped the advisor, which manages assets of$ 115 Million in investment funds, to some 400 families.