Canadians are still getting gouged

Ruth Saldanha: We recently talked about how the ban on deferred sales charges or DSC is pretty much dead. The key reason behind this was political interference, mainly due to the Conservative Ontario Government withdrawing a key pillar of support for the plan. Since then, we've had a federal election with the incumbent Liberal Party retaining control albeit of a minority government. What does this mean for the DSC? And where do we go from here? Tom Bradley, President and Co-Founder of Steadyhand is here with us to talk about this today.

Tom, thank you so much for being here today.

Tom Bradley: Thank you for inviting me.

Saldanha: First up, why did the Ontario government decide to go down this path?

Bradley: Ruth, I was hoping you'd tell me. It is not clear. You used the word political. I can only think that it was a total political move from a small faction of dealers and advisors that lobbied the new government, because the trend in the industry is very strongly away from DSC. It is still a good chunk of the assets in the mutual fund complex, but it is a very small part of the sales and I think the advisors that are still using DSC are way behind the curve and are really revealing how out of the times they are. I think we've got to think about why were we trying to get rid of DSC and I think the OSC and the other regulators did some good work on this. It's a very high-cost way to invest. The advisor is getting a 5% commission and then getting paid along the way as well. It isn't very transparent. I can tell you, Ruth, for clients we've known, DSC causes more distrust in our industry than anything that I've seen. Transparency is obviously horrible and I think it is an invitation for abuse. And we know that people, advisors flip funds from time to time so they can get another 5%. So, it is very – DSCs are very advisor oriented. They are really good for the advisor. They're not very client-oriented. And I think the regulators have taken a good leadership on this. They've kind of got smacked down by the government.

Saldanha: Where do you think we're going to go from here? And what are some of the likely alternatives to a total DSC ban?

Bradley: Well, I think where we're going is – I haven't been overly proud of my industry and how we've taken leadership in the industry – investors friendly initiatives, but I think on this one, the industry's moved on. And yes, there's as I said earlier, there's a small minority but I think where we're going is that the DSCs will go the way of the dodo bird. But where do we go from here? Well, there is a variety of compensation structures that are out there. I think the one that is garnering the most attention and most assets is a fee-based account. I have mixed feelings about this. I have been lobbying for it because it is more transparent, there's no conflicts of interest. Advisor in no way is motived to churn the account or do extra trades. The one issue about fee-based accounts is some advisors are using it as an excuse, or a way to raise fees from where the client was paying before. And I think that is, but that would be the prime one. And I think it's just the way we should go. There are other no-load funds that people can buy that have a trailer fee would be an alternative to DSC. But the fee-based I think, is the most common one.

Saldanha: As an investor, what should I do to protect myself? And how do I get the value that I deserve from my advisor?

Bradley: Well, this is a frustration of mine, Ruth because investors need to ask questions, and I know it's a lot more awkward. If you've been with somebody for 5 or 10 years then to suddenly start asking about compensation and what are you paying, but people have to ask what am I paying in total? And so please break it down for me. How much am I paying for your advice? How much am I paying in the min charges, things like that? What products costs are there even ETFs that have low fees, there is a cost to an ETF or a fund or whatever. And so let's total it up and look at it and just see what I'm paying, and what value I'm getting for that. And one of the reasons I like the fee-based account is because when people see that they're paying x thousand dollars a year for, for the advice, they'll go and use it. A lot of people don't use their advisor properly because they kind of think they're not getting paid. And so, but I think it comes down to questions and if you don't understand ask again and again. And something I tell investors all the time, that is if they find that person across the table is avoiding the question, obfuscating, squirming in their chair, then you got work to do. You got to ask more questions or go somewhere else because they're obviously hiding a fact that there's a much higher fee.

Saldanha: Great. Some of the value is for us as well. We have to do more.

Bradley: Exactly.

Saldanha: Thank you so much for joining us today Tom.

Bradley: Thank you.

Saldanha: For Morningstar, I'm Ruth Saldanha.