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Alternatives to Deferred Sales Charge 9 | Thursday, January 30, 2014 | OAKVILLE BEAVER | www.insideHALTON.com T he Deferred Sales Charge (DSC) method of paying mutual fund salespeople a commission typi es what is wrong with the investment business. The commission is good for the salesperson but in many cases not good for the client. There should be a change in the way compensation is paid in the nancial services business. That change is long overdue. The DSC on the purchase of a mutual fund happens when the investment adviser selling the fund to the client is paid a commission. This is often ve per cent of the amount of money invested. In order for the mutual fund company to justify this commission expense, it requires a client to stay invested with their rm for seven years. The client is charged an exit fee if they take their money away from the fund company during the rst seven years, initially approximately seven per cent. That charge then declines slowly over the seven-year period. The problem with this method of compensation is it is based on a transaction, which can be a con ict of interest between the client and the investment adviser. Research nds the commission is often hidden. In my opinion, the commission of ve per cent for only one transaction is high. If investors understood how and what commissions were charged, would they be willing to pay them? Their high commission costs are passed along to the investor by the mutual fund company. This occurs in the form of ongoing management fees that are charged to the client every year they con- Dollars & Sense Peter Watson Guest Contributor TH K YOU AN 's C anada lling car e best-s s in a row. 1 6 ye a r tinue to own the mutual fund. After the initial sales commission, the investment adviser receives an annual trailer commission of usually one half of one per cent whether or not they provide any ongoing service to the client. That trailing commission has to be recouped by the mutual fund company and it too is included in the ongoing annual expenses paid by the investor. The Canadian Securities Administrators' 2010 study found only one third of investors were aware of trailing commissions. Only one in four understood DSCs. At issue here is lack of fee disclosure. The 2012 Investor Education Fund report states only 64 per cent of investors said their adviser told them about the costs of owning mutual funds and only 45 per cent discussed their compensation. The same Investor Education Fund study found 70 per cent of clients believe their adviser has a duciary duty, meaning they will put the interest of their clients rst. The Canadian Securities Administrators said there is no regulation or see Disclosing on p.12 CA NAD $ $ 0 0 DOWN PAYMENT /OAC A MODEL FB2E2EEX SECURITY DEPOSIT $ 8 88 8 2.9 99 9 @ APR % C CIVIC IVIC DX DX THE THE ENHANCED ENHANCED 2014 2014 LEASE BI-WEEKLY FOR 60 MONTHS . 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