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F inancial advisers and their clients are on a collision course. The priorities of the two groups are too often diametrically opposed. A perfect business relationship occurs when the goals of both participants are aligned. Goal congruence is a lovely thing. Both sides going in the same direction. These relationships are built to last. The basis for this column comes from two separate events. A group of investors expressed their concerns and a group of nancial advisers expressed theirs. The rst instance occurred when a young mutual fund sales person who was new in the business had his investment recommendations Conflict of interest for investment advisers and their clients Dollars & Sense Peter Watson Guest Contributor 19 | Thursday, May 7, 2015 | OAKVILLE BEAVER | www.insideHALTON.com for a hypothetical client published in a national newspaper. He worked at a rm that primarily sold their own mutual funds. He recommended actively-managed mutual funds that would be sold with the salesperson receiving a sales commission because those funds are sold with a Deferred Sales Charge. An actively-managed fund means the mutual fund investment manager would select what stocks the fund would purchase and when those securities would be bought and sold. There is signi cant evidence this investment strategy does not produce superior results to passive and cheaper funds. The evidence is from both academic research done over the last 50 years and investment performance results published by Standard and Poor's and many others. Bottom line is actively-managed accounts do not produce superior results. The Deferred Sales Charge sales option means there is a sales commission paid usually in the amount of ve per cent of the value of the investment. So, on a $100,000 investment, the sales commission is $5,000. Then the client must leave the funds invested with that mutual fund for a period of time that usually is seven years or pay an exit cost to the mutual fund company. The exit charge is often seven per cent in year one and declines slowly over seven years. The public outcry from readers was severe. They scolded the salesperson in their response to the newspaper for both the recommendation of actively-invested mutual funds and the Deferred Sales Charge option that paid a large sales see Clients on p.23 Dr. Vanessa Milich & Associates Family Dental Care Encouraging Healthy and Happy Smiles Caring for Oakville Families for 10 years Welcoming New Patients Evening and Saturday Appointments Queensbury Dental 905.849.8449 Dundas St. Oakmead n Trafalgar Rd. River Oaks Blvd. As seen on Upper Middle Rd. Sixth Line Martindale 1534 Queensbury Cres., Oakville (on Upper Middle Rd., just west of Trafalgar Rd.) www.queensburydentalclinic.com QEW PRICE OF ONE! LIMITED TIME OFFER Two Can Live for the Second Person FREE! Book Your Tour Today By Calling: 905-582-0395 3136 DUNDAS STREET WEST, OAKVILLE, ON (WEST OF BRONTE ROAD) AND ABILITY! IL A AV ply *conditions ap www.palermovillageretirement.ca