An Inconvenient Truth
| Jun 19th, 2007 | Filed under: Investment Management Fees | By: Alpha Male |
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Adding to the relentless attacks on the opacity of financial advisory fees, Investment News took a major stand yesterday. In an editorial entitled “Advisers must face the facts of life“, the magazine declared:
“Whether fees are earned through commissions, based on assets or charged hourly, lack of transparency negates trust on all levels and threatens to undermine the credibility of the financial advice profession.”
This is a nuanced argument. The magazine calls only for greater transparency – however fees are earned. But an open dialogue with clients regarding the actual commissions received by the adviser on each recommended product would surely end in the client viewing his adviser as a salesman, not an advocate (largely negating the benefits of such candor for the commissioned adviser).
The current situation is pretty grim. Recent research cited by the magazine suggests less than half of investors said they understood their adviser’s fees “completely” or “fairly well”. (Faced with a direct comparison between mutual funds and ETFs, we would suggest investors also do not understand the fees charged by mutual funds either.)
Meanwhile across the pond, the head of one purely fee-based advisory firm is calling on the FSA to ban all forms of trailers and commissions. Money Marketing reports that the CEO of Towry Law, Andrew Fisher, is calling on a “total abolition” of all commission fees to avoid complication:
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