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DIY investors charged fees for advice not received

DIY investors charged fees for advice not received

December 13, 2018

There is trouble brewing on how the investment industry collects mutual fund fees from some individual investors.

 Approximately $25 billion of mutual funds are owned by do-it-yourself (DIY) investors. These are investors who have decided to forgo professional financial advice and make their own investment decisions. Many do this to avoid paying fees to a financial advisor.

 That is their option.

 Sounds pretty straightforward. As it turns out it is not straightforward.

 There have been a few changes in the investment industry towards better disclosure of investment fees paid. Now do-it-yourself investors are suddenly learning they have been paying for financial advice they have not received.

 When a do-it-yourself investor has a discount brokerage account, regulation requires that no advice be given. In September 2018, CBC Go Public reported how a fairly sophisticated investor suddenly realized he paid over $60,000 in embedded commissions or trailers for advice he did not receive.

 Just to make this perfectly clear. Because he had a discount brokerage account he was not able to receive financial advice from that broker, nor had he requested financial advice. Nonetheless he was charged fees for financial advice.

 A lawyer interviewed for the Go Public report estimated that Canadian investors have paid tens of millions of dollars in fees for financial advice they didn’t receive.

 Regarding my statement of trouble brewing, there are two things that will be interesting to watch.

 First, the proposed class-action lawsuits regarding these fees, against well-known asset management companies.

 Second, in September 2018 the Canadian Securities Administrators published a proposal to ban trailer fees paid to discount brokerages. The industry has three months to respond.

 In the court of public opinion charging tens of millions of dollars for advice not given is not only wrong, it is immoral.



Peter Watson is an agent of, and securities products are provided by, Aligned Capital Partners Inc. (ACPI).  ACPI is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF).  The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Peter Watson Investments