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Do advisors fear F class units?

Delayed withdrawal from E*Trade suspicious

On March 30, E*Trade Canada announced plans to distribute F class funds from Elliott & Page and AIM-Trimark, with more to come. The new FundPlus program intended to simply sell F class fund units (which have all advice fees stripped out), charging only its regular equity trading commission. Curiously, it took nearly a week before AIM-Trimark pulled out of this deal. Checking back just a couple of days ago, E&P was no longer listed – signifying the program’s death, at least for now.

Clearly, the time lag between the original announcement (which was promptly written up in the Globe and Mail the next day) and the subsequent withdrawals casts some suspicion in the minds of us cynical industry watchers.

What many suspect is that distributors – specifically brokers and dealers that sell load funds – put pressure on E&P and AIM-Trimark to pull out of E*Trade’s program. There’s no proof of this but the suspicion comes from the industry’s once-strong dislike for successful direct-sellers like Altamira and PH&N.

Whether industry pressure killed E*Trade’s plan or not is a matter of speculation at this point. However, considering this as a possibility raises some questions. Are advisors threatened by such a discount offering? Do they have reason to be worried?


In the early-to-mid 1990s, Altamira was the thorn in the fund industry’s side. More specifically, they were a threat to those who made a living from the sale of mutual funds and other investment products. Altamira (particularly its flagship Equity Fund) posted phenomenal performance in all market environments and offered investors direct access to top-notch management (and results) – without paying commissions.

Their success made a number of fund companies weigh their options. Specifically, the profitability of selling more through brokers and dealers (to which they had to pay sales commissions) versus going direct had to be weighed. If there was any doubt, Scudder’s lacklustre venture into Canada confirmed that successful fund companies need strong distribution or risk extinction.

The value of advice

In the world of marketing, there is something called a ‘value proposition’ – a term with which advisors are very familiar. It refers to the fact that a successful business must clearly articulate and demonstrate what makes them unique and how that benefits its existing and prospective clients. Failing to do so can potentially threaten a business’ ability to retain and grow market share.

I’ve spoken and corresponded with hundreds of financial advisors across Canada. Those that I consider to be competent and honest make no bones about the fact that their advice has value – and that cost is usually built into product prices. And their clients are happy to pay the price for the benefit of having the guidance of such qualified advisors to take care of financial matters.

However, I’ve also spoken with advisors that lack the knowledge that I think they should have to advise others. These advisors cringe, for instance, at the suggestion that fund companies should publish MERs in dollars and cents for fear that their clients might actually know what they pay – or that they pay anything at all.

This apparent lack of confidence might be acceptable for an industry rookie. But most of the advisors I have met that fall into this less competent group are not new. Most have been around for many years and have successful businesses. Yet, they’re threatened by change – and improved transparency in particular.

However, making F class funds available to people who neither want nor need advice makes good sense. It creates transparency that some advisors simply resist. For instance, CI Harbour fund carries a typical MER of 2.47 percent per year. But the F class version clocks in at just 1.4 percent annually. The availability of this information, and access to this product would perhaps place more accountability on advisors to justify the value of their work.

My two cents

I believe most investors are better off investing with the guidance of a knowledgeable, competent advisor. In fact, I wrote about this last summer. It is also seemingly clear that most Canadians clearly prefer to invest with the advice and guidance of a professional. But I don’t think that investors should pay for advice they neither want nor receive. Granted, investors who aim to keep costs low have a range of options, including exchange-traded funds and true no-load funds from a handful of companies.

Advisors are essentially do-it-yourselfers since most don’t need advice from others. Hence, it seems silly that advisors can’t buy straight F class units for their own accounts. After all, a lawyer who drafts his own will is unlikely to write himself a cheque for this valued service. So, why must advisors effectively pay for their own advice? Frankly, the industry hasn’t adequately answered this question.

If pressure from advisors was at least partially to blame for E&P’s and AIM-Trimark’s withdrawal from E*Trade’s initiative, it’s likely that those advisors aren’t truly confident in the value of their advice – a sad statement for any professional. But my guess is that this story isn’t over just yet.

Dan Hallett, CFA, CFP is the President of Dan Hallett & Associates Inc. in Windsor Ontario. DH&A is registered as Investment Counsel in Ontario and provides independent investment research to financial advisors. He can be reached at


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