From Wednesday, March 23, 2005 Washinton Post newspaper comes the following:
By Brooke A. MastersWashington Post Staff WriterWednesday, March 23, 2005; 5:29 PM
"Citigroup, JPMorgan Chase and American Express Financial Advisers paid a total of $21.25 million to the NASD, formerly known as the National Association of Securities Dealers, to settle allegations that they collected excess commissions from more than 50,000 households by selling high-fee "class B" mutual fund shares when the investors could have bought another class of the same funds for less. In addition to the fines, all three firms will convert the shares into the class that pays lower ongoing fees, and reimburse customers who have already sold the shares for the extra fees they paid."
Here in Canada we have yet to awaken to the similar sounding and acting sales practices, being disguised as professional investment advice. The fact is that 80% of the mutual fund sales in Canada for many years now have gone into the higher compensating (and higher penalty to client) DSC funds, which have the deferred sales charge.
Further, when comparing two otherwise identical mutual funds, except for the compensation paid to advisor, a popular Deferred Service Charge (DSC) fund, which pays 5% to the advisor without disclosure on client confirmation or client statement, has grown over SEVENTY TIMES as large as an identical fund that has no hidden commission structure[1]This growth was achieved despite a higher management cost to the client, and a multi-year penalty to the client to exit the fund. [1] . (Source, Ontario Securities Commission Fair Dealing Model proposals, appendix F, "Compensation Bias", page 12)
This does not speak very highly of the amount of professionalism in todays financial services industry.
