Fewer clients are using deferred sales charge funds, but these funds still represent a significant portion of the assets of smaller-book advisors, according to data released by the Mutual Fund Dealers Association of Canada (MFDA).
According to the MFDA, the percentage of deferred sales charge (DSC) funds, including low-load funds, held by all clients fell by almost a third (31%), or $34 billion, between 2016 and 2018. Customer Research Report 2020.
The report aggregates data submitted anonymously by members in 2018. The previous customer survey report was published in 2017 and was based on data from 2016.
The report builds on data released last month that shows a large portion of households served by MFDA advisors are mass-market households (less than $100,000 in cash and investments).
The report shows that these mass customers continue to have the highest concentration of deferred sales fee funds (33% of assets). DSC funds accounted for almost half of advisors’ assets with books worth less than $2 million.
The report also indicated that MFDA clients held approximately $1 billion in other investment products subject to DSC – primarily segregated funds and principal-protected bonds – with MFDA members.
As advisors’ books of business grow, advisors tend to fund their operations through fixed trailing and fee-based commissions, according to the report.
The number of advisors licensed in financial advisory firms (as opposed to banks and call centers) decreased by 17% between 2016 and 2019.
“This decline is largely due to members’ prohibition on selling DSC funds, which small book advisors use to finance their operations,” the report said. “This illustrates the independent nature of the advisors’ employment relationship in the Financial Advisory channel.”
Since 2016, the share of mutual funds – Class F and non-embedded funds – in fee-based accounts has increased by 53%, or $35 billion, the largest growth in mutual funds over this period.
The average cost of fee-based programs involving Class F funds ranged from approximately 0.49% of assets for the wealthiest households (assets of at least $1 million) to 0.66% for the least wealthy (assets of $100,000 to $250,000 ). (These costs did not include fund management fees.)
The most popular type of funds held by MFDA members remained no-load funds, accounting for approximately 53% of all mutual fund assets under management.
The average cost to all households served by MFDA was 0.83% of assets (excluding fund management fees).
While an increasing number of MFDA members have offered ETFs over the past few years, the report found that ETFs are only available in fee-based programs, and high-volume clients typically do not have access to fee-based accounts.
“We therefore expect that the number of members offering ETFs to mid-market and high-net-worth clients will increase in the future, but it is unclear whether this will be the case for mass market clients,” he said.
