Equitable Life of Canada has added a new sales commission option to its segregated funds.
The Waterloo, Ontario-based insurer’s Pivotal Select funds offering now includes a no-load chargeback option, in addition to its existing low-load, no-load and deferred sales fee options.
“The advisor-client relationship is continually being redefined by the concept of choice,” Judy Willians, vice president of savings and retirement at Equitable Life, said in the release. “The introduction of this new sales fee option expands that choice for advisors and clients choosing Equitable Life.”
With chargeback, the advisor returns a percentage of his or her initial commission when a client withdraws more than 10% from the fund within the first 36 months of purchase.
Units withdrawn within the first 12 months will be subject to a 100% chargeback rate; for those withdrawn for 13 to 24 months, the rate would range from 97.2% to 66.4%; and those withdrawn for periods of 25 to 36 months, a range of 63.6% to 32.8%, the company said in an emailed statement. There will be no chargebacks after that.
As with other sales fee options, the cost of the chargeback commission is included in the fund management expense ratio.
Last year, Equitable Life developed a new sales fee based on market research. Advisor interest in the no-load chargeback option has been “substantial,” the company said.
While the company doesn’t expect chargeback to replace existing sales fee options, it is likely to be “a popular choice among some advisors and their clients,” the company said.
IA Financial Group has been offering chargeback segregated funds for over 20 years. Of the company’s four separate fund compensation options, the most popular is the chargeback option, Edson Belhumeur, director of savings and retirement products at IA Financial Group, said in an emailed statement.
However, chargebacks raise conflict concerns.
“Why would (the advisor) ever recommend a redemption under these circumstances?” said Ken Kivenko of Kenmar Associates.
“If the advisor had to return the commission, he would be in a conflict of interest, and that is unhealthy,” he said.
Equitable Life said advisors have some flexibility in responding to suitability needs because a client can transfer from one fund to another under Pivotal Select without the need for a chargeback.
Belhumeur described chargebacks as “valuable” to customers because they provide the flexibility to withdraw money from accounts without incurring withdrawal fees.
It also helps clients with fewer investable assets gain access to advice, he said.
“Many advisors would not be able to provide advice to these clients without a chargeback option,” Belhumeur said.
