{"id":838,"date":"2023-11-08T17:34:52","date_gmt":"2023-11-08T17:34:52","guid":{"rendered":"https:\/\/financeify.ca\/?p=838"},"modified":"2023-11-08T17:34:52","modified_gmt":"2023-11-08T17:34:52","slug":"seg-fund-chargebacks-conflict-of-interest-or-a-good-substitute-for-dsc","status":"publish","type":"post","link":"https:\/\/financeify.ca\/index.php\/2023\/11\/08\/seg-fund-chargebacks-conflict-of-interest-or-a-good-substitute-for-dsc\/","title":{"rendered":"Seg Fund Chargebacks: Conflict of Interest or a Good Substitute for DSC?"},"content":{"rendered":"
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As regulators consider charging upfront commissions on segregated funds and call for a ban on deferred sales fees, advisors and lifecos say chargebacks are a more customer-friendly alternative to DSC.<\/p>\n
The Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organization (CISRO) continue to evaluate “the risks and benefits of upfront fee sales charge options,” including chargebacks, a CCIR spokesman said.<\/p>\n
The groups are reviewing submissions made during last year’s consultation on a ban on upfront commissions, which ended on November 7, and plan to “reengage” with stakeholders in 2023.<\/p>\n
Similarly, the Ontario Financial Services Regulatory Authority (FSRA) will “continue to work on a policy position” on origination fees – including chargebacks – for segmented funds later this year, FSRA head of insurance conduct Erica Hiemstra said during a panel discussion earlier this month.<\/p>\n
Chargebacks are better for seg fund clients than DSCs, Asher Tward, vice president of estate planning at TriDelta Financial, said in an interview.<\/p>\n
\u201cIf you sell a product (with advisor chargeback) on the life side, it better be a good product because if two months from now the customer finds out they were sold something terrible and cancels it, you’re going to have to pay back your entire commission,\u201d Tward said . \u201cSo the chargeback structure is exactly what it should be, because the advisor should take full responsibility for this client. If you want to keep them for a while, you have to put in the work.\u201d<\/p>\n
Chargebacks shouldn’t pose a risk to an advisor unless the client wants to move the money within a few years of purchasing the seg fund \u2014 to cover an emergency or buy a home, for example, said Toronto advisor Brian Shumak. An advisor who intends to sell the wrong segmented fund to a client “for a fee will actually do so regardless of available parameters,” he said.<\/p>\n
Shumak added that clients with a time horizon of less than three years should generally not invest in segment funds at all.<\/p>\n
Advisors must be compensated for their services, “but there also has to be responsibility behind that compensation,” Tward said, adding that he favors a chargeback model in which the percentage the advisor must repay gradually reaches zero over time.<\/p>\n
If a client redeems a segmented fund a year after purchase because the fund “drastically underperformed the market,” the advisor will be subject to a chargeback, so “the onus is on you to make good choices about the right investments for this client and make sure they are eats,” said Tward.<\/p>\n
However, a potential problem with chargebacks is that advisers may “encourage clients to invest or remain invested in segregated fund contracts when that choice is not in the clients’ best interests,” a CCIR spokesman said.<\/p>\n
Chargebacks can also create a conflict of interest because some advisers may recommend segmented funds that pay the most upfront commissions rather than those that best serve the client’s interests, FAIR Canada said in its submission to the CCIR and CISRO consultation.<\/p>\n
BMO Insurance responded in a statement that a ban on both DSC and chargebacks would pose an “existential” threat by limiting consumer access to segmented funds “as many advisors can be expected to exit or not enter the market.”<\/p>\n
Allowing advisor fees to be charged back ensures that investors “with fewer assets have access to advisors and advice in an economic model that is sustainable for both consumer and advisor,” Canada Life’s note added.<\/p>\n
\u201cWe use chargebacks (for seg funds) because we believe it is a good alternative to (DSC),\u201d Ali Ghiassi, vice president of industry and government relations at Canada Life, said at the Advocis Regulatory Affairs Symposium in October, adding that seg funds have “longer tails” than mutual funds and are therefore less likely to be subject to chargebacks.<\/p>\n
The CCIR-CISRO committee has proposed that the nationwide ban on DSC in segmented funds (already banned in mutual funds) will come into effect on June 1.<\/p>\n
As regulators consider charging upfront commissions on segregated funds and call for a ban on deferred sales fees, advisors and lifecos say chargebacks are a more customer-friendly alternative to DSC. The Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organization (CISRO) continue to evaluate “the risks and benefits of upfront fee […]<\/p>\n","protected":false},"author":1,"featured_media":839,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[18],"tags":[288,346,305,212,259,41,345,347],"class_list":{"0":"post-838","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-seg-fund-investments","8":"tag-chargebacks","9":"tag-conflict","10":"tag-dsc","11":"tag-fund","12":"tag-good","13":"tag-interest","14":"tag-seg","15":"tag-substitute"},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t