Peak Financial Group has extended its fee-based pay platform, formerly reserved for securities representatives, to mutual fund advisors.
Launched seven years ago, the Prospera platform lets advisors opt to be paid fees rather than commissions. Only advisors with Promutuel Capital, which Peak acquired in December 2009, are excluded from this system.
The influx of fund advisors swells the mutual fund assets eligible for the platform to nearly $5 billion, out of a total of $6 billion. "Already, several hundreds of millions of dollars are managed through this platform," Robert Frances, Peak President and CEO points out. "Most advisors have between 5 and 15 affluent clients that have switched to the fee system."
Under this platform, fees are based on a percentage of clients' assets. "The maximum percentage is 2.25%, which represents the equivalent of asset management service in mutual funds. For wealthy clients, the percentage can be as low as 0.25%," Mr. Frances explains.
He adds that advisors receive about the same income in fees as they would in commissions. "If the client has a portfolio of $3 million or $4 million and they want monitoring only, not advice, this can be a very attractive option for them and the advisor, who can negotiate a rate in line with the client's needs," he says.
The fee formula allows the advisor to better control costs in their portfolio, which enhances transparency. "Also, the number of transactions in the portfolio and the turnover from one portfolio to another does not generate a commission for the advisor. This reduces the appearance of a conflict of interest."
For some clients, the fee system triggers tax benefits, Mr. Frances points out. "Portfolio management fees can be tax deductible or can offset other income," he says.
All the same, this platform is not cost-free. On top of labour costs that set Peak back between $200,000 and $300,000 per year, there are also development, maintenance and other costs. "The total will probably reach $2 million to $3 million per year," Mr. Frances says. He still considers the investment worthwhile. "It was not profitable for the first few years because few clients used it. But today it can help us retain more clients. It better equips us to face this trend," he says.