New seg-fund sales option a win for advisors

by Leo Almazora06 May 2020

Equitable Life’s newest sales option for its line-up of segregated funds represents a better option for advisors seeking to avoid a significant conflict of interest with their clients, according to one independent advisor.

Last week, the financial-services firm added a No Load Chargeback (NL-CB) option to its Pivotal Select segregated funds lineup, complementing its existing Low Load (LL), No Load (NL), and Deferred Sales Charge (DSC) options.

Aside from the different sales charge options, advisors and clients who avail of the Pivotal Select contract can choose among three distinct guarantee classes — Investment Class (75/75), Estate Class (75/100) and Protection Class (100/100) — as well as a host of different investment funds to meet their needs.

“Advisor-client relationships are constantly being redefined by the idea of choice,” said Judy Williams, the company’s vice president for Savings and Retirement, in a statement announcing the move. “Introducing this new sales charge option broadens that choice for advisors and clients choosing Equitable Life.”

Sean Harrell, partner and senior advisor at Howe Harrell and Associates in Manitoba, said that the new option represents a step forward for the company, particularly when compared to DSC options.

“First and foremost, it’s harmless to the client, which is where DSC’s went wrong,” he said. “Some advisors have overprescribed DSC funds, and some large companies have even enticed clients to purchase them by offering slightly lower MERs on them.”

While proponents have defended DSCs as a useful compensation option for low-net-worth accounts, critics warn of the risks they pose for clients that sell or transfer their funds within the chargeback schedule. Recently, various investor advocates have reiterated their calls for a DSC ban in Ontario as the coronavirus crisis leaves many Canadians in desperate need of liquidity.

“The win [with Equitable Life’s new option] for me is not for clients, who already have a no-load option at their disposal, but for the advisors,” Harrell said. “If you are selling segregated funds or mutual funds, this is a way to get paid for your time and effort while guaranteeing no harmful DSCs are imposed on your client.”

He highlighted the potential of the NL-CB as a tool for newer advisors, for whom even a modest up-front commission is necessary to “keep their doors open” as they try to establish themselves in the industry.

“There have been rumblings about this new sales option across the industry for a few years, which to me have seemed to be mostly from insurance companies,” Harrell said. “I’m sure the mutual fund companies are kicking the idea around as well … I believe we’ll see more of these offerings in the near future as other fund companies will want to capture this new business from advisors.”