Equitable Life of Canada has added a new sales charge option to its segregated funds.
The Waterloo, Ont.–based insurer’s Pivotal Select fund lineup now has a no-load chargeback option, in addition to the existing low-load, no-load and deferred-sales-charge options.
“Advisor-client relationships are constantly being redefined by the idea of choice,” said Judy Willians, vice president of savings and retirement at Equitable Life, in the release. “Introducing this new sales charge option broadens that choice for advisors and clients choosing Equitable Life.”
With the chargeback, the advisor pays back a percentage of their initial commission when a client makes a withdrawal of more than 10% from the fund within the first 36 months of purchase.
Units withdrawn within the first 12 months would be subject to a 100% chargeback rate; those withdrawn between 13 to 24 months would be subject to a rate that ranges from 97.2% to 66.4%; and those withdrawn between 25 to 36 months, a range from 63.6% to 32.8%, the firm said in an emailed statement. No chargeback would apply thereafter.
Similar to other sales charge options, the commission cost for the chargeback is embedded in a fund’s management expense ratio.
Equitable Life developed the new sales charge last year based on market research. Interest for a no-load chargeback option from advisors has been “significant,” the firm stated.
While the firm doesn’t expect the chargeback to replace existing sales charge options, it will likely be “a popular choice with some advisors and their customers,” the firm stated.
IA Financial Group has offered segregated funds with a chargeback option for more than 20 years. Among the firm’s four segregated fund compensation choices, the chargeback option is the most popular, said Edson Belhumeur, director, savings and retirement products at IA Financial Group, in an emailed statement.
The chargeback raises concern about conflicts, however.
“Why would [an advisor] ever recommend redemption under such circumstances?” said Ken Kivenko of Kenmar Associates.
“For an advisor to have to pay the commission back, he would be in a conflict of interest, which is unhealthy,” he said.
Equitable Life said advisors have some flexibility to respond to suitability needs since a client can be switched from one fund to another within the Pivotal Select lineup without triggering a chargeback.
Belhumeur described the chargeback as “valuable” for clients since it provides flexibility to withdraw money from their accounts without incurring surrender fees.
It also helps clients with fewer investable assets gain access to advice, he said.
“Many advisors would not be able to provide their advice to such clients without the chargeback option,” Belhumeur said.