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There is a disgraceful practice in the investment industry that needs to be stopped. As far as I know, it isn't illegal, but it should be.

It is essentially selling mutual funds with the prime intention to create new upfront fees for the salesperson. If you believe your financial adviser has done this, you should fire them.

Here is how it works: A mutual fund salesperson sells you a mutual fund on a deferred sale charge (DSC) basis. This means that the salesperson gets paid a lump sum up front, but with a lower ongoing "trailer" fee.

In order for the mutual fund company to be able to afford to pay out the large lump sum, the client must hold on to the funds for several years. If the client sells the fund at any time in the first five or six years, they will owe some money as a deferred sales charge.

For some mutual fund salespeople, the upfront payment on the sale of a DSC mutual fund is the best way they get paid. Their goal is to maximize those payments. Many advisers do not work this way, but some still do.

Here is what to look out for:

1) Every year they make sure to draw out the 10 per cent "free" funds from a particular fund. This is a potentially positive thing, in that it reduces the potential DSC fees for the client. If the adviser moves those units of the fund to the same fund but a different class (for example, ABC Canadian Equity fund DSC switched to ABC Canadian Equity front-end load with no commission), that is a good thing for the client. But if the fund salesperson regularly moves those 10 per cent "free" funds into a new fund or fund company on a DSC basis, they are simply getting another good upfront payment and extending the time the client is trapped in their investment.

2) They watch the six-year or seven-year DSC schedule closely. The minute a fund is no longer on a DSC schedule (meaning that the funds can be sold without additional fee to the client), the mutual fund salesperson coincidentally decides it is time for a change in direction. They sell the fund and put the client into a new DSC fund, starting the clock all over again for the investor, and receiving a new 5 per cent upfront payment from the mutual fund company.

Some would argue that since the client isn't paying additional fees in either of these approaches, it shouldn't be a problem. After all, the mutual fund salesperson is entitled to earn a living too.

The problem is that the fund salesperson is making investment recommendations driven by their commission instead of by the best interests of the client. It is clouding their judgment.

From a personal point of view, as a client I believe you should demand that you are never put into a DSC mutual fund - ever. The main reason is that the DSC fund is simply not in your best interests. There are other versions of the same fund that give you, the client, more flexibility.

In addition, this is the best way for a client to ensure that their adviser isn't merely churning the account to get the biggest DSC payout. While there might be other trades that are done to help generate revenue for the salesperson, the DSC churning of mutual fund accounts is one of the worst.

Follow Ted on his blog at The Canadian Financial Planner.

Ted Rechtshaffen is president and CEO of TriDelta Financial Partners, a firm that provides independent financial planning advice. He has an MBA from the Schulich School of Business and is a certified financial planner. He was vice-president of business strategy at a major Canadian brokerage firm.