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Ethically challenged is the most polite way of describing an e-mail that sales reps at a big insurance company sent to investment advisers recently to flog mutual funds.

Horrified pretty much sums up the response by both the insurer itself and at least one adviser.

Question: Which is the true face of the financial industry, the e-mail itself or the response it generated? Sometimes I wonder.

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The e-mail was sent to advisers a couple of weeks ago by West Coast sales representatives of Standard Life, which is typical of life insurers in selling a lot of mutual funds, segregated funds and other investment products. The e-mail found its way to me after being circulated by some advisers.

The e-mail was titled "Summer Project: 7 Ways to Increase the Value of Your Book and Generate More Revenues." Let me translate that for you: It's a suggestion that advisers sell certain products to their clients to generate maximum commission and fee revenue.

One of the suggestions was to sell deferred sales charge (DSC) mutual funds. They offer an up-front payment to the adviser of up to 5 per cent (paid by Standard Life), which is juicy by investment industry standards. Clients pay nothing to buy these funds, but there's a redemption fee if they want to sell in the five years after they buy.

Maybe the Standard Life reps didn't get the memo that DSC funds are on the outs in the investment biz because of the way they hog-tie investors.

Other suggestions focused on selling various fund products that offer the adviser a trailing commission of 1.25 per cent.

These commissions are paid by fund companies out of the fees charged to investors who own their products to cover the cost of ongoing client service. In fact, trailers are one of the biggest reasons why fund fees are as high as they are in Canada.

A 1-per-cent trailer is the usual maximum, but some companies are reaching out to advisers by paying 1.25 per cent. Remember: Higher trailers mean higher fees to the client, and that means lower returns.

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The "7 Ways" e-mail was forwarded to Standard Life head office in Montreal by me, and the company was quick to disavow it.

"We don't support this," said Michel Fortin, a vice-president at the company. "It's completely against the Standard Life philosophy. Our key objective is to make sure a product is good for Standard Life, good for the client and good for the adviser."

Mr. Fortin said the e-mail was not authorized by the company and was not, as required, submitted to head office for approval.

As for the employees who sent the e-mail, he said the company's human resources department is investigating.

Standard Life also sent out a message to advisers titled "Standard Life apologies for unauthorized e-mail." The e-mail was not "aligned with our customer-centric vision," the company said.

Broadly speaking, the financial industry in Canada is based on selling products, not providing advice. Other countries, notably the United States, Britain and Australia, have made at least tentative moves to move the emphasis to advice, but here in Canada it's a seller's world.

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That's why those Standard Life sales reps felt comfortable sending out a e-mail that basically says it's all about making money in the advice business.

Example: The e-mail hyped a wrap account (fund of funds) as a way to "simplify and create a more efficient way to manage smaller accounts … while maximizing revenue." Translation: How to do less work and make more money.

What a time for an e-mail like this to surface. Financial markets have been up and down for five years now, and many investors are cranky about both their returns and the fees they're paying.

Now, here's evidence the financial industry is working on the principle that, like suckers, there's an investor born every minute.

No doubt, some people in the industry think that way. But don't make the mistake of thinking everyone does. Remember, it was advisers who outed those Standard Life sales reps. Why? Because they don't like the way it reflects on their business.

"It makes me feel a little bit sick when I see advisers and companies going down that path," said David Sung, president of Nicola Wealth Management in Vancouver.

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"In the financial industry, the best and most professional advisers always have their clients' best interests at heart."

That's what the best of the investment industry sounds like. The worst is on display in that e-mail on seven ways adviser can make more money off their clients.


Hit the Trail

Trailing commissions are how many advisers who sell mutual funds are compensated for the ongoing service they provide to clients. In an e-mail to advisers, sales reps at Standard Life highlighted trailers of 1.25 per cent for some of the company's fund products – asking them, in large type, "Do you know how much more revenue you can generate by moving to a 1.25-per-cent trail?"

Here's how that stacks up:

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In a typical equity fund sold by an adviser: 0.5 to 1.0 per cent

In a typical bond fund sold by an adviser: 0.25 to 0.50 per cent

In a minority of equity funds and wrap products: up to 1.25 per cent

In funds sold by some no-load fund companies: 0 to 0.25 per cent

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