Why I’m Closing Down my Primerica Deferred Sales Charge (DSC) AGF Account

Last Update to Dialogue: 15-01-14

It seems this is turning into a dialogue which I will update as they come in.  I will put the date of the most recent response at the top of the blog post.

Below is my response to my Primerica sales rep when he asked why I was shutting down/transferring out my AGF DSC account.  I thought it was interesting enough to share since not that many people do their due diligence, like me, and may be stuck in a similar deal or considering purchasing one:

Names removed for the privacy of rep:

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Hey PRIMERICA REP,

Thanks for your reply and for your instructions on how to close down my DSC ‘investment’.

Since you asked for details… brace yourself….

I’m a straight shooter and I do wish you the best because I like you as a person and I still like the Primerica term life insurance so I will give you the straight goods.   In fact, I might even blog about this at some point and remove your name from the article because it has been a most interesting experience for me.

On one side, you won my business and trust with the term life insurance story and showing me what a bad deal it was compared to whole life.  I totally agreed and signed up for the deal.  I still agree.

Then, once the trust was established, you sold me a DSC (Deferred Sales Charge) ‘investment’.

Note: I do not deny that you sold it to me legally and according to Canada’s industry guidelines.  But you can sell tobacco legally, too.

Being in sales, I cannot blame you and I even understand more than most people might.  You sold me the thing that gives you the most commission and I know the temptations to do this.  In my sales position I’m often tempted to charge a ‘tad’ more if someone doesn’t know the market rates at all.  Theoretically, that would be fully legal in a ‘buyer beware’ sense.  They didn’t do their homework, after all.

Unfortunately, though, when you sold me the ‘investment’ I was in a peculiar position of vulnerability in the following ways:

  1. I was under personal psychological duress as a result of my painful business loss.
  2. I was in financial hardship and still am as a result of #1
  3.  I didn’t know anything about investing in funds or the like.  Even to this day I’m a baby/beginner (but much better than last year).

I have made the decision to take my personal investments into my own hands because I don’t believe my best interest has been taken into consideration.

I just finished my realtor licensing course and realtors have an actual *fiduciary duty* to their clients.  It’s exactly the same as with lawyers and their clients.  We must, by law, look out only for our client’s best interest.  This fiduciary duty clearly doesn’t exist in this ‘investment’ world.  The conflicts and temptations are insurmountable. If there was a fiduciary duty, there is no way you would be allowed to sell me a DSC.

It has been deemed by most people that DSCs are not just a bad deal, but actually unethical.

http://business.financialpost.com/2013/01/02/the-death-of-the-deferred-sales-charge/

or this one:

http://www.huffingtonpost.ca/tim-paziuk/mutual-funds_b_4682413.html

I now agree fully with these views.  It’s my money and I should be able to do with it as I please.  In my life I only get a few hours and I used those hours to earn money with hopes of maximizing the leverage for my retirement and my children’s future.

In the future, if I use a financial advisor of any kind it will be a pay-per-visit / pay-per-hour advisor such as Asante (they were my customers at the shop when I owned it).

It was  a hard lesson to learn but I’m very thankful I learned it with minimal collateral damage (imagine if I needed to suddenly access the money and it was a much larger amount!)

I hope this answers your question as to why I’m leaving the investment side of our relationship, but also my parents set up an account as well so I’m just going to clear this off my mind and to do list so I can free myself a bit.

To answer your question about what you could have done better? I think that’s pretty easy: you should not have sold me a DSC.

Simple as that.

Or, you could have *fully disclosed* that a DSC is frowned upon in most of the investment circles around the world and that the main purpose of selling it to me is to get a bigger up-front cheque.

Thanks for hearing me out and I wish you the best 2015 for the rest of your non-DSC product line.

Sincerely,

Wayne

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Good morning Wayne,

Thank you for the extensive feedback.

Before you blog about your experience, here are some other things you may want to consider. You made quite a few assumptions on the transaction that we did. Let me clarify a few things regarding your investment. You purchased an RESP in the beginning of 2013 for [5yr old daughter’s name] who at the time was 3 years old. A DSC investment works on a deferred sliding scale so that after 7 years, there is no fee.

Why did I sell you this? Well, if [5yr old daughter’s name] is only 3 and we assume that she will go to school around the age of 18/19, the 7 year issue is a non-issue. In other words, for this long-term investment, you would have had to pay no fee out of your pocket. Now, if [5yr old daughter’s name] was 17 when we met, I would have not recommended a DSC investment because that would have meant you would have to pay fees when withdrawing the money. The same goes for an investment that a client would like to hold for a short-time such as an emergency fund.

I’m not sure how it makes sense then to work with a company that will charge you per visit/per hour as you say. If you’re under financial hardship, isn’t not paying a fee better than paying one? As for commissions, yes I got paid $30 for the transaction. I could have put in you in a front end load and made more.

I’m curious as to how much companies charge that work on a pay per visit/pay per hour basis? As for the management expense ratio as one of the articles mentioned being higher in a DSC fund:  As I mentioned yesterday, your investment has generated just under 12% per year. That means that you’re up 24% since we began. I think that’s pretty good. The MER is deducted prior to what you get as a net return. This means that you made 12%/year after all fees already being deducted.

Yes we do have a fiduciary duty as well. I know that what I did was the best for you given the parameters of your investment need.

As for the articles, you may want to look at the feedback/comments that the first article generated. As a side note, there are a lot of “good” articles on why whole life insurance is the best and to stay away from term insurance. One can paint a picture in many ways. So one has to wonder–who should I trust/believe?

I think that it’s great that you have taken such an interest in learning about your money and the industry. I always say that an educated client is always better off than one who isn’t. This is one of the reasons that I’ve been somewhat persistent in trying to sit down with you over the last year to give you some more insight on fees…

Why not join us just to get your investment license…? Not only will you learn a lot about this subject but you could then control your own investment.

Just a thought. Thanks, Wayne.

PRIMERICA REP

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12 thoughts on “Why I’m Closing Down my Primerica Deferred Sales Charge (DSC) AGF Account”

  1. Congratulations and great response to your self serving financial salesman (note I did not say advisor). You took a much higher road than I would have!

    Stepping away from the perceived satefy of a financial salesman is a big step. It goes against common wisdom but it is truly the first step to taking control of your investing future. The benefits of reducted fees and greater flexibility will compound significantly going forward.

    Keep us posted on your progress…

  2. Brilliant stuff, Wayne, very well put together email! Good to see you call him on his BS. I think the best part is at the end of his email when he tries to get you to join him at Primerica! “One of us. One of us.”
    Examples like this are one of the reasons I’m going into the financial service industry (as a fee-only planner)- there is a serious lack of unbiased financial advice out there and people are getting fleeced.

    1. yeah, I’m learning more and more (slowly albeit). Apparently what these DSCs are not even the worst out there. Maybe they are the worst in their class but apparently there are some pretty ironclad locked up deals sold by Heritage under the guise of RESPs. I’ll hopefully learn more about this but yeah – sad that there isn’t any fiduciary duty. I will eventually respond to this rep about his claim for fiduciary duty because from what I understand there isn’t any legally in Canada.

  3. I mean, you can cut your own grass, wash your own car or even clean your own house.. But instead we pay a small fee for these services, isn’t it the same in this case? I’m just asking, I’m from the outside looking in. I know I can save fee’s by doing it myself, but I’m not doing that now anyways, so why not start? Am I wrong for thinking like this?

    1. Hi Bill, it’s a valid comment. It’s also one that all of the sales reps use. I would say ‘it depends’. If you are ok with allowing a *percentage of your holdings* to bleed out the side into your rep’s account, then sure. I”m not. I’m not rich enough to do this. I’m in need of being very wise steward. If the actual rep was watching the actual content of the fund and personally responsible for the wins/losses then I could kind of understand that. If they were taking a one time fee and it was fully disclosed and they broke down clearly what they were charging and for what I might even understand that. But what they do is sign you up for an average (at best) deal, front end load the commission, and then we’re stuck holding the bag come hell or high water with no way to get out. That seems ‘wrong’ to me. With self-directed stuff you can move stuff with more freedom. The reps are the reps. They aren’t the fund managers. Long discussion topic, I know, ha.

    2. Bill,

      What you say has merit until you dig into the numbers. You can look at the fee in a couple of ways: (1) the Money Mart way of “Two bucks on a ‘hun” or (2) as an investor who realizes the market returns on average approximately 7.5% per year so the measly 2% MER actually amounts to 26.7% of your expected annual return. No adviser in the industry is offering advice worth that, especially considering you can buy an index tracking ETF for as little as 0.06% MER (yes I said 0.06% or 97% less than an “advisor” charges) and have near historic market returns.

      My advice to you and everyone in Wayne’s shoes is to do some research on the “Couch Potato Portfolio”, slash your fees for no service and reap the rewards. As a simple exercise, grab your handy spreadsheet and calculate what the difference would be if you invested $100,000 over 25 years in (a) an average mutual fund sold by your friendly, well off salesman or (b) in a low fee ETF with an MER of 0.1%. At the end of 25 years under scenario (a) you would have accumulated $381,339 and under (b) you would have $595,808. There are a lot of assumptions built in but you can see that “two bucks on a ‘hun” will destroy your quality of life in retirement.

      The general rule is, all things being equal, the lower the fees the greater the return. Mutual funds were a great investment vehicle when there were no other options but the advent of extremely low fee, plain vanilla EFTs make mutual funds one of the worst investment vehicles out there.

      Good luck and fire your salesman…

  4. This is a little tricky.. I see a few issues that come up in your email. I am also a Financial Advisor and this is my take on it. Take it or leave it.

    First, Primerica is known throughout my industry as the bottom feeders. They are a Pyramid organization. This is why he tried to recruit you at the end of his email. The more people he recruits, the higher the commission he receives from Primerica. Which is why most Primerica advisors come from all types of business, thinking they will make lots of money, quickly. Primerica hires THOUSANDS of new advisors every months and most are gone within two years.

    Second, I will say that no one works for free. Disregard Primerica altogether. The fee that you are paying is for the advice a QUALIFIED Financial Advisor gives you. Most of us run our own Independent business and that 5% commission we make keeps the lights on. As yourself was a business owner, I am convinced that you did not work pro-bono.

    Third, DSC fees have had a bad rep in the last few years, but your advisor should have disclosed Front-end, Back-end and Low-load fee structure and involved you in the decision. If he would have picked front-end load, that 5% commission would have been taken out of your initial deposit. So if you invested $100 per month in this RESP, you only would have invest $95 and the other $5 would have been kept as a commission. The commission on a DSC mutual fund is actually paid for by the Fund company on your behalf. And yes, even if 7 years seems like a long time, they have to recoup their money somehow. In a Low-load structure, he would have been paid 2.5% and instead of being on a declining scale of 7 years, the Fund would mature after only 3. But since this was in an RESP for a very young child, I have to agree that it didn’t make sense for you to pay upfront fees on every deposit. I would, however, have at least explained the difference to you and let you decide.

    Fourth, as for your term insurance…. Whole life may seem a little expensive, but it is inforce UNTIL YOU DIE. Term typically expire between ages 75-80 (depending on the insurer)I don’t know your situation and what prompted him to advise you to give up permanent insurance for Term, but we usually strongly advise against it. I can tell you now, he made a lot more money replacing your life insurance than he ever made on your RESP. Let’s say he sold you a Term-20. What happens if you become uninsurable between now and your next renewal? Your premiums would go from typically $40 premium(rough assumption of a 40 year old male non-smoker on a $500,000) to a $460 premium (again, I am making rough assumptions). You may still need insurance past age 75 if you plan on leaving any property to your child. Whatever passed from your estate to your kids will be taxed. Life insurance is a great tax-free benefit that would cover this tax bill for her.

    I am not trying to say that your advisor is incompetent by any means. I do not know the circumstances under which he advised you how he did. It is just important to do your research before you sign that cheque over to a new advisor. A good conversation where you discuss how he gets paid would have made you feel a lot better about the whole thing.

    I hope you feel better about your investments now. I have to admit, I have never met a Primerica Advisor I would trust.

    1. Mel,

      First, I agree with everything you’ve posted regarding some of the players in the industry. Unfortunately these practices represent more the norm rather than the exception with sales driven investment companies that rely on deceptive practices and slick sales pitches. One of the largest, if not the largest fund company in Canada, also pushes their clients to DSC funds. I had one senior salesman proudly tell me he has 70% of his clients in DSC funds. Despite the sales pitch, there is ABSOLUTELY no justification for a salesman to ever sell DSC funds other than to line their own pockets.

      Your take on whole life insurance is also interesting given that nearly every unbiased financial assessment of life insurance recommends term life. There are exceptions (ex. tax advantages for independent business owners) but most everyone would benefit substantially by paying for cheaper term life to meet their insurance needs while investing the difference in a solid low cost, ETF investment plan. Besides, insurance is only to protect against unknowns (ie. death at 40). You should always mitigate risk rather than insure against certainties (death at 80). The bottom line is there are much better savings vehicles available than the savings component of whole life insurance.

      I agree that “no one works for free” which is why a fee for service model is the only true advisory model investors should consider. True financial advice only benefits the customer when all self motivation on the part of the salesman is removed. If a salesman’s main sources of compensation are commissions and trailer fees the salesman is more likely to recommend those products that offer higher compensation. It’s stands to reason that if the industry is less than transparent and the customer less than financially proficient this will be the result.

      If we use another industry this should become clearer. In some countries doctors are paid by pharmaceutical supplies or receive a percentage of scripts for all drugs recommended / sold. I think we can all agree that this is not a model that benefits customers (patients) in need of unbiased medical advice. Thankfully in Canada these practices are illegal and for good reason. And yet we still allow incentivized financial salesman to steer their financially naive clients into products without full disclosure around immediate or trailing fees. Does this seem right???

      The mainstream investment world is fast waking up to the benefit of fee for service financial planning and Canada’s new mutual fund sales fee disclosure rules will hopefully accelerate the transition…

      1. True financial advice only benefits the customer when all self motivation on the part of the salesman is removed

        I like what you wrote here, Paul, because I have seen this same issue in two other professions: lawyers and realtors. I had a deep discussion yesterday with a retired lawyer who is trying to make positive change by exposing evil in that profession. We both agreed that under no circumstance should the lawyer have a previous relationship with the opposing lawyer, nor should any of the lawyers be frat buddies and bar stool comrades with the arbitrators or judges. There is way too much chance of collusion, or behaviour that doesn’t favour the client. If such a relationship exists, full and immediate disclosure should be provided allowing both plaintiffs and defendants the chance to get unbiased help – including requesting a different judge/arbitrator.

        With financial systems like this, the sales person (they are sales people because they are paid by selling the deal) needs to fully explain and have the client sign off on the implications of their position in relation to the commission. If I am a real estate agent and I’m selling my mom’s home, I need to disclose to the buyer that it’s my mom’s home and to the agent because they need to know that it is impossible that I will not favour my mom’s best interest if the chance arrives. The DSC-selling rep needs to disclose that they make *way* more money selling the DSC than selling XYZ and same with whole life insurance plans. If the client signs off on the bad deal and initials each box that shows the main beneficiary of the decision is the sales rep, then so be it. Disclosure and clear explanation is always the key. That said, some of these financial ‘plans’ have been deemed such a bad deal for the customer that they have been outlawed in many countries, ha. Maybe that’s the easier way?

  5. Lol, so in Primerica with Series 6, 63, 65, and 26 we are the “bottom feeders”? Series 65 is financial planner license. Art Williams forced all of you crooks who push Whole life insurance like crack candy to kids and force us to learn your garbage rules and regulations for insurance licenses here in the states. Funny how those rules and regulations are forced on us by you fishy crack candy whole life policies.

    I can say “some” whole life policies are legit for about maybe 10% of the financial circumstances for tax built purposes and coverage. But seriously as a financial planner don’t go screwing people by telling them they have 100k in life when it is “accidental” and is really a 30k policy…

    Primerica term insurance is 35 years, 10k coverage automatic on your children under 18, when they hit 18 they are covered for 5×’s the amount at 18, so crank up the children rider up to 50k before they 18 years old and no medical exam… so at 18 they are like 250k for cheap for 35 years and see if they can push that up to 500k. I never told you that… hahaha

    Fees and investments, the guy shouldn’t cry when as a business owner should know better that you signed a disclosure somewhere for investments. Trust me I had 4 bad investment brokers and put me in terrible funds. Plus terrible 401k plan options… thank god they came out with BDA IRA’s (when your parent dies and leaves money in an IRA or 401k, these are special) getting locked into a 401k sucks especially when they sell the company and the plan goes with it. It blows! And each plan has different fees, to trade between funds I was getting hit with heavy fees $15-$30 on trading funds within 401k then hit with maintenance fees of $25 just to have 401k (yes, used to be free trading and little maintenance fees), automatically forcing me into 2%-3% return funds when I had my funds selected I neglected my review on funds for a year… when company sold 3 times in a year… that sucked

    Oh yeah, I know what it’s like to be screwed, 11%-12% return with load, you should be happy as hell, $25 yearly fee and 10%-12% return and move freely within fund family, count me in that is cheap.

    Yes, I am firing my current financial planner because he sucks, no call for a yearly review or 6 month review. I had this Roth IRA for over 10 years, I get a generic birthday card response. Lame… I bitched over 2 years ago because the fees vs return on fund sucked and asked if I could move funds, no follow up call, I gave up and quit putting money into fund.

    So I moved my own damn funds to what my Primerica RVP recommended and moving all my investments over. Waiting for paperwork, I am a special case as I understand because we are “transferring” fund advisors vs. Rolling and getting hit with load fees, because I already own the same funds they work with.

    In other words sometimes you can move within fund family for free, so I chose one of the best in the fund family, low expenses, 5 star fund by morningstar, quarterly dividends and capital gains, low beta rating 25% less sensitivy to market, never lost money 2 years in a row, even through 2008, since 1960’s, with over 10% return average. Let’s just say I am happier than shit with the recommendation. Yeah I like my funds old and gritty because they held up to the times, no guarantees.

    As for the Primerica Agent was trying to suggest, you get your securities licensing paid for, in other words fork out $2000-$4000 in licensing. You don’t have to peddle insurance or investments you can run your own money or peddle to friends and family. Sure you make a little revenue stream. If you have the business you can offer some retirement solutions and get a piece of the action.

    Oh yeah, I facilitated Dave Ramsey’s Financial Peace in church for 2.5 years and listened to him religiously for years till they cut him from our radio. On top of that I converted my mother to drop that crappy crack candy whole life garbage since in 13 years only had $2600 cash value. I can see some financial planners cringing, but I don’t care, write quality business not confusing hustling garbage, I might respect you someday.

    1. Very well stated, Tboogie. People don’t seem to understand that only a very small percentage of the population has any interest/desire to invest on their own. Yes, fees will reduce their return. But what’s better? Paying no fees and not investing at all? That’s where the majority of Primerica clients are headed IF they don’t sit down with a representative. These other financial people simply don’t want to acknowledge human nature. And I wonder after 9 years in Primerica why I never get any complaints from my life insurance clients about what they own? For the most part, my clients are educated, intelligent people.

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