Regulators generally against paying for advice

Regulators feel that investors should not pay for advice and should be in an index fund, according to chief executive of Franklin Templeton Investments Greg Johnson.

Johnson said that regulators believe that adviser service fees should not come out of investment returns, but he feels those returns wouldn’t exist without them.

He questioned the regulator’s focus on financial adviser service fees, saying that it was advisers who saved people money when the global financial crisis caused investor panic.

“How many phone calls do you think happened at that market low during that period, when clients’ attitudes were ‘I’ve got to get out, I’ve got to get out of everything’?” he asked. “What would happen if there wasn’t a person to go to with that call who could say, ‘Settle down, we’re in this for the long-term’?”

Johnson feels that that an adviser service fee is a small price to pay in light of what happened, and yet most regulators are questioning the benefit of advice.

“Many regulators’ view of the world is that you shouldn’t pay for advice and you should be in an index fund — they think anything else is a lack of disclosure. That’s a pretty extreme view,” he said.