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RBC drops third-party fund sales charges

OTTAWA -- Royal Bank of Canada is making it cheaper and simpler to use a financial planner in an attempt to be as dominant in the investment advice business as it already is in the mutual fund world.

RBC will announce today that, effective immediately, its in-branch investment advisers can sell mutual funds from other companies without any sales charges. Discount brokers and fund dealers have offered this service to do-it-yourself investors for years, but RBC claims to be the first to sell funds this way while also providing full financial planning services through individual advisers.

"We think that being there first with the advice component is going to be a way to really broaden our business," said Paul Butler, vice-president of national accounts for Royal Mutual Funds, the RBC division that offers financial advice to branch customers.

Investment advisers typically charge clients either an upfront sales charge of 1 to 2 per cent to buy funds, or they use a deferred sales charge that only applies if the client sells the funds in the first six or seven years after they were bought.

A scattered but growing minority of advisers sell funds with a so-called zero load, which means no upfront sales charge and no redemption fees should a client decide to sell later on. This zero-load model is what each of RBC's more than 1,500 in-branch and mobile financial planners now use as a matter of policy.

RBC has its own extensive lineup of mutual funds that are already sold with no sales fees. Third-party funds are now treated exactly the same way, Mr. Butler said. "This will give clients ultimate flexibility."

Mr. Butler said people will have to use the services of RBC's in-branch planners to be able to buy third-party funds with no sales charges. As well, clients must have at least $50,000 to invest.

RBC's fund arm has about $63.6-billion in assets, second to IGM Financial's $99.2-billion and far ahead of third-ranked CI Financial Inc. at $55.4-billion. Mr. Butler acknowledged that the bank could lose some of the money it generates by selling its own mutual funds if clients switch to third-party funds. However, he said there are offsetting advantages to RBC. For example, the bank's in-branch advisers will have an easier time talking about fees with clients and thus be able to move onto more substantial financial planning issues.

"There will be some loss of revenue," Mr. Butler said. "But we think we'll more than make that up from the additional business."

© 2007 The Globe and Mail. All rights reserved.

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