From Leo Dunnigan, CFP, Cartier Partners Financial Services: An article by Jonathan Chevreau criticized products offered by Cartier Partners Financial Services (Beware Advisors Who Sell Their Own Funds, Nov. 16). As a representative at Cartier Partners I know that we have no quota to sell in-house funds as Mr. Chevreau suggests. In the almost four years that Cartier funds have been available, they have grown to represent less than 3% of the assets under administration at Cartier. Clearly there is no quota system in place.

Mr. Chevreau, as always, points out the cost of higher Management Expense Ratios on an investor's returns. He fails to point out the cost of poor choices that are often made when only MERs are taken into consideration. A few years ago he was advising that investors buy index funds because of their low MERs. People who followed his advice have suffered devastating loses. If my clients had suffered such massive loses, I would find it very difficult to continue in my profession. Mr. Chevreau, however, is allowed to continue giving questionable advice with no consequences for his actions.

Bylo rebuts:

The only Cartier balanced fund with a 3-year track record, i.e. that had the opportunity to substantiate Dunnigan's inference that indexing is worse than active in a down market, is Cartier MultiPartners Balanced Growth RSP. This fund has an MER of 2.67% and a 3-year CAR of -4.95%.

According to Globefund, a simple indexed portfolio of "60% S&P/TSX, 40% Scotia Universe" had a 3-year CAR of +2.08%. Subtract out a 0.5% MER and the indexed portfolio beat Cartier's "brains" by some 6.5% CAR over 3 years. (And in the past year the "superiority" of Cartier's active management is even less impressive: -9.55% for Cartier's "brains" vs. -1.47% for the "monkeys.")

"Devastating losses," yes. But not by indexing; rather by not indexing. So Mr. Dunnigan, speaking of consequences for one's actions, when are you going to do the honourable thing and leave your profession?

In helping clients build their wealth, it is often difficult to get them to rebalance their portfolios. Worse still, it's hard to convince clients not to chase recent past performance as Mr. Chevreau would have them do. It's well documented that most mutual fund investors achieve lower returns than the funds they invest in. This is because they chase last year's hot performers. Products offered by Cartier Partners are designed to encourage investors to buy low and sell high because the rebalancing of portfolios is done automatically. This alone will more than make up for any slightly higher MERs.

From Tim Welch, Ottawa: Mr. Chevreau has chosen to criticize Assante Corp., a company with whom I have been doing business for years and who are one of the very least biased financial advisors I have ever had the pleasure to meet. Several of the points of "fact" in Mr. Chevreau's article -- such as quotas for internal funds and higher commissions for the same -- are patently false and easily provable with internal documents provided to clients. I do not own a single Assante fund.

Jonathan Chevreau responds: Mr. Dunnigan doesn't seem to have read the quote by his boss, Dan Richards, in the very same column to the effect Cartier has no "formal" quota but that he also believes Cartier can be one of five fund families in portfolios: Hence the 20% figure I cited. Any "advice" I've delivered in connection with index funds has been within the context of proper asset allocation: In fact, my series of "Rip Van Winkle" columns advocated active management via the low-MER Trimark Income Growth Fund and Templeton Growth Funds. Furthermore, my co-authored Krash book in 1999 favoured bonds, cash and gold over equity funds, including index funds, in light of overvalued world markets.

As for Mr. Welch's comments on Assante, the article contained an on-the-record denial by Assante's public relations person that the three-tiered commission grid existed, and the follow-up column had vice-president Kish Kapoor insisting the firm never even "contemplated" such a grid: despite the assertion by three of my sources that it exists. Furthermore, the "quota" for internal funds was not denied by Assante: They admit that 40% of assets are now in the funds, as stated in the article. I look forward to receiving the "internal documents" Mr. Welch says he can supply.

Bylo Selhi is a Toronto-based fund industry gadfly and proprietor of a website for smart Canadian mutual fund investors. Bylo Rebuts is an occasional series of articles that debunk misguided investment publications.