Howestreet.com - the source for market opinions

ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

March 20, 2018 | The Charade

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Yesterday this pathetic column brought you the equally pathetic note of a 21-year-old bank financial advisor. “I’m interested in the field of Advising and Investing,” he said, “but I am working for a company in the industry that only lets you sell what they want and not what’s best for the client which makes it difficult to learn past the bubble they’ve created.”

His employer is one of the Big Five banks. I’ll let you guess which colour.

The point was simple: he’s not an advisor. He’s a salesguy. He lacks training, experience and substance. And yet he’s a front-line rep for an institution in which people place blind trust. Because he’s ethical, he’s troubled.

So are the feds. On Tuesday came news the financial consumer watchdog has decided to crack down on the banks for exactly this kind of devious and self-centred customer service and will be beefing up enforcement, supervision and monitoring. It may also consider the torturing of bank CEOs by making them attend a Pitbull-and-Rocky, real estate and bitcoin wealth expo. Few are expected to survive.

“Banks are in the business of making money, we know that,” says the Financial Consumer Agency of Canada. “But the way they sell financial products and manage employee performance, combined with how they set up their governance frameworks can lead to sales cultures that are not always aligned with consumers’ interests.”

Ya think? Having a 21-year-old sitting behind a desk, advising unknowing people on investments, while having a sales quota for bank mutual funds, is a blatant conflict of interest. A charade. Shame on the bank. Shame on customers whose financial illiteracy put them in that chair.

Well, time to review some of the rules of engagement when it comes to getting help with your money.

Overall, never take advice from someone selling stuff. Especially high-MER mutual funds or incomprehensible insurance products like universal life. Never buy an RESP from some dude who shows up on your doorstep after baby is born and you’re swimming in hormones. Never, ever give your money to an advisor you’re related to, think is hot, went to school with, dated, or who married your cousin.

Don’t invest with anyone who doesn’t give you a comprehensive plan first. Do not agree to the ‘discretionary’ management of your money unless you really, really trust the advisor. Never pay more than 1% annually of what you invest for advice and portfolio management – which should be largely tax-deductible. Refuse to hire anyone who wants to be paid on a transactional basis, making money only when they trade.

Scoff any advisor who tells you they only deal with the rich and requires a minimum of five hundred thousand or a million. That’s code for, ‘I don’t like to work  hard but deserve obscene pay.’ Never robo, unless you require no tax advice, no help with retirement or investment strategies and trust an algo with your savings. Be careful about ‘wealth management’ shops that stick your money into a proprietary client fund they created. Without trading on the open market it may have no liquidity. Eschew mutual funds, of course. Dinos. You’re paying a huge premium to employ some fund manager with a Porsche who thinks he can beat the market. He can’t. And in a crisis a mutual fund company can shut the door and prevent you getting out.

Unless you have seven figures to lay down for a portfolio, forget stocks. To achieve reasonable diversification, you need cash for meaningful positions in six dozen companies, plus enough left over to fund the fixed-income portion. Don’t take advice from [email protected] to go and invest in real estate,  because she just did and it always goes up. She’s actually fronting for an organization that thrives on handing out mortgages which they call “relationship products.”

Know that advisors who sell mutual funds are paid by trailer fees and commission, the worst of which is DSC – a deferred sales charge. This is equivalent to fund prison, designed to mess with your head by charging you to cash out within seven years – so you won’t. Of course every day you stay invested, you pay more. So knock off a couple of guards and vault the wall.

Advisors who work by the hour, draw up a plan and hand it over are called fee-only. Then it’s up to you to build and manage the portfolio, which seldom works. I mean, when was the last time you changed the furnace filter? A fee-based advisor usually does a plan, implements it and is paid by your accounts (as mentioned, 1% a year is enough). S/he should also map out a long-term financial plan, give you valid tax advice, plan for retirement, help you with real estate financing, kids’ education costs or leasing a car. And remember that accountants are not advisors. By law, they work for the government.

Mostly, never take advice from a free blog. Especially one with dogs. How serious can that be?

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the HoweStreet.com Weekly Recap.

March 20th, 2018

Posted In: The Greater Fool

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site

*
*

This site uses Akismet to reduce spam. Learn how your comment data is processed.