Who speaks for investors? Part two

In my column today, I mentioned the reaction to my blog post of May 5 — an invitation from the Ontario Securities Commission to meet in person to talk about how it planned to consult with investors.

The OSC hasn’t put out a press release yet, but has published the terms of reference for its new joint standing committeee on retail investor issues.

Vice-chair Larry Ritchie hopes to have a first meeting in September that will be open to public participation. The topic: How suitable are the new products sold to retail investors?

Asset-backed commercial paper is an obvious case, as are principal-protected notes — remember the downfall of Portus? I’d include high-priced wrap accounts and guaranteed-income segregated fund portfolios, such as Manulife’s Income Plus and Sun Life’s Sunwise Elite Plus.

The OSC still hasn’t sorted out the access issues. Is it possible to include everyone who wants to join the discussion, no matter where they are in Ontario? What kind of technology would be needed to give all investors a voice?

Ritchie insists this isn’t a replacement for the investor advisory committee. If so, why has there been no appointment of new members to the IAC? Why has no one talked to former members to get their ideas on how to make the IAC more effective? Six months after the last meeting, nothing has been done.

Some investor advocates want to keep talking to the regulators. Others think it’s futile. Check out their opinions and express your own.

Buyers pushed into signing agreements with realtors

In my latest class, Buying the Right House at the Right Price, I talked about how you can get better representation from real estate agents if you sign a contract to work with them exclusively for a specific period — say, two to to three months.

You can work with other realtors during that time. But the agent legally bound to represent you will earn a commission on any deals you make, even if not involved.

Some people in the class said they felt pressured to sign buyer’s agreements right away. Then I heard from someone who had agreed to sign an exclusive contract with a real estate agent that lasted for more than nine months.

This seemed to me an abuse of a system designed to improve life for home buyers. And in her case, there was an ethical issue about how the contract was prepared.

Here’s the story below. I’d like to hear what you think.

Credit cards get you coming and going

Not only do most credit cards still charge 18 to 20 per cent interest rates, but they pile on fees for all kinds of transactions. The Financial Consumer Agency of Canada has a bulletin on service fees on credit card transactions that lists more than a dozen.

If you think paying service fees is bad, just think of what happens if you fall behind in making your credit card payments. The FCAC makes sure we understand the impact.

Credit card issuers usually treat fees in the same way as they treat purchases. If you do not pay your balance in full, and on time, you may have to pay interest on these fees. If you are not sure how your credit card issuer handles fees, contact the credit card company or your financial institution.

Complaints about credit cards come in fairly regularly. Here are a few I received recently (below).

Questions, we get questions, we get lots and lots of questions

Much of my day is spent handling email from readers. So I thought I’d post a few interesting questions here and let everyone take a crack at answering them. How would you respond?

The first is about a problem with ladies’ swimsuits sold at Sears and a letter to the president’s office that didn’t elicit any response.

DP wrote to Sears president Dene Rogers on March 13 as follows:

Dear Mr. Rogers,

As a long-time Sears customer, I have had an extremely disturbing experience and totally unsatisfactory response from your Customer Service department.

Prior to a recent vacation, I purchased 2 swimsuits from Sears’ website. The swimsuits fit beautifully. However, the first time that I wore each of them, imagine my horror when I got sunburned through the material! My whole abdominal area was bright red and sore after a short time in the sun.

I am 57 years old and take very good care of my skin, always using a sunscreen with a minimum 30 SPF; however, I would never think to put sunscreen on areas of my body that are not exposed to the sun, as the clothing always has protected those areas. Both swimsuits are made by well-known companies; however, both are “made in China.” I can only speculate that the fabric is substandard, similar to other quality issues that have hit the media in recent months resulting in recalls.

On returning from vacation, I contacted your Customer Service department via email to outline my problem and request a refund. I know that Sears does not accept returns of swimsuits that have been worn and fully understand the rationale for that position; however, I am not requesting to return the swimsuits because I don’t like the colour or size — the material is DEFECTIVE!! and Sears needs to return them to the manufacturer and initiate a recall so that other consumers don’t have the same, or more damaging, experience.

Attached are the responses I received to my initial and follow-up email – they definitely do NOT reflect Sears’ Vision Statement: “Sears is committed to improving the lives of our customers by providing quality services, products and solutions that earn their trust and build lifetime relationships.”

I am asking for your immediate attention to this matter, to advise me where to return the swimsuits for a full refund, and your confirmation that you will contact the manufacturer to ensure that these (and any others made from the same material) are immediately recalled, with appropriate warnings to other consumers.

Sears’ president refused to respond, but kept sending her emails back to the same people who had handled the problem before. They offered her token compensation, then retracted it.

Do you think Sears should have done more for this customer than just pay lip service to its concern for her and tell her to contact the manufacturer?

March 2 email:

Hello Ms. P,

Thank you for taking the time to contact us at Sears regarding this matter. We are sorry for the problems that you incurred with your swimsuit. Please be assured that we understand your frustration and sincerely apologize for any inconvenience you may have experienced.

By sharing your concerns, you have enabled us to address the issues and provide feedback to the appropriate department. Truly, your remarks provide forthright feedback that will enable Sears to achieve excellence in everything we do. We appreciate your business and value you as a Sears customer. We certainly hope you will continue to make Sears your choice for quality and value. We apologize for any inconvenience this may have caused you. Again, we thank you for taking the time to contact Sears with your concern.

March 4 email:

Hello Ms. P,

Thank you for taking the time to contact us at Sears regarding this matter. We are sorry for the problems that you incurred with your swimsuit. Unfortunately we do not accept returns on swimsuits that have been worn. In order to resolve the restocking fee issue, we would like to offer you a $25 Sears gift card. Please respond to this email if you would like to accept this offer. Thank you for using Sears online and we look forward to hearing from you soon.

May 5 email:

Hello Ms. P,

Thank you for taking the time to contact us at Sears regarding this matter. We sincerely apologize that we are not able to resolve this matter to your satisfaction. We have addressed this issue in accordance with the policies and guidelines set out by our Executive Board.

We do apologize but the president is unavailable to respond to your inquiry. He has placed us on his team to converse with our customers on his behalf. He does receive weekly reports on our progress.

We are sorry for the problems that you incurred with your purchase.

We are in receipt of your letter dated March 13 and once again your concerns have been noted and we appreciate you making us aware of your complaint. As you did not wish to accept the $25 Gift Card as adequate compensation, we respectfully withdrew the offer as it is our wish that you are satisfied. If there is anything further we can do to rectify the situation, please advise and I will be happy to address any remaining concerns you may have.

We are sorry for the problems that you incurred with your swimsuit. Unfortunately, we do not accept returns on swimsuits that have been worn. We have forwarded your letter of concern to the buying manager for investigation and follow-up.

We appreciate your business and value you as a Sears customer. We certainly hope you will continue to make Sears your choice for quality and value.

Again, we thank you for taking the time to contact Sears with your concern.

May 8 email:

Hello Ms. P,

Thank you for taking the time to contact us at Sears regarding this matter. We are sorry for the problems that you incurred with your swimsuit. You can contact the manufacturer at 1-800-xxx-xxxx.

Please be assured that we understand your frustration and sincerely apologize for any inconvenience you may have experienced.

Again, we thank you for taking the time to contact Sears with your concern.

The second letter was from someone facing a financial dilemma. Should she take on more debt to buy back her pension and retire early?

I am 56 years old, working 26 years at the same company but only on staff for the last 11. There are 15 years of pension buy back available to me at a cost of close to $350,000. In order to buy it back, I would move my $210,000 RRSP over and borrow the rest.

I currently have a $55,000 mortgage, $152,000 credit line and $5,000 in credit card debt. I have an ING savings cushion of about $5,000.

If I buy back my pension, I will be eligible for retirement (unreduced) in June 2009. The problem is that I will be carrying a debt of $300,000 when I go. I will get a severance package of six months’ salary which can go to reduce the debt, but will I be getting myself too far into debt to do this?

Or should I buy back partial pension ($200,000) which will give me a reduced pension in three years?

I am so confused, I don’t know what to do. Can you help me? Or advise me where to go for information?

I’m a journalist who writes about financial planning, but I have no licence to to offer financial advice. So I gave this reader some opinions and options.

I think you should seek help from someone who could do some computer projections for you, showing how long it would take to pay off your debt and how long your money would last under different scenarios. A lot depends on interest rates, inflation, how much of your pension is indexed to inflation and the investment returns your savings would earn.

Ask your bank to help, since it probably has financial planners (with a CFP designation) on staff and will make their services available to clients for free. That’s a good place to start. You can also ask a certified financial planner to do a report for you for an hourly or flat fee. I’m sure this would help clear your confusion.

I don’t think it’s a good idea to go into retirement with a big debt load. You’re fairly young and could be financing your retirement for another 30 years. Carrying debt into retirement puts you at risk. Any sharp upward move in interest rates would increase your monthly costs and put an additional strain on your retirement budget.

What’s the rush? Do you have any retirement plans yet? Can you make money after you retire? You may need to in order to pay off the debt. If you’re incredibly stressed at work, that’s one thing. But if you’re OK with working a few more years, I’d suggest staying and building up your pension entitlement without taking on a whole extra whack of debt.

The reader replied: “Thank you so much for getting back to me. I will see a financial planner!”

It’s tough when employers throw you hard questions — buy back your pension for such a price? — without offering any help with the decision-making process.

Investing on your own

Maybe you’re fed up with your financial adviser. Maybe you want to try managing your own investments. How much time and effort does it take to be a do-it-yourself investor?

My current Money 911 series is about flying solo. I think the time is right for many investors to ditch their high-priced help and take over the work themselves.

It’s not so hard. Believe me, I have a self-directed account and I don’t look at it every day — or even every week if I get really busy. It takes less time and effort than you probably imagine to pick a diversified group of investments and adjust them periodically.

You need to find your own trustworthy sources of advice about investing. I’d welcome suggestions from DIY investors about the tools you find indispensible to managing your money without outside help.

Who do you trust? What books, magazines, TV shows, websites or blogs do you consult on a regular basis? Does your discount brokerage have good online resources?

I’ve received lots of comments about my ongoing series and I’m posting some below.

Who speaks for investors?

CTV’s program, W-Five, recently told the story of a dairy farmer in Nova Scotia who inherited $155,000 and put it all with RBC Dominion Securities. Within a year, the account was worth only $134,000. Another 10 months later, it was down to just $1,800.

The broker was churning the account — making 126 trades in a 20-month period alone — to earn commissions. He’s since left the industry. His boss was fined $70,000 for failing to supervise his employee. And the dairy farmer collected an amount (which he’s not allowed to disclose) from RBC as compensation for his losses.

I’ve told such stories myself and given space to readers (see first comment, Leveraging Misery), so I’m glad Paula Todd highlighted abuses on W-Five. I’d love to see stronger regulation of stockbrokers, mutual fund sellers and commision-based financial planners, but I’m not confident anything will change.

Here’s the problem: No one listens to ordinary investors. Canada’s securities regulators set up task forces to study what should be done for investors. But do they include investors on these task forces? Almost never. The most recent example of exclusion is the Purdy Crawford-led committee working to restructure asset-backed commercial paper.

The Ontario Securities Commission decided to break the tradition. In 2005, it announced the formation of an investor advisory committee to give direct input on important issues. I was one of 10 people selected for a two-year term.

Our term ended last December and we agreed not to talk publicly about what went on behind closed doors. So I’ll just say this: We didn’t accomplish much. We were more like a focus group than a policy-making body. We never put out any reports on what we were doing or discussing — though we did try. We were divided about many issues and rarely reached a consensus. Still, it was a useful exercise.

The OSC didn’t announce new committee members after our term ended. Nor did it consult us. So I was surprised to see a story in this month’s Investment Executive about what it planned to do to replace us. Basically nothing. The experiment is over.

Instead of listening to a committee of investors, the OSC and self-regulatory organizations will listen to each other. They will talk about issues that concern investors — and invite a few investors to chat from time to time — and that’s all.

Here’s how OSC vice-chair Larry Ritchnie justifies the decision:

The IAC was “extremely useful” but it had “run its course.” Regulators have decided to try something new and, hopefully, better.

This new approach will represent progress because it brings together the four primary organizations with responsibility for retail investor protection; it will also aim to generate investor input from a broader array of voices than a formal investor committee can produce.

There is no one voice for retail investors. We are all retail investors.

Come on, guys. You’re retail investors second and industry insiders first. You’re the last people I’d expect to understand what happens to the dairy farmer from Nova Scotia who hands over the first substantial sum of money he’s ever had to a commission-hungry snake in a suit.

It seems to me there are many articulate people who can speak for investors. There’s no lack of input. The bigger question is: When will the regulators and SROs start listening to investors? And taking action on what they’re told?