Bell vs Rogers, part three

June 29 2009 by Ellen Roseman

The last time I pitted these two against each other, people seemed more annoyed with Rogers. In the earlier round, Bell seemed to be the more irritating of the two.

It’s clear that both big communications companies have lots of critics. It’s clear that both have problems managing their customer service.

Today, Rogers and Bell are waging a price war, forcing customers to think twice about which company to use for which part of their telecom needs. I believe you should use their feud to your own advantage.

Bargain for the best deals you can get. Find the retention or loyalty departments, who have the power to give you incentives to make you stay. Threaten to leave if you can’t get what you want. Get proof of the great prices you were offered, since the billing department often has other ideas.

Here are some of the comments I’ve been getting about the whole Bell vs Rogers vs others debate. My Star column last week attracted more than 60 comments. We all have an opinion, right? So, let’s hear it.

Who’s afraid of financial literacy?

June 27 2009 by Ellen Roseman

Today, the federal government unveiled the new task force on financial literacy, promised in the January budget. I thought the choice of members said a lot.

The chair, Don Stewart, heads a life insurance company. The vice-chair is with BMO Nesbitt Burns, an investment dealer. Only two of the 11 others named to the task force can be called consumer advocates, Pat Foran of CTV and Laurie Campbell of Credit Canada.

Makes me wonder what will come out of this exercise. There’s a consensus that Canada needs to teach children about money management when they’re in school. That’s helpful, but not enough.

Financial literacy is being watered down and becoming a motherhood issue, one that all the big institutions can support. It’s about when to introduce courses in schools and how to teach compound interest to children when they’re old enough to understand it.

After thinking about what this idea really means and debating it with trusted colleagues, I have a few points to make.

— People only learn when they’re ready to learn, when they find a topic interesting or they have to make imminent decisions. That teachable moment often comes later in life than high school.

— There’s been a huge shift in risk from governments and employers to citizens. Decent pensions are becoming obsolete (except for civil servants). Medicare covers only the basics and any extras have to be paid for by private insurance. You have to cover the costs if you or a family member become ill and unable to work. You have to cover the cost of children’s post-secondary education.

— Governments have pulled back the safety net and created this “risk shift” to individuals, while not providing the educational supports that people need to make informed decisions.

To me, financial literacy is not just about distributing plain-language educational materials. It’s also about adopting new attitudes.

–One, you can’t delegate your money decisions to anyone else (an adviser, a friend, a spouse). You have to look after your own finances or face adverse consequences.

–Two, you can’t trust someone paid to sell products to have your best interests at heart. And in Canada, most financial advisers don’t have a fiduciary duty (a requirement to put the client’s interests first).

— Three, you can’t be an optimist where your money is concerned. Always ask about the worst case scenario when presented with a set of financial projections.

— Four, life has a habit of being unpredictable and often hurtful. So plan accordingly. Save as much as you can in case you lose your job. Buy insurance in case you’re sick or you die, leaving your family without income. But make sure you get the right advice and don’t enrich the pushers of high-priced and inadequate savings and insurance products.

–Five, don’t count on anyone to bail you out of a financial jam. The government or your employer may not give you a decent standard of living when you retire. Your parents may not leave you money in their will. Your house may not be worth more than you paid for it. Assume the worst and be prepared for bad stuff, even if it never happens.

–Six, don’t be too starry-eyed about your finances when love is involved. There’s a good chance your marriage or common-law partnership won’t last, so protect yourself. And remember that having children is a huge expense and shouldn’t be undertaken lightly. People with fewer kids often do better in life.

I hope that Canada’s financial literacy strategy is broad enough to encompass such points. I’m willing to give this task force a chance to prove itself. But the fact that the final report won’t come out until the fall of 2010 causes concern. How long will we have to wait to see any results?

Fun and games

June 18 2009 by Ellen Roseman

I teach investing at the University of Toronto’s school of continuing education. My courses are short, four weeks (or eight hours), and to keep the discussion going, I started a club.

Our group is part of the Canadian Moneysavers network of share clubs. This means we don’t invest money together, but talk about how to do it.

We started last September and meet monthly at a Toronto community centre. This week, we invited Gaelen Morphet of CIBC Global Asset management to talk about how she picks stocks as a value investor.

Her presentation was terrific, both practical and insightful. She talked about how the stock market may not snap back as expected, since so many companies are putting out big equity issues and diluting their shares. TransCanada Corp. had just come out that day with a $1.6 billion common share offering.

Some group members are participating in a stock simulator contest at Investopedia. The leader has made his fictional $1 million stash grow to $1.3 million in just a few months. That’s impressive. (I can say that because I’m not in the game yet.)

Investing is an essential life skill, in my view. You need to make your money grow beyond the limited returns that savings products can provide over a long period. And you can’t hand over authority to others unless you understand how investments work.

Illiterate investors are easy prey for rogue advisers. Trusting salespeople to put your interests ahead of their own just leads to disappointment.

We’ve talked about specific stocks, from large (Coca-Cola) to small (Ritchie Bros. Auctioneers). We’ve talked about exchange-traded funds and dividend reinvestment plans and we’ve compared tax-free savings accounts.

We even have a mission statement:

We are committed to sharing information among all members, with the goal of working towards preserving capital and increasing the after-tax returns of our individual portfolios.

We strive to strengthen our understanding of investing and gain hands-on
experience in analyzing stocks and interpreting financial statements.

It sounds serious, but it’s also fun. Just look at our name (not my choice, but voted on by the group). It’s Ellen Degenerates Share Club.

The danger of leveraged ETFs

June 12 2009 by Ellen Roseman

As a do-it-yourself investor, I hoped to profit when the stock market went down. So I tried the Horizons BetaPro bear ETF that bet against the TSX index.

It didn’t take me long to realize this leveraged product was for day traders only. After a short-lived foray, I stayed away.

FAIR Canada, a new group that speaks for investors, doesn’t want to see leveraged ETFs sold to the buy and hold crowd. Check out its its investor alert, which is very readable.

The advocacy group is asking securities regulators to beef up prospectus disclosure. (My disclosure: I’m on the board of FAIR.)

Now the Investment Industry Regulatory Organization of Canada has put out its own warning to investment dealers, as has a U.S. financial regulator.

Here’s what the leveraged ETF issuers are not telling investors strongly enough:

Most leveraged and inverse ETFs “reset” daily, meaning that they are designed to achieve their stated objectives on a daily basis. Due to the effect of compounding, their performance over longer periods of time can differ significantly from the performance (or inverse of the performance) of their underlying index or benchmark over longer periods of time.

For example, a Canadian ETF that seeks to deliver twice the daily return of the COMEX Gold Bullion Index fell 5 per cent between Jan. 22, 2008 and May 29, 2009. However, its inverse fund (twice the inverse daily return of the index) fell 38 per cent in the same time period. The underlying COMEX Gold Bullion Index increased by 6 per cent during this period.

I’m happy to see FAIR’s call for investor protection echoed by Canadian and U.S. regulators. I’m also relieved to see IIROC tell advisers that prospectus disclosure, even if beefed up, doesn’t go far enough.

Dealer Members are further reminded that providing risk disclosure in a prospectus or product description does not cure otherwise deficient disclosure in sales material, even if the sales material is accompanied or preceded by the prospectus or product description.

Since I pay attention to my online account, I sold my leveraged inverse ETF before losing much money. But not all investors are self-directed.

Some people may buy — and hold — these products because of a recommendation by a trusted adviser. Let’s hope they stay away once the risks are explained to them..

Monday, Monday, can’t trust that day

June 8 2009 by Ellen Roseman

The emails pour in all weekend in response to my Saturday and Sunday columns. I answer some on the weekend, but try to ignore the incoming tide until Monday back at the office.

Every other day (every other day), every other day
Every other day of the week is fine, yeah
But whenever monday comes, but whenever monday comes
A-you can find me cryin all of the time

On Monday, I’m crying after reading the heartbreaking or horrifying stories sent to me… or the insults from people who think I’m completely wrong… or the compliments from those who find help with formerly intractable problems.

Even those who don’t remember the Mamas and Papas and their 1966 hit song may find Mondays hard to take.

Welcome to my Monday mailbag and welcome to my world.

Have interest rates bottomed out?

June 3 2009 by Ellen Roseman

Some banks are raising their fixed five-year mortgage rates, the Star reports today, citing higher long-term bond yields as the reason.

This may be a good time to lock in a historically low rate, assuming you can get out of an existing mortgage without a big penalty.

“The good news is that we’re still just 0.2 per cent above the lowest fixed rates in history,” said the Canadian Mortgage Trends blog, which called the turning point a couple of weeks ago and confirmed it this week.

“Moreover, if you want to lock in near the bottom, there are still some lenders who haven’t raised yet.”

Last weekend, I also got a warning from the Canadian Mortgage Rate Search Engine.

“Big fan of your mortgage articles. We just noticed that rates are slowly starting to climb up and we believe that it is important for your readers to know. We contacted major banks and confirmed the possibility of rate hike next week.”

I’m still getting complaints about unexpectedly large penalties, but I’m also hearing from people who refinanced without pain and saved money. It’s worth exploring if your mortgage will be coming due in the next year to 18 months and you fear that rates will be back above 5 per cent for five years.

Since I can’t handle all the complaints I get, I was interested to hear from someone who’s doing it as a fee-for-service business. Jane Steele Moore of Complaints Are Us in Toronto charges $50 for the first hour and $25 an hour after that.

The story of how she helped someone resolve a problem with overdraft protection at a big bank is posted below.