How to improve quality of financial advice

CBC Marketplace recently tested advice given by 10 banks and investment firms. Using hidden cameras, it showed what happened when a potential client walked into each firm and said she had a $50,000 inheritance to invest.

While some firms performed well, others gave advice that Marketplace’s expert Preet Banerjee described as atrocious. Here are highlights:

In some cases, information was incorrect or misleading — even in response to direct questions, such as how fees are calculated.

Some gave unrealistic promises about returns, including one adviser who said that a $50,000 investment should increase by $10,000, $15,000 or $20,000 in one year.

Others failed to adequately assess the customer’s risk profile, which advisers are supposed to use to ascertain the suitability of investment products they recommend to a person.

I have my own story to tell about Maddy (not her real name), who works at the Toronto Star and told me of her dilemma.

Nine years ago, she met a friend of a friend who sold mutual funds. At the adviser’s urging, she took out a $50,000 line of credit to invest.

She was losing sleep because she hadn’t repaid any of the $50,000 — and she hadn’t gained much ground with the mutual funds purchased on her behalf.

Maddy didn’t understand the strategy, but did trust the adviser. She only started questioning things when her adviser quit the firm.

She decided to pay off the line of credit. But this wasn’t easy to do.

The adviser had invested the money in a dividend mutual fund. Each distribution was used to buy more mutual funds inside her RRSP.

Maddy had to pay deferred sales charges (DSCs) on the dividend fund. While DSCs disappear after seven years and she held the fund for nine years, each distribution started the clock running again.

Since she couldn’t sell her RRSP funds without incurring a big tax bill, she decided to transfer the portfolio to another adviser.

As a result, she could repay the line of credit only by contributing more money. The DSCs reduced her initial capital and the modest growth didn’t offset them. Meanwhile, she spent thousands on interest over the years.

Borrowing to invest rarely makes sense, except for sophisticated investors who can hold securities for years without being tempted to sell. Maddy was inexperienced and agreed to a leverage strategy when pushed to do so by her adviser.

The Investment Industry Regulatory Organization of Canada recently put out an investor bulletin on borrowing to invest. I don’t think it goes far enough.

Here’s a comment by Lindsay Speed, legal counsel and corporate secretary of FAIR Canada, an investor advocacy group. (I’m chair of the board.)

In my view, the warning language should be stronger. We have been advocating for regulators to take the position that leverage is only suitable for the most sophisticated investors.

This seems to suggest that the suitability onus is on the investor, not the adviser. And there is no mention of why an adviser would be motivated to recommend leverage.

FAIR’s recent work on leverage is shown here and here. It believes borrowing to invest is promoted by advisers hoping to increase their assets and earn more commissions and trailer fees.

If you pay for advice separately from products, you get better recommendations. Look for a fee-based adviser if you want a plan suited to your needs.

Otherwise, you can become a victim of incentives that put the advisers’ interests ahead of your own.

How does this appliance repair firm stay in business?

Has your fridge stopped working? Has your dishwasher broken down?

Appliance Repair Guys. Service4Appliances. If you see these names, think twice about making an appointment.

Both names are used by a Toronto-area company with a reputation for unreliable repairs, high prices and unfriendly, even rude, customer service.

Check my Star column for links to the Better Business Bureau’s consumer alerts, plus Homestar’s low ratings by customers.

When I contacted owner Dan Vidoser, he refused to let me quote him because he didn’t like a previous article in the Hamilton Spectator.

Here’s a story from Marsha, who paid Appliance Repair Guys to fix her dryer, which was making a squeaky noise. The technician “fixed” it and charged $320. Two days later, the machine was making a different noise.

The technician came back, did something else and charged $80 for the service call (after saying there would be no charge because she’d filled out a warranty form).

The machine sounded even worse afterward. But all she got was a runaround.

“At the end of multiple calls, the company refused to do anything,” Marsha says. “I’m out $400 and I can’t get my money back.”

She initially paid with a debit card after being told no credit cards were allowed. She was allowed to use a credit card for the second visit, since she was out of town.

However, CIBC Visa would not give her a refund for the $80 service call, telling her she had to pursue her dispute directly with the company.

After posting a review at Yelp, where you can also find other customer laments, she tells me she’s shocked to see what happened.

“This company has ZERO accountability. How can they get away with this, other than saying that we seem to be stupid consumers?”

Here’s what I’d say. When you can’t wash or dry your laundry, keep your food cold or cook it at high heat, you’re anxious to get your appliances working again.

You find an attractive website for a repair firm that promises same-day service and has a few testimonials from anonymous customers. You’re too rushed to do any research and assume you’ll be treated fairly if your appliance can’t be fixed.

Next time, ask your friends for referrals. Check with the manufacturer to find authorized repair firms. Go to the BBB, Homestars and Yelp to find consumer complaints.

When you let technicians into your home, you’re at their mercy. They can take your machines apart and quote outrageous prices to put them back together again.

Don’t let up your guard, since the consequences can be costly.