The value of financial advisers

January 3 2009 by Ellen Roseman

You trust the people who help manage your investments. You think they have your best interests at heart at all times. You hope they can foresee a stock market meltdown and get you out before you lose a big chunk of your money.

Then, you go through a terrible year like 2008 and you find your portfolio is in tatters. What happened?

Since I’ve been writing a Sunday series of columns about financial advisers, I’ve been hearing from many readers in this position. The money is gone, the trust is gone, the respect for financial advisers as professionals is gone.

With the destruction of their hard-earned savings, they’re asking questions. Should I be in better shape than I am now? Is it time to look for another adviser? Is it time to manage my own money?

Finally, they ask: Why did my adviser continue to maintain a buy-and-hold strategy as the markets melted down? Didn’t they listen and write down what I said about not being able to handle big losses, given my age and stage of life, my past experience, my future goals? Why didn’t they sell all my investments and put the money into GICs?

I am posting some anguished comments from readers and some replies from independent observers about their cases. Please add your opinions to this discussion.

28 comments

  1. BF

    Jan 3 2009

    Since June, the preferred shares in my portfolio are down in market value by $165,000$ on an original purchase price of about $300,000.

    I am approaching retirement and whenever I talk to my financial adviser at RBC Dominion Securities, he reassures me that I will continue to receive all interest payments AND the full amount of my original purchases when the preferred shares mature or are called.

    If preferreds are less volatile, why are the original values down by a whopping 50 per cent?!!!!!!!!!

    I own a mix of Perpetuals and Retractables but I am no financial wizard. I have spoken to a new financial adviser at the the National Bank and he implies that I am indeed in trouble with the preferreds, especially the Perpetuals. He is implying that I will have to sell at least some at a loss.

    Here is the descriptive list of my holdings in preferreds as supplied to me by my broker.

    These assets are down -45.8% to date!!!! My broker insists that I will continue to collect full interest payments until the Preferreds are called or redeemed, AND, when they are called, it will be at the full purchase price, which is fixed at $25 per unit.

    The only impediment to this process is, of course, if any company issuing said Preferreds would go bankrupt.

    I would like to know from your expert in preferred shares the following:

    1) Is my broker’s contention that I will receive full interest payments and full unit value a correct interpretation?

    2) Is there any chance that these assets could return to full original value when and if the markets recover?

    3) Do I have any options with these preferreds, other than selling at a loss? Am I helplessly locked into these positions?

    4) Was this a misguided tactic (to save on taxes) by putting 40 per cent of a 64-year-old client’s assets into preferreds and call it “fixed income”?

    5) And lastly, should any client pay fees, under these circumstances, to a broker just to sit and wait for bonds and preferreds to mature?

    Ellen, thank you sincerely for helping me on this matter. An independent analysis will assist me immeasurably to finally take the right road to recovery. Naturally I will wish you a happy and healthy 2009!

    BAM split corp. series c–pfd2L

    Bank of Montreal non cum.class B series 13, 4.50% pfd1

    Bank of N.S. non-cum series 14, 4.50% pfd 1
    BNS non-cum series 15, 4.50% pfd 1
    BNS non-cum series 16 , 5.25% pfd 1
    BNS non-cum, series 22, 5.00% pfd 1

    BCE fix/ float cum. Red series AC 4.6% BBP P2 Neg.

    Brookfield Asset Mgmt. Class A series 18, 4.75% pfd 2L
    Brookfield Properties 5.00% Class AAA series J bb+p3h
    Brookfield Properties 5.20% Class AAA series K BB+P3H

    CIBC 4.50% non-cum class A Pref. series 32 pfd1

    Dundee Corp 5.00% cum, ser 1 P3

    Epcor Power Equity 4.85% cum redeem pref. series 1 pfd 3H

    George Weston Ltd. 5.20% cum- pref, series 4 pfd3

    Great West Lifeco NON-CUM SERIES H 4.85% pfd1L
    Great West Lifeco Inc. 4.5% non cum 1st pref. series 1 pfd 1L

    HSBC Bank Canada 5.10% non-cum Red. c1 1 prefd. series c

    Laurentien Bank non cum class A series 10 5.25% pfd3

    National Bank series non cum 16 4.85% pfd1

    Power Financial non cum series L 1st pref 5.10% pfd 1

    Royal Bank non cum 1st Pref 4.70 series AB pfd1

    Sun Life Financial 4.45% class A non cum. series 3 pfd 1

    TD Bank non cum. class A Series P 5.25% pfd1

    I trust these are the details that you need. My meeting with a new prospective broker is slated for Jan. 14.

  2. James Hymas, preferred share expert

    Jan 3 2009

    Well, I can tell you that this has been the worst year for preferreds since at least 1993 (when my records start).

    In fact, of the 12 worst months since Dec. 31, 1993, six have been this year.

    PerpetualDiscount issues (the most common type of preferred) are down 26.24% in the year to Dec. 24, 2008, and that’s total return (which includes dividends).

    Since the beginning of the current bear market on Mar. 31, 2007, total return has been -35.83%.

    The index tracking ETF (stock symbol CPD) ended 2007 with a Net Asset Value of $17.95. It has paid distributions in 2008 of about 84 cents and now has a Net Asset Value (at the close on 12/24) of $12.92.

    CPD has its problems (see http://www.prefblog.com/?p=3478) but is the best publicly available snapshot of the investment-grade preferred share universe as a whole.

    I’ve been receiving queries like this for the past year – interestingly, most of these have been from brokers asking me what to tell their clients.

    In the case of, for instance, bank perpetuals, I tell them to tell their clients: “Hey – you bought the things for a (say) $1.15 p.a. dividend; they continue to pay a $1.15 p.a. dividend, there is no current indication they will ever fail to pay a $1.15 p.a. dividend … shut up and clip your coupons.”

    Weights of the issues in the portfolio are not given. All subsequent analysis assumes equal-weighting.

    The portfolio contains the following types of preferreds (see http://www.prefletter.com/whatPrefLetter.php):

    Fixed-Reset: 1

    FixedFloater: 1

    Operating-Retractible: 3

    Perpetual Discount: 17

    SplitShare: 1

    This is heavy on the PerpetualDiscounts (which represent about half the issues tracked by my analytics), which have underperformed this year. It’s light on Operating Retractibles & SplitShares, which have done better.

    Preferred Share dividends may be halted at any time at the discretion of the company. A dividend halt is generally a last-ditch effort to save the company and there is no immediate danger of a halt in any of the issues held.

    The credit ratings (which were supplied by the broker) are an attempt to estimate the chance of a future halt in dividends, or other inability to meet the terms of the prospectus. The breakdown is:

    Pfd-1/Pfd-1 (low): 14

    Pfd-2 (low): 3

    Pfd-3 (high)/ Pfd-3/Pfd-3 (low): 6

    This isn’t bad. There are more Pfd-3 issues than I like (I recommend no more than 10% of the portfolio in these lower-grade credits, with no more than 5% in a single name).

    But there are also more Pfd-1/Pfd-1(low) names than I would normally expect. See http://www.prefblog.com/?p=211 for more about credit ratings.

    With four names in the Brookfield group, the exposure there is a little high. I would recommend an exposure of no more than 10% of portfolio value in this name.

    There is no information given about performance, other than the vague “-45.8% to date!!!!”

    My dad’s house is up around 3,000% from his purchase price, while mine is up only about 50%, but that means nothing – we purchased at different times, that’s all.

    To address the specific questions:

    1) As mentioned above, there is no immediate fear of a dividend halt on any of these issues – although lightning can strike anywhere at any time. If the shares are redeemed, consent of the shareholders would be required to do this at any price other than par.

    2) The OperatingRetractible & SplitShare issues have retraction dates, at which time you may force the company to return the principal, or to give you common stock with a value (probably) in excess of the principal. It depends on the terms of the prospectus, but for these issues you may reasonably expect to receive par value on the retraction date.

    As far as the PerpetualDiscounts are concerned, it depends on what you mean by “recover”. They each pay $X of dividends per annum. If the issuers can issue replacement shares paying less than $X, it will be in their interest to call the shares at par and issue new ones that are cheaper for them. We might arrive at this situation tomorrow. It might happen next year. It might never happen. I certainly can’t predict the future levels of interest rates with any confidence!

    3) None of the shares have an immediate retraction option.

    4) Complex! It is not clear what is meant by “put” – is the portfolio advisory or discretionary? What instructions were given to the broker? What are the client objectives and risk tolerance, and what does the Know Your Client form show? What performance benchmarks were specified?

    As far as the 40% of assets are concerned, what form does the other 60% take? My rule of thumb is that no more than 50% of the total fixed income portion of a portfolio should be in preferred shares.

    As far as calling them “fixed income” is concerned, I’m not sure what else one might call them.

    5) It depends on how much the fees are and what services are offered. I suspect that the broker is simply buying the occasional new issue and taking his 3% (issuer-paid) commission, in which case the continuing fees are nil.

    My own fund (see http://www.himivest.com/malachite/MAPFMain.php) charges a fee of 1% p.a. on the first half-million, and has expenses on top of that of 0.50%.

    It is down substantially both this year and last – but has handsomely outperformed its benchmark since inception due to active management. I suspect my performance – after fees and expenses – exceeds that of the reader’s portfolio, but the portfolio return is not specified here.

    Besides the fund, I offer two services which may be considered helpful: a monthly newsletter (http://www.prefletter.com) and portfolio review. I’ll review this portfolio, with specific buy/sell/hold recommendations taylored to client investment objectives, for $1,000.

    Sincerely,

    HYMAS INVESTMENT MANAGEMENT INC.

    James Hymas

    President

  3. JP

    Jan 3 2009

    Two years ago, I decided I had made enough mistakes in the market after 20 years of dabbling and I needed to get a financial adviser. I’m 56 years old and own a small printing business that did well until the last few years .

    On the the advice of a co-worker who had success at RBC, I talked with his financial adviser and moved some of my RRSPs to RBC 3 years ago. after some success, I moved my locked-in RRSP from a former company pension to RBC

    In total, I moved 4 RRSP accounts and opened 2 investment accounts [from real estate sales]. These accounts were worth $1,150,000 in January 2008. They are now worth $470,000, far below the market.

    But it’s not the market drop that is the problem with this portfolio. I told my adviser when I came on board that I would not follow stocks into the ground and never wanted to lose more than 10% on one stock, but sell and move on.

    RBC did none of the above. Last August, RBC bought Teck Cominco for me. After that purchase, I sent an email saying at this time in my life, and with my business not making money, more losses cannot be accepted, as I may need to draw money out. Stop losses should be put on all holdings.

    They invested more in Teck Cominco, a total of $18,954, now worth $2,865.

    RBC goes to great lengths when you register with them to write down your investment goals, your knowledge and acceptable risk.

    None of what has happened in these accounts is within those guidelines, considering my age and my directions. Also, my wife does not work and has no pension

    Who looks after my interest in these situations? I have been paying for the service and I feel I have been robbed !!!!!!!!!!

  4. Ken Hawkins, Second Opinion Investor Services

    Jan 3 2009

    Here are my comments on JP’s case.

    His instructions are too vague for anyone to act on. If you explicitly gave instructions to put a stop loss on each position at 10% below the purchase price, those would be explicit instructions that the adviser would have had to act on.

    Emails often are not considered to be proper when giving instructions to an adviser. Instructions have to be made by talking to them or sending a letter. An email can be sent by anyone.

    You should have followed up with a phone call to see if the instructions were followed. You have a responsibility to make your instructions clear.

    Did you give them explicit instructions to buy Teck Cominco or did you give approval for their recommendation? They cannot make trades without your explicit approval. If they made trades without your approval, then they are at fault.

    RBC has a responsibility to act according to the guideline on your KYC form (know your client). If in fact they did not, then they might be at fault.

    They also have to ensure that the KYC is up to date and that it takes into consideration any changes in your financial situation or objectives.

  5. Bruce

    Jan 3 2009

    Loved you column on ‘Advisers’. Had a string of bad ones.

    To the point, I’ve had a new adviser with one of the banks over the last 10 months. His management over this terrible period has been about a dozen ‘market’ emails to his client base, no phone calls and no meetings.

    We are pensioners in our 70s and I expected more, as we had searched out competence through a Regional Manager to pick from their ‘best’. Now I want to take some action.

    I have phoned OBSI (the ombudsman for banking services and investments) and they said I must go through the bank first. I don’t think we will fare well without an advocate.

    A couple of years ago, I spoke to a small firm (not lawyers) who would support you in getting recompense from an adviser/planner. I have tried finding these or similar people without success.

    So my question is: Do you know of any such entity that can help us defend our interests and file a complaint against the might of the bank?

  6. Ken Hawkins, Second Opinion

    Jan 3 2009

    Here are my comments on Bruce’s question.

    Unfortunately, you cannot take action for poor service or because you lost money.

    He is just a salesman, without any fiduciary responsibility towards you or your account. He can only execute trades with your approval.

    He does not have to call you or have a meeting with you. You could have taken the intitative any time and called him.

    He does, however, have to make investments that are appropriate, given your financial situation, age, tolerance for risk, investment knowledge and experience within the guideline of the Know Your Client Form. He also cannot make trades without your approval.

    If the latter points are true, then you might have a case for restitution. Unfortunately, you have no case if it is merely incompetence on the adviser’s part.

    As for finding an advocate to help with your complaint, I suggest you contact Stan Buell at SIPA and ask him for names.

    Email Address: stanbuell@rogers.com
    Web Page: http://www.sipa.ca
    Title: Founder and President
    Company: Small Investors Protection Association (SIPA)

  7. Mary

    Jan 3 2009

    My question to you is about compensation to the investment adviser.

    Currently, I’m paying a 1.25 per cent yearly administration fee, which is applied to my RRSP and my non-RRSP accounts. On top of this, I still pay the $125 administration fee for my RRSP account.

    Because I had mutual funds that did not have a class for fee-based accounts, I was paying 1.25 per cent on top of the usual MER for the non-fee-based administered accounts.

    Only last month did a class for the mutual fund become available for fee-based administered accounts.

    I would have expected that the 1.25 per cent would not be applied to the mutual fund that did not have a fee-based class. I am correct in this assumption?

    My stocks are all in a negative position. It seems strange to me that I would be paying out such a high fee when my portfolio of stocks and mutal funds has dropped by as much as 40 per cent and my GICs have only been earning 3 per cent.

    I have asked for a flat-rate system, but this does not appear to be available. I have also asked that I go back to paying for stock transactions and not a fee-based account, but my investment adviser is not too happy with this.

    I was informed that with the fee-based system, I can claim the fees on my income tax.

    Based on my readings, the payments for Canadian advisers are much higher for investors than they are in the US. What are the banks charging for purchasing stocks and is there a website that compares the fees for these services?

    I would appreciate advice and suggestions. For at least 15 years, I was invested in mutual funds, which did not give me much of return. Of course, I realized later that the investment adviser received quite a nice percentage fee for having me in these funds.

    I then switched to a new adviser who dealt with not just mutual funds but also stocks.

  8. Ken Hawkins, Second Opinion

    Jan 3 2009

    Here are my comments on Mary’s case.

    Your assumption is right. In fee-based accounts, they would not charge a fee on top of the MER the fund is paying.

    There’s a difference between a fee-based mutual fund and the equivalent non-fee-based mutual fund. With the first, the fee is added to the management fee and paid separately to the adviser. With the second, the trailer fee for advisers is built in.

    You should compare the total fees in both cases to see which one is cheapest.

    If you have basically a buy and hold portfolio with few transactions, then it often makes more sense to have a transaction-based account rather than a fee-based account.

    As a client, you are not there to make the adviser happy. He works for you and is paid by you. It is his job to make you happy.

    Advisers like fee-based accounts because they typically get a bigger payout from their firm. Also, the account is worth more if they sell their practice.

    As for claiming fees on your income tax, that is true but only for taxable accounts — not for money in RRSPs.

    For discount brokers, the fees are public knowledge and advertised. For full service dealers, the fees are not published and not generally known. They are negotiable, however, and if your account is large enough you can negotiate lower transaction costs.

  9. Paul Barbour, Barbour Financial

    Jan 4 2009

    How do you describe last year as “terrific” for exchange-traded funds? It was a godawful year for everybody and a horrible year for ETFs. Don’t you read your own paper? TSX was as high as 15,000, now it is 8500 and change.

    Let me tell you about a case I lost to iShares funds. It was a 69 year old dentist with $3,000,000. I wanted to put the guy into Manulife’s Income Plus and his broker liked iShares 60 funds and stocks. I lost his business.

    Let’s do the numbers here. His I 60 and stock is worth about $1,800,000 today.

    Had he picked Income Plus with Manulife, his underlying fund would have been down, but he would have collected 5% guaranteed for last year and this year, so his total notional value would have increased to $3,300,000.

    If he dies, the death benefit would still be $3,000,000 because it is a seg fund with a 100% guarantee on death. The guaranteed life income if he were to retire today is 5% of $3,300,000 or $165,000 for life. Compare that result to iShares funds.

    Would you like to talk to some of my clients with seg funds or Income Plus? There are a heck of a lot happier than i60 holders lately.

    Sure the MERs are higher, but you get something for those MERs, guarantees which Manulife has been on the wrong side of. Did they not have to set aside $5 billion for their seg fund losses?

    Question: How could you possibly advise your readers EVER to invest in iShares funds or stocks if the market is going to blow out every 8 years? i.e: 2008, 2001, 1991, 1974, 1953, 1929.

    How could you possibly make retirement plans when so many corrupt institutions and individuals are running the show on Bay St. and Wall St.?

    I have been in business for 35 years and have never regretted getting life annuities, segs or GICs (we call them GIAs in the life biz).

    In the last 2 months, market volatility has averaged almost 3% A DAY, so what is an extra .25-.75% to sleep at night if you have an Income Plus plan? Several more companies have them now.

    I’d love for you to talk to the dentist who is kicking his ass he did not take my deal. His wife has final say so he may not want to embarrass her, but I have several other clients I am sure would talk to you.

  10. Ken Hawkins, Second Opinion

    Jan 4 2009

    Here are my comments on Paul Barbour’s argument.

    The stock market moves higher even after market corrections. There is more wealth tied up in common stock and bonds than in real estate. Smart people invest in stocks if you look at all the money that is tied up in pension funds and wealthy individuals.

    Now even smart insurance companies like Manulife must have confidence in investing in the market. If they did not, then they would not offer the guarantees that they do. They have so much confidence that they believe not only will stocks go up but that they can make a good profit on the guarantees that investors will pay.

    If they thought that stocks were not good investments, then they would never offer any products with guarantees.

    There is no question that individuals who bought Income Plus or Seg funds in that last year or two benefited from the guarantees, compared to those who bought funds that did not have them.

    However, if someone bought an Income Plus today, would they do better than someone who bought the equivalent funds without the guarantees?

    We can certainly go back in history and most times the investor would have been better off by just investing in the underlying investments without the guarantees.

  11. DL

    Jan 4 2009

    We thought we would contact you to see if you had an interest in yet another unsuspecting senior couple who have been taken advantage of by “a much better prepared” Investment Adviser. The email below to the HSBC Ombudsman back in November of 2007 tells the story.

    Maybe we can make a difference in having the regulations changed to be more in favour of investors (especially Seniors), instead of it being so one-sided for the IA’s.

    We have been offered a settlement from Canaccord through the OBSI offices, and we have until Jan. 8, 2009 to respond. Their offer represents a very small percentage of our loss and we are struggling with what our next step should be.

    ———————————————————–

    Dear John Mould,

    I have been given your name as the HSBC Ombudsman who is reviewing our complaint, and I wanted to provide you with my personal impact statement.

    Some 11 years ago, my father passed away and the family land was left to be sold. I have been coming to this property forever and my husband and I were able to purchase this land from the estate.

    We built our “last” home, I thought. This is where I needed to be and have found such peace here. I had dreams for myself and for our children and future grandchildren. I would be able to teach my grandchildren about the lake; how to swim and all about nature. My children are 4th generation to be here at our home.

    I have been dealing with an illness since 1981 and therefore cannot work outside the home. I have been blessed with an artistic ability and have become an artist, which brings in little to no income. My home gives me such motivation and inspiration.

    My investment adviser knew of my illness and the importance of my staying in my home. He also knew the importance of “not losing our money”.

    We trusted him and he made such promises! He knew about our dreams and plans and even visited with us in our family home. He knew the importance of my family’s property and the fact that my husband trying to retire.

    He convinced us that investing borrowed monies would increase his ability to do better for us. I actually stated that I expected the portfolio to hit close to a million in two years. He told me that that would not be a problem!

    What a shock this has been. I personally had discussions with him and I told him that I was extremely disappointed and very worried. He assured me that he would increase our portfolio substantially.

    We had a conference call with his boss at Canaccord, during which we expressed major concern. That promised “million dollars” was what we needed to live on so we would not have to worry. Now he has put us in debt and my husband is 65. Thanks to him, we lost our window of opportunity.

    I just want you to understand how victimized I feel. The thought of possibly selling my family’s property and my home to make up for his mistakes is so overwhelming, I can’t tell you. He should not be allowed to be in the investment business, let alone squander the finances of a senior couple.

    Please understand, we are an educated couple that have been totally “done in” by this man. He has misrepresented HSBC and I’m sure that we were not the only clients that he took with him when he moved to Canaccord.

    He promised us that Canaccord had much better resources and that our investments would do much better invested with them. He was on the phone daily, urging us to follow him to Canaccord. He would speak with me about moving with him and urged me to convince my husband to move to Canaccord. I BELIEVED HIM!

    We trusted this man and before we knew it, we had lost a considerable amount of money that we have never been able to recover. Not only did we lose a large amount, but he lost our ability to make more profits with the monies lost.

    This is just the worst position we could be in at this age. This should not happen in a market where people were making l0 to 12 percent annually on their invested money.

    I can appreciate that there have been some problems with income trusts, however, he put us in to investments that we still cannot get out of, without losing a lot. We have been using that money to pay off the borrowed monies that he encouraged us to use. We cannot live off of our invested money!!!

    Earlier this year, we actually took our investments away from Canaccord and returned to HSBC. Since we went back to HSBC, in good faith, we have made NOTHING. We also trusted our new adviser, whom we knew very well and she did nothing for us. She knew our situation well, as she had recommended the other man to us when he was with HSBC. She told us he was a “wizard” with investments!

    We had not lost faith in HSBC, but now we have had to move our funds again. In fact, our new adviser is gone from HSBC and the bank did not even inform us of her leaving.

    Our property is going up for sale and I am beyond devastated. I don’t know how I will get through it. We lost our “million dollar” portfolio and will also lose my home, not with the help of our adviser or HSBC.

    If he had made l0 – l2 per cent on our portfolio, as he promised – WE WOULDN’T BE MOVING!! When we were introduced to him and HSBC, we had absolutely NO DEBT. Now we do! My husband lost his job due to “downsizing” and at the same time our adviser was losing our money!!

    Whether HSBC is responsible for our losses or if Canaccord is, this adviser seems to be the common denominator. We were introduced to him by our Personal Banking Manager at HSBC, which is where the securities that we have lost our money on were purchased.

    I will make it my mission in life to make sure this doesn’t happen to other seniors. This should really be a major article in the newspaper, because this man cannot be allowed to do this again and again. We have lost so much because of this man, HSBC and Canaccord. I CANNOT let this happen to others.

  12. James I. Hymas

    Jan 4 2009

    There was a small section in BF’s preferred share query that wasn’t in the extract I saw: I have spoken to a new financial adviser at the the National Bank and he implies that I am indeed in trouble with the preferreds, especially the Perpetuals. He is implying that I will have to sell at least some at a loss.

    Setting aside the question of what is meant by “implying”, it is clear from the tone of the query that this is what BF wants and expects to hear; I am sufficiently cynical to be unsurprised that he heard it.

    My question for BF is: on what grounds does he believe the National Bank guy is more skilled and knowledgeable than the Royal Bank guy? Does either broker publish an audited track record, for instance?

  13. Mike

    Jan 4 2009

    In reading the responses above, I feel very bad for many of the folks who feel betrayed by the “experts”.

    They have a common thread in that their advisors handle many, many clients and cannot pay attention to each client personally. Since the investment industry works on volume and portfolio turnover, no one should expect this level of service.

    Add to this the pressure by their managers to sell “certain products” and their bias comes through loud and clear.

    I would strongly suggest that anyone, regardeless of age, get on the internet and do their own due diligence on investments.

    Websites like Prefblog has been invaluable to me and there are so many places to do the research. It’s instant and informative.

    Remember to read all points of view, no matter how extreme, as this will allow you to decide for yourself. The amount of work to make the right investments for you will be much less than trying to fight to reclaim any amount you feel you may be owed by the “experts.”

  14. MM

    Jan 9 2009

    I was a financial adviser for 10 years. I have been employed by two banks. If you are trusting your money with anyone who is not strictly fee for service (I don’t mean commission based), they have divided loyalties and work for their employer, not you.

    It was this constant struggle with divided loyalties and the obvious conflict of interest (which banks pretend doesn’t exist) that convinced me to leave the industry.

    No one cares more about your money than you. No matter how insistent they are to the contrary.

    If you choose to use a financial adviser you have an obligation to keep tabs on your investments, the markets you are invested in, the fees you are paying and the attention your portfolio is getting from your adviser.

    The privilege of having money to invest comes with the responsibility to take care of it.

    You cannot transfer your money to a third party and wash your hands of it. Would you do the same with your health? Would you blindly accept treatment you don’t understand without asking questions or following up with the professional providing the treatment?

    Any money you will need in the next five years should not be in the equity markets (regardless of market conditions).

    The markets will rebound (eventually) and now is the time to buy low and maybe average down if you have holdings with good fundamentals – and also have more than five years before you will need to sell.

  15. Mike Macdonald

    Jan 9 2009

    Ellen, you have truly hit a hot button issue with this blog. In reviewing comments, there are a few clear trends I extrapolated:

    – people paid too little attention to their money once they hired a sales person to take care of it.

    – people hire advisors based upon referrals, chance meetings, bank they deal at, friend of a friend….nobody seems to spend much effort researching who they just handed hundreds of thousands of dollars to.

    – advisors truly believe in their heart that equities are not risky investments inspite of the clear facts they are. (Equities drop approximately 20% or more every 5 years or so.)

    – investors who demanded “better performance” are now discovering that it only comes with more risk. If you would not accept low interest rates and wanted a better return, you are now discovering the true cost of a few extra basis points of return.

    – pref shares are a classic hybrid between fixed income and equity and advisors classify them at their own whim. I like calling them equities and given the reaction of preferreds to the current market, they seem to carry equity-type volatility. Others see them based upon income stream. The real issue is how were they explained when you bought them and I am betting they were never explained at all.

    A better 2009 for everybody and a resolution to get involved in your money!

  16. TH

    Jan 9 2009

    How do you find a good financial advisor?

    I started with an individual associated with one of the bank’s full-service brokers. Less than a month after investing per his recommendations, he said that I should sell most of my holdings and claim a capital loss (this was 10 years ago). This was despite the fact that I said I had a low risk tolerance and was looking for a buy and hold strategy.

    I then moved to a bank financial advisor. As others have mentioned, their loyalty is to their employer, and all I have been offered are the products that they happen to be pushing at a particular point in time.

    I recently retired, so started shopping around for a financial planner. I attended a seminar put on by one, liked what I heard and invested some time with him explaining my entire financial situation. He said he could work out a viable plan for me, but needed $5,000 before we could proceed. Needless to say, I left.

    The next one was the “Readers Choice” in our local paper. Turned out he was associated with one of the large insurance companies. Even though he said he acts independently and isn’t tied to any companies’ products, all he has offered me are insurance-based solutions.

    My last approach was to a planner recommended by CARP – they even have the word “Independent” in their company’s title. A little research and I found out that they too are owned by a large financial conglomerate.

    I don’t mind paying for good advice, but where do you find someone who is knowledgeable and independent?

  17. Young Advisor

    Jan 11 2009

    What’s the point any more?…

    I’m a young advisor with only 4 years experience in the financial industry. But I must say that I’m losing interest and confidence in this business. It all started for me with Freedom 55. I left that stink hole and was hired by TD Waterhouse. I parted from Waterhouse and began working at the bank. What do they all have in common? SALES! And this, in my opinion, is a BIG problem in this industry.

    Freedom 55 was a huge eye opener for me. I developed an interest in finance and met someone there, for what I thought was information only, and next thing you know this guy is offering me a job. As long as you’re a good talker, they’ll hire anyone off the street…literally.

    I must emphasize that I had absolutely no background in finance…and I mean NOTHING!! They offered me courses, fully paid (LLQP and IFIC), which encouraged my decision. After six weeks of intense studying, I was finally appointed the honorable title of “Financial Advisor or Planner or London Life’s Monkey Boy”…whatever works, but I didn’t have a clue what I was doing. I was just legally able to sell investment products. And if you need to pay the bills, it becomes a challenge to put the client’s interest first.

    TD Waterhouse was a much better experience. If you really want to learn about the stock market, a discount brokerage is the way to go. I learnt so much there and met many intelligent people who were passionate about the market. But once again, the company had mandatory sales goals, which they constantly pushed on you. The fact that it was a call centre wasn’t too appealing for me, either. I got my experience, completed my Canadian Securities Course exam and needed to move on.

    “In banks we trust.” These guys are all about sales. Even the tellers are out to get you. Nobody had much knowledge of investments or the markets. Because I came from Waterhouse, they looked at me as though I was a god. They pay you peanuts and set high sales goals for your absolute pleasure.

    They put fake dollar values on the products they sell. Lending was the highest paying product, such as mortgages or home equity lines of credit. Every sales person would brag about the size of credit they sold, which in turn gave them huge “fake” sales dollars towards their goal (while earning the same peanut salary, go figure).

    Every action was for their benefit. There is no compensation for doing what’s in the best interest of the client. Just escorting them to the safety deposit box was a waste of time. And there is constant annoying pressure from management to make those sales.

    By the way, all the investment decisions are based on what the computer says. And the computer is not taking into account our current economic crisis.

    Don’t get me wrong, I have met some great advisors. I just think they’re harder to find. As long as commissions and sales goals are in the picture, the industry becomes confused about ethical practice. And in return, trust is more difficult to establish. I can’t even find much reason for myself to keep going. I’ve lost the passion.

    So here I am today, I left the bank and I’m trying it out on my own. It’s difficult to begin a new book of business. Especially with a young face like mine. And I couldn’t charge a “fee for service” with my limited years of experience. But I genuinely enjoy educating my clients without the pressure of sales.

    I’ve always felt awkward about chasing clients for their money. I can’t seem to accept it. I fully understand the importance of sales in any successful business, but I think managing people’s money is a very sensitive subject. There’s a big difference between selling a person shoes and selling the idea for them to give you all their life savings.

    I truly love this business; I just don’t feel comfortable in it. I even started the PFP course with the intention to get my CFP. I just don’t see the point any more.

  18. Mike

    Jan 14 2009

    If TH wants to get independent, knowledgeable advice, he should read various websites to become informed. The more you read, the better you become and more confident you will become in your independence from the sharks.

    It’s very clear by the honest comments from ex-advisors that there is no unbiased advice. Most cities across Canada have investment clubs, who are comprised of indviduals who get together to share ideas, also called Share Clubs.

    Good luck.

  19. Mike Macdonald

    Jan 16 2009

    Before everybody gets the impression all advisors are greedy jack asses, I would suggest they understand there are many good advisors but few good ways to find them.

    If you look for an “advisor search” service you can get professional help sorting out the better advisors from the masses. Looking for good advice on-line is an extremely risky proposition. The internet is the wild west and finding the truth is very tough.

    My pre-screen questions for advisors would be:
    – would the total fees I pay ever exceed 2% of my portfolio?
    – how many asset classes would I be in? ( look for 5)
    – would you provide me with a composite benchmark comparison each quarter?
    – would you provide me with a target asset allocation and explain any variance quarterly?
    – will you guarantee I will never be sold a deferred sales charge fund?

    That approach combined with solid references should eliminate half the clowns and improve your chance for success.

  20. Mike

    Jan 17 2009

    I agree that there may be “good advisors” out there BUT you could go broke finding one. If you are lucky you will find someone who will handle your money like their’s as opposed to thinking its thier’ s one unreasonable MER after another.

    My point is this, people should do the research themselves, read websites, reports etc and make their investments themselves. No one can tell me that an advisor will treat an individual as if they are the only client they have, If they did they wouldn’t be in the business too long.

    Sorry advisors, I know you are doing your job but still you have a vested interest in making money, first and foremost. Now, that being said if soemone does not want to take the time or has the time to do their due diligence than certainly an advisor is the other route,thus my first point

  21. Conner – Gardering

    May 20 2009

    You proceeded with your own best judgment of the circumstances and of what needs to be done for your goals — while not making the mistake of trying to shoehorn some “strategy” being touted by the business majors/managers as “the best strategy for making money with the new technologies”, correct?

  22. Mary Dobias

    Jun 14 2009

    My husband and I are seniors. With the volatility experienced in the markets over the past number of months, we have been advised by our Financial Advisor that we should consider putting our RRIFS in Asset Allocation funds. We agree.

    We find, however, most products of this nature are put out by individual companies, eg. Templeton, Standard Life, etc. Wouldn’t it be better to be diversified and is there such a fund? Comments please! Many thanks!

  23. JRS

    Jan 11 2010

    I have a problem concerning a Tax-Free Savings Account (TFSA). When my bank set up the TFSA, it did not transfer my investments from my two cash accounts.

    So my investment appreciated significantly ($4,300 to $15,600) OUTSIDE my TFSA before I noticed.

    A financial advisor is supposed to “fully inform” a client about a financial product. My advisor did not tell me that I had to give either written or verbal instructions if I wanted to transfer investments from one account to another.

    I am NEW to investing and my financial advisor was aware of this.

    When I met her to complete the TFSA application & sign it, I
    mentioned that:

    1: I had done some trading recently.
    2. Currently had some investments.

    I wanted the end result to be the TFSA created and “everything” (my investments) would end up in the TFSA.

    Instead of clarifying the situation, my financial advisor repeatedly reassured me that “everything was in order.”

    When I logged on to the bank/brokerage website a few days after signing the TFSA application, I saw my 2 cash accounts. Because my financial advisor is a “financial advisor” and not simply a clerk or teller, and gave me repeated assurance “everything was in order”, I reasonably concluded that the 2 cash accounts were my TFSA or designate TFSA.

    Did my financial advisor fully inform me?

    I would be greatful for any clarification on this matter.

  1. PrefBlog » Blog Archive » Shut Up and Clip Your Coupons!
  2. Canadian Personal Finance Blog » Blog Archive » Random New Year Thoughts
  3. Kafe Actuarial Blog » Blog Archive » The "Tangled Web of Weirdness": Squawking About Life Insurance