What isn't your financial planner telling you?
By Jason Buckland, Sympatico / MSN Finance
If you subscribe to the philosophy of Gordon Gekko, greed is good.
Heck, it made the guy a ton of cash in Wall Street and, were it not for Charlie Sheen ratting him out, fuelled the desire that made him one of the world’s most powerful businessman. Michael Douglas even landed an Oscar for convincing us financial gluttony might've been given a bad name, after all.
But Wall Street was, of course, a movie. In real life, you don’t want any dishonesty when it comes to handling your money.
Which is why I found this article from Smartmoney.com entitled “10 Things Financial Planners Won’t Tell You” so fascinating. As it turns out – surprise! surprise! – many of the people out there tripping over themselves to manage your money may not be totally upfront about things.
You can check out the full list here, but here’s a few tidbits from the article I found interesting:
- In the early 1990s, only about 25,000 people called themselves “financial planners.” By 2006, that number had shot to 650,000 and – while there are legitimate causes for the boost, sure – part of the reason the total has risen so fast is that nearly anyone can present themselves under the blanket description of financial planner. Because often times there is no required training involved with becoming a financial planner, you run the risk of encountering “bank-employed pitchmen” who may have interests not entirely honest with your money. Smartmoney’s advice? Try hiring an advisor with a Certified Financial Planner license (a field of about 56,000) to manage your cash. An advisor with his/her CFP license means they’ve got at least three years experience on the job and have passed a comprehensive 10-hour exam on the merits and ethics of handling your money.
- More to that notion, ghost-financial planners have somehow managed to creep their way into the industry. According to Smartmoney, many financial planners – especially among big firms – meet with you one-on-one, shake your hand and conceive a plan you’re satisfied with … only to outsource finishing the job to a secondary firm or freelance planner. The advisor you’ve met with apparently doesn’t actually do much of the leg work, enabling them to spend more time wooing prospective clients. “It’s the current corruption in financial planning,” John E. Sestina, cofounder of the National Association of Personal Financial Advisors, says of the growing trend. While it may not sound like much, this is the exact kind of lack-of-personal-care corner-cutting that pisses regular people off when it comes to money.
Regardless, there are some eye-opening points made in the Smartmoney list and, if you’re looking for more on the issue, check out these three steps on how to pick the right financial advisor for you.
Posted by: Nicolas Horn | Jun 22, 2021 11:05:49 AM
I knew it was "time" to find a new financial planner my fiance was working with before we met, when the individual went on a rant after we refused to invest any further without a direct discussion about how our evolving financial needs were being met. Not saying the person was dishonest, but they simply organized our quarterly and annual reports for us, promising they would have the investment discussion "next time", three sessions in a row. The clincher was not mistakes made about RRSP deadlines, not missing legitimate tax rebates(thank you Rev. Can., I love you people!), but the rant climaxing in"I have worked soooooo hard for you! Think of my blood pressure!". Thank you, I have my own to worry about, goodbye.
Posted by: Kevin | Jun 22, 2021 12:57:50 PM
The key is to identify individuals that have the Certified Financial Planner CFP designation.
In Canada about 19,000 people have the CFP out of 375,000 that call themselves financial planners
Posted by: wheretoturn | Jun 22, 2021 1:24:11 PM
It is hard to find a financial planner that will work with you unless you have buckets of money to start with. If I had buckets now I wouldn't need a financial planner! My current planner calls me once a year at RRSP time for a cheque the rest of the year I hear nothing from him. That's why I tell him where to put my money although he only sells products from one company and I am going to pull my money out ASAP.
Posted by: Jane | Jun 22, 2021 2:55:30 PM
I worked for a financial planner for 10 years. My husband and I only had one appointment with him, the very first one which we followed. He didn't believe in RRSP's, so we cashed them out. He only sold from one company. If we stuck with what we were doing, we would own our home, have savings in RRSP's! Now, we have no savings and still owe a bundle on our home. No financial planner for me, thank you very much!
Posted by: Warren | Jun 22, 2021 4:58:39 PM
My wife and I have been with an investment company for almost 10 years now. We recently sat down and went through all of our quarterly statements to see what position we are in after all that time and money. (shame on us for not doing this sooner and taking control).
We are led to believe we are doing well at the yearly call for the RRSP loan. After that we really never heard from the two partners that were handling our money.
After doing all the math, we figured that after almost 10 years we were no further ahead than if we had put our money in the matress, let alone in a much better situation as promised by our "finanacial planner". My portfolio has actually eroded by 30%. How can they make promises and never follow up? Needless to say we are frustrated and looking for other options.
Posted by: Financial advisor | Jun 22, 2021 5:25:18 PM
Our firm works to match individuals to financial advisors, and we've found that the best relationship is when the advisor has experience working with other people in your exact same financial situation. Most people don't realize that there are advisors who focus just on doctors, business owners, divorced women, socially responsible investing and hundreds of other niches. When you have a good fit like this, you get better advice.
Posted by: mortage free | Jun 22, 2021 7:58:04 PM
Financial planners will tell you to invest in mutual funds instead of paying down your mortgage.Why>
Because they dont make a percentage from you payiong off your mortgage.Remember, whether you make or lose money, he still gets a cut
Posted by: Trepidum | Jun 22, 2021 8:04:18 PM
Dear Financial advisor,
I recognize that your role here is not to defend your profession, but please don't advertise your services either. When you find far more critics than endorsers of financial planners or advisors, something is clearly wrong. If you wish, please answer the following questions in a public forum:
1. If the promise of higher-than-GIC returns is used to bring people in to your fold, and you confidently show the 100 year S&P chart all the time, then why include the disclaimer that past performance is no guarantee of future returns?
2. Why do 60% of mutual fund managers not invest in their own mutual funds?
3. Can you name ANY advisors whose clients' returns have beat the market over the long term?
4. Why don't advisors get paid by a percentage of the returns they generate, not the amount they manage? If they are really so good, why don't they just invest out on their own? Why are they in this business at all?
5. Why do managers get paid more in salary, bonuses, and perks than their high earning clients, for a much less important role in society i.e. their work NEVER benefits the population at large, like a firefighter, nurse, doctor, engineer, farmer, crossing guard, teacher, airline pilot, etc...
6. On the same token, is a 7 figure income at all justifiable for anyone, whether it be a bank director, mutual fund manager, or company director? At that time, the hyper-short performance record is conveniently taken in to account (vs no 4, above).
The bottom line is, the financial services industry is unnecessary and a drain on society.
Kind regards,
Trepidum
Posted by: sosickofit | Jun 22, 2021 8:12:10 PM
I love how people come up with this stuff after it's all in the pot. Take control? Like you saw it coming if you had control? Jeez, count the number of people that saw this comnig, count the number of time THOSE people were quoted anywhere near public media. ZERO??
Get your head out of yer butt, find an advisor who calls, or call and get an appointment. Ask pointed questions. Can I retire? When? How? What's the downside, what will it cost me? what do I get for that?
Taking control means staying involved and not ignoring. You bring it on yourselves sometimes by blowing off meetings for the hockey game, or a beer with your old college buddy. There are good advisors out there, the really good ones rarely advertise, ask a friend(s) .
Stop whinning on the internet and make some calls and switch to an advisor who earns your dollars.
Yea, stuff goes down. How many of you called your real estate agent when the house prices came down and told him/her to sell you house? That you'll buy when it bottoms?
Posted by: Grant McKay | Jun 22, 2021 8:24:39 PM
There are financial advisors like myself who are happy to work with ordinary income earning Canadians, not the "high net worth" families the media seems to be so focused on. It needs to be understood though that a typical independant financial advisor, who is not employed by a bank and is free to offer product from a wide range of suppliers, is probably earning commission income only. Mutual funds generally pay a 5% commission to the dealer and after the dealer takes a sizable cut the remainder is business revenue for the financial advisor who then has to pay his/her own business expenses, leaving him/her with some income. If you invest $1000 in an RRSP, for example, the financial advisor receives about $30-40, out of which expenses need to be paid. I typically spend 2 hours with clients and at least that much time again preparing and processing the paperwork plus travelling to see the client in his/her home. I can't afford to do that often for a $1000 purchase, since I really can't shorten the time involved and still provide the proper service, and I can't be calling clients regularly for no particular purpose if they are relatively small accounts. If you aren't hearing from your financial advisor it might be because he/she simply has to work with too many clients with small accounts to have much time to spend with them. Or it might be that they just have the impression you won't want to hear from them unless you want to do something or have a question, in which case you will call him/her.The problem is compounded by the fact that you might be working with 2 or 3 different advisors, thus making yourself an even smaller client for each. You may get more attention if you have the "buckets of money" but I can assure you that if you are a serious and reasonable investor with even a small amount to invest you can get sound advice and adequate service from many advisors out there. I say "reasonable" because we do not control the markets, we simply help you to participate in them and your cooperation is needed in order to succeed. You cannot reasonably expect to succeed if you change the timeframe from the original 7,10,20,40 or whatever years to exiting anytime sooner than when you said just because the markets are down. Do you sell your house whenever it goes down in market price? It is unfortunate that people invest at one bad time or through one unusually bad period like the past 10 years have been and they lose faith in investing and seem to blame the financial advisor, even in cases where the investor may not have cooperated so much with the advisor's advice along the way. Investing is not a get rich quick scheme. Even if it hasn't gone well, along the way you may have set aside money that you still have at least much of instead of having spent it, you probably saved on your income taxes and may have had some tax credits, you may have had the protection against catastrophy that insurance products provide and you've had someone help you to avoid those great ideas where people lose ALL of the money they "invest". One of the goals of a certified financial planner professional is to help you be aware of and manage risk. For example, if you put your money in a mattress some of the risks are 1) lose of value of the money due to inflation while you have it sitting around doing nothing, 2) theft, 3) fire, 4) ease of access resulting in spending on the first whim or "great" idea that comes along. Market volatility is the nature of the game and something you learn to use to your advantage with experience but it is perceived as "risk" by many and it does result in loss when it causes an investor to abandon the long-term plan prematurely. Perhaps the greatest risk most of us face is the risk of running out of enough money before we run out of life. The challenge for your financial advisor is to learn which risks you can tolerate and how much you can accomplish to minimize that risk of running short at the end. It's never a problem if you end up with too much but it's a lifestyle changing problem if you run short. We will do our part if you will make a reasonable effort to do yours and to understand what we can help with and what we can't control. A good financial advisor genuinely wants to help. Please let us and please expect help, not miracles.
Posted by: Trepidum | Jun 22, 2021 9:30:51 PM
Dear Grant McKay,
You seem like a sincere person, to type all that and with only one spelling mistake catastrophe :)
Please give us your thoughts on my questions listed above.
Posted by: Grant McKay | Jun 22, 2021 10:53:39 PM
Dear Trepidum:
Ok, here are some quick answers to your questions:
1) The short answer is that regulators require that disclaimer. The fact is the precise outcome of an investment in equities is uncertain. The range of returns reduces with the length of time invested but it is still a range of possibilities, not a fixed outcome. Mutual funds provide a good opportunity to attempt to achieve higher returns than GICs, T-bills, etc. but certainly for a short-term investor it could go either way and many people exit prematurely and end up with poor results. One study is often quoted about a mutual fund that had very good returns over many years but most of the investors in the fund actually lost money. Why? They tended to buy the fund when it had been going up for awhile and then sold when it went down. Poor investor behaviour results in poor results.
2) I don't know where that figure comes from. I hear frequently from managers who do invest in their own funds. I guess you'd need to ask the ones who don't why they don't.
3) "The market"? Which market? I really don't think your question is a reasonable one for a number of reasons, some of which are a) investors are likely to participate in multiple markets in their portfolio and it wouldn't be fair to compare an apple to a bowl of fruit, b) indexes are a measure of a markets but are notional accounts not subject to the fees investors will pay somehow or other to participate in a market. For example, the Dow can simply kick GM and Citibank at a moment in time out without having to pay fees to actually sell the stocks and buy the new ones, c) I have no doubt that there are investors who beat the market but they have to do something different than the market does in order to do it so is it really the same market then? For example, last fall anyone who had some money in a money market account beat the market as it plummetted simply by having a portion of their money out of that area of the market. Someone concentrated in gold will likely beat the index any day something causes investors to be fearful. You can't beat the market if you are doing exactly what the market does, you beat it at times by doing things somewhat differently.
4) "Advisors" is a broad term and I can only comment on what I do, not what a different variety of advisor might do. By the way, there are fund managers who get paid a bonus when they beat their benchmark and people complain about that too. I think no matter how anyone in this industry gets paid there will be some investors or non-participants who will complain it should be done differently. In fact there are many different ways that managers and advisors get paid, so just pick the one you like the best and let other investors pick whichever way they like best. I do invest the same way I advise other people to, by giving the money to an assortment of mutual fund and segregated fund managers who seem to know what they are doing and are in a better position to do it than I would be. My role is to put the investors together with the right strategy for their situation and suitable managers to invest in ways that seem right for that particular investor and portfolio. I expect that advisors and managers are in this industry initially because they need income since they are not already wealthy and they probably stay around a lot longer than they need to because people are relying on them and/or they enjoy the work. Most of the ones I know actually enjoy helping people. Again, you'd need to ask them individually. The bottom line is that we probably are doing the same things for our clients in similar circumstances that we do for ourselves and in the bad times we suffer the paper losses just like everyone else.
5) Ok, if you don't think helping people to build and protect wealth is a contribution to society I can't help you and can only recommend that you don't use their services since you don't respect what they could do for you. In a number cases I'm aware of the advisor has clients who make more than he does. I don't make 7 figures and I'm sure most financial advisors don't. Maybe the ones who do are actually worth it. Apparently wealthy people think so.
6) We live in a more or less capitalistic society. People are happy to accept however much someone or some corporation or some group of clients are prepared to pay them. Wouldn't you accept more if it was offered? You can do your part to put a stop to it by not investing with those people but I will warn you that the better people are usually paid better once they've proven themselves and been noticed.
Re the bottom line: the financial services industry does facilitate all industry by raising capital for businesses but you are under no obligation whatsoever to participate and be drained personally. Leave it for others who want the opportunity to invest.
Regards,
Grant McKay
Posted by: Free At Last! | Jun 22, 2021 11:15:57 PM
For all those who know they're getting ripped off by a "financial planner"....(read that as mutual fund, hedge fund, flow-through share salesperson).....be very afraid and GET OUT NOW. It will cost you. They have churned your account and set you up for DSC commissions. They will whine and cry and plead. Don't listen!
Go to your bank. Open an online discount investment account. Transfer all that crap they sold you into it and start sorting out the mess on your PC. Fisrt, sell the mutual funds that have no DSC. With the proceeds, buy Exchange Traded Funds (ETFs). Barclay's i-units are a good start, and the banks are starting to develop their own. They are way cheaper (do you know what an MER is? Your mut-fund manager probably forgot to tell you. Look it up and make comparisons) and ETF's can be bought and sold all day long jiust like stocks, totally liquid with no commissions, just the nominal trade fee.....usually less than $10 per trade, and almost never more than $30, depending on your accoount size.
Over time, collapse all those lousy performing and MER costly mutual funds as the DSC's expire, (or even before if you're brave...it is worthwhile usually) buy ETF's and stocks. You will find it invigorating to be in control of your own money, and you will be much better off financially.
Posted by: Al | Jun 23, 2021 12:07:05 AM
It is so confusing!!! All indicators say we are turning. Yet a 4.4 drop in in the TXS. 72B gone in the 1st qtr. Where does it go??? Somebody has it!!! Investing will become a thing of the past before to long. Government and financiers say save. For what!!! Might as well spend, take advantage of any credit available. Die and let the insurance figure it out!!!
Somebody some where is making a killing on our money. 72B does not just disappear!! We need protection for our humble savings, including pensions and RRSP's. Are we seeing it?? No. The turn around is simply dangling thr carrot so us rabbits chase it. The rich get richer and we get poorer. God can you imagine what will happen when the boomers are gone. Our children are doomed to poverty!!!
Posted by: Grant McKay | Jun 23, 2021 6:45:43 AM
When the economy is in a downturn and stock markets are down people think the world is ending and investing makes no sense. When the economy is strong and stock markets have been soaring up everyone thinks investing is a get rich quick scheme. Now you know why people don't buy low and do buy high even though they know to do exactly the opposite. The sky is not falling Chicken Little!
Either learn to buy when prices are low and investing seems like a stupid thing to do or setup a PAC to buy monthly and take the emotion out of it by using a disciplined approach of making the payment without thinking about what's going on.
Posted by: Trepidum | Jun 23, 2021 12:26:10 PM
There may be hope for the highly flawed financial services industry.... yet
There are two root problems:
1. As for any other profession, regulation is critical. This is clearly lacking. 25,000 to 650,000 practitioners in a short time! Claiming to be a financial advisor or planner without the required qualifications needs to be made punishable by law. If the article is true, only 56,000 in Canada should be allowed to "practise". The others are welcome to join in if they can prove themelves first. No one will scream about a "critical shortage" of financial planners when this is implemented, don't worry. Speaks a bit to their necessity as well. Get the quacks out! A family doctor requires about 10 years of post-high school education to even treat a cold in her office. What about the guy who manages your life savings??? Other professions went through this regulation years ago.
2. The constant skimming of funds from the top has got to stop. Thank you Grant McKay for pointing out and acknowledging the 5% dealer commission, which for a $1000 RSP contribution works out to $50. Even more gets lopped off earlier in the process. Expenses are legitimate, but again, why is the commission a function of the amount of the contribution and not a fixed amount? Why not a yearly fee like a gym membership or safety deposit box rental? The levels for skimming are at minimum: company board of directors, stockmarket directors, mutual fund board of directors (see all their three-piece suits), your financial services company, and your financial advisor. The financial advisor is the scapegoat, sure, but he/she is also setting you up for exploitation by all these other people. What you are getting in the end is a pittance. Also, your capital is at risk and in fact highly vulnerable all the time. Everyone else is getting paid, NO MATTER WHAT happens to the investment! Capital erosion in a losing market is accelerated by all the skimming.
Posted by: Grant McKay | Jun 23, 2021 2:01:23 PM
Dear Trepidum:
It is easy enough to determine whether or not you are working with a CFP professional. We have an ID card, a certificate hanging on our office wall and are authorized to use the logos on our stationary. Or you can check the FPSC website for an individual name if you like. That being said, there's no reason to think that everyone else is incompetent or even that every CFP professional would meet your definition of competent. It's a certain standard that helps you in your determination but an investor still needs to find an advisor who is a good fit. Or there are those people who prefer the do-it-yourself approach and I'm sure some of them are quite happy with the results. In my experience though investing is similar to tax returns in that no matter how simple the situation might be some people simply will not prepare their own tax returns. They lack confidence in their competence or just aren't interested enough or whatever. Investing is a much broader field of possibilities and a lot of people want the help from someone who perhaps takes a greater interest, is likely to have much more experience and generally has better access to information and people in the industry. That's not to suggest that an investor hasn't learned a lot from his/her own experiences in life or that there isn't enough information available for any interested person to access but some people prefer to have an advisor help them to quickly focus on relevant information and work with them to actually take action.
From where I sit it seems like regulation has increased a great deal and continues to do so, as do barriers to entry into the industry. In any case, you can always choose the advisor who you feel is properly qualified and either recommend that advisor to everyone you know or let them fend for themselves and come up with whoever they come up with on their own.
The $50 doesn't get "lopped off". It is paid by the fund company to the dealer out of the management fee that the fund company charges a fund. Yes, the managers and everyone else in the process generally do get paid and I don't apologize for that ever. With smaller clients we may be seriously underpaid for the time and expense we contribute. Large clients have the option of working with fee-based advisors who do charge a flat fee, not a commission. Small clients may not have that particular option (since the fee could easily exceed the amount they want to invest) but they can deal with a bank or maybe buy investments through a group RRSP at work. Don't kid yourself though, free is rarely free and banks make money from their clients one way or another, if not many ways. Still, you have many options available and should choose the one that you are most comfortable with. That's if you wish to be an investor at all. There's always the mattress for the particularly skeptical, fearful, cynical or unappreciative.
Grant McKay
Posted by: Trepidum | Jun 23, 2021 2:31:47 PM
I am definitely an investor, but other things come first.
1. Pay off mortgage completely, no ands, ifs, or buts.
2. Build a completed retirement fund of staggered GICs, gold, and high interest savings. The amount you require can be determined with the help of a financial advisor if need be. Be an ant. Don't live like the proverbial grasshopper, based on projected growth of your wealth, and don't let the threat of inflation scare you.
3. Then, and only then, consider unsecured investments, with can-afford-to-lose money, and for entertainment purposes only.
As you can see, those with less earned income cannot afford to risk their capital at all, and can make the return promised by unsecured investments simply by increasing their savings rate correspondingly. Unfortunately, current western societal expectations make this very difficult. Those with less earned income must realize that investments are NOT a way to achieve the retirement standard of those with high earned income. It is all about the earned income. Financial advisors live off earned income too and plan their own retirement based on this, not their investments. I have never heard or read a financial advisor saying this.
On the flip side, those with higher earned income can afford to retire through their savings alone too, as long as they are not greedy about trying to generate even more wealth through increased returns and unnecessarily assumed risk.
Posted by: Grant McKay | Jun 23, 2021 3:22:12 PM
All the best with your retirement plan Trepidum!
Grant McKay
Posted by: Trepidum | Jun 25, 2021 12:57:03 PM
I have been thinking the last two days about what Grant MacKay wrote. Recognizing that while he is probably a good man at heart, he is not necessarily representative of the financial services industry. The common underlying theme of the responses is "the system is what it is, take it or leave it".
The common man will never get an apology from the AIGs, Fannie Maes, Worldcoms, Enrons, and GMs of the world, or even from Mr. McKay. Yet the common man also remains vulnerable even today to sales pitches, charts in the banks harping on past years' mutual fund returns (As an example, I remember very well in 2000 in many TD bank branches-"TD Entertainment and Communications Fund, 89% 1 year return!!), and outright crookedness from unqualified financial planners, as many posts in several blogs on this website have reported.
People with less education, language barrier, or just plain low household financial planning skills need protection. There are courts and self regulatory bodies for lawyers, accountants, nurses, doctors, engineers and others, and people in these professions stand to lose their licenses or go to jail if they misbehave, or pretend to be what they are not. There is no such thing which I am aware of in the financial services industry. If a teacher has a "weak" or maladjusted student, she finds ways or refers to others to help him. If a doctor has a patient who doesn't take his pills, she finds pills he can tolerate and makes other adjustments, and may refer to a specialist. Financial planners hide behind the "long term" and the questionnaire everyone fills on their risk tolerance, when it comes to discussing short term results, even when those poor results are the result of robbery and a corporate executive sense of entitlement as we have seen especially in the past year. Financial planners should then be paid only in the long term as well, why right away?