Quackery?

Do you receive financial quackery instead of solid, fact-based advice?  Do you have financial advisors/planners who spend more time trying to sell products instead of focusing on the details of your financial situation?

Check out this great plain-language video by Ed Rempel, a Certified Financial Planner and Certified Management Accountant:

Source: http://www.youtube.com/watch?v=Jv7qgx3Clp4&feature=player_embedded

Need Advice?

Looking for financial advice, without the bias of your advisor trying to sell a product? Check out this great article by Rob Carrick, originally featured on The Globe and Mail:

The elusive search for financial advice

A young man in his early 30s came into the Ottawa firm Ryan Lamontagne recently to buy some financial advice.

“He was a nice young guy, very frugal and investing on his own,” said Marc Lamontagne, a founding partner at the firm. “He said, I think I’m doing everything okay, but are there some things I could be doing to improve?”

Mr. Lamontagne spent about six hours interviewing this client and coming up with a series of suggestions in areas such as how to better deploy some cash he’d saved and how to better organize his investments in registered and non-registered accounts. Total cost: About $1,200, billed at the usual hourly rate of $195. Investing products sold: None.

A growing number of people want to buy financial advice straight, no products. I’ve been marvelling at the steady flow of e-mails received from readers this year asking whether I can help them locate this kind of financial help. Mr. Lamontagne’s firm has noticed the trend as well.

“We’re swamped,” he said. “The phone is ringing off the hook, and people are all saying the same thing: ‘I want to pay you a fee for advice, I don’t want you to sell me anything.’”

The idea of pure advice is appealing because it does away with the conflicts that can arise when an adviser is compensated through the sale of products that generate commissions and fees. Pure advice is elusive, though. First off, people in the advice business don’t agree on what it means. Second, there may be practical limitations on the kinds of advice you can get for a flat rate or hourly fee. And then there’s the fee itself. Some people just aren’t willing to pay it.

Let’s address some jargon you’ll have to contend with if you want pure advice. Someone who provides financial advice to a client and is paid through an hourly or flat fee is generally called a fee-only or fee-for-service adviser. But these terms suffer from the vagueness that characterizes virtually all the terms used in the financial industry to describe people who advise and the work they do.

In some cases, fee-only can include fee-based advice. That’s where an adviser charges clients fees equivalent to roughly 1 per cent of their account assets each year. In fact, many fee-only advisers are like Mr. Lamontagne in that they’re also fee-based advisers.

He’ll do financial plans for clients and charge them a flat or hourly rate. If clients then want him to manage their investments, he switches to a fee-based model. “Both [kinds of advice] cost fees,” he said. “But they’re different kinds of fees.”

There are also advisers who mix fee-only advice with commission-based investment sales. You might pay for a financial plan and then, if you want, have the adviser manage a portfolio for you and be compensated through fees and commissions on the products you buy.

The advice industry is very big on fee-based accounts, in large part because they’re great at wringing steady and reliable fee income from clients. But the investors I’m hearing from are more interested in paying a flat or hourly rate for advice.

Mr. Lamontagne said people seeking this type of advice are often what he calls “validators,” or self-directed investors who want to consult an expert. “These people are smart enough to do it on their own, but they really want someone to look at their investments and answer questions like should I sell RIM, or is this the best ETF?”

Some fee-only advisers are not licensed in a way that allows them to discuss the merits of individual stocks and exchange-traded funds, Mr. Lamontagne warned. For that reason, fee-only advice is best used for help with financial planning. Investing matters can certainly be covered, but at the big-picture level of risk and the right mix of stocks and bonds for your portfolio.

Something else people should be aware of if they want fee-only advice is that the fees are substantial, but also flexible. Peggy Cameron, an Ottawa fee-only planner, charges $225 per hour plus HST and generally bills clients for $1,500 to $2,000 per financial plan.

Too expensive for you? Short consultations with clients are also an option. “I can accomplish an awful lot in an hour,” she said.

Ms. Cameron said the bulk of her clientele are people who have advisers and are looking for second opinions. These days, many of the questions clients have are about retirement. “People are asking, do I have enough money to retire, how long will my money last, what kind of income can I expect to enjoy? Somebody wanted to know, could they afford to live in another city?”

Fee-only advice is client-friendly, and it turns advisers into professionals who sell expertise rather than products. So why isn’t it more popular? First, it’s not a lucrative business model for advisers.

“It’s tough because most of your clients are coming in just for a financial plan – there’s no ongoing relationship,” Mr. Lamontagne said. “So you constantly have to go and get new clients.”

Getting those new clients is a challenge because many people are surprised to be asked to pay directly for financial advice. They’ve been trained by the mutual fund industry to believe that advisers work for free.

Advisers who sell mutual funds are typically compensated through trailing commissions that are siphoned out of the fees fund companies charge investors who own their products. Investors are often oblivious to trailing commissions, and that in turn makes them testy when asked to pay out of pocket for advice.

“I’ve had people come to me say, why would I come to you when I can go to this guy and get it for free?” Ms. Cameron said.

…….

Are you looking for a financial advisor or coach who isn’t interested in selling a product?  Or are you interested in learning more about advisors and coaches?  Check out Money Coaches Canada, who believe in using an accessible, collaborative approach to help clients reach their goals.

Source: http://www.theglobeandmail.com/globe-investor/investment-ideas/portfolio-strategy/the-elusive-search-for-financial-advice/article2234167/singlepage/#articlecontent

Mutual Fund MERs

Here is a great article that was originally published in the Financial Post on Mutual Fund MERs. Enjoy!
 
“High mutual fund fees charged by companies like Investors Group are once again under the microscope, but I have no fear my modest holding in the stock of IGM Financial Inc. is in much jeopardy.
 
“Investors Group and I have exchanged views the past week, online at financialpost.com and in print, about how much value its clients get from its robust management expense ratios (MERs). Many of its funds sport MERs of 2.5% or more; even its bond funds are just shy of 2%, which in today’s low-interest-rate environment is an outrage in itself.
 
“Even though there has been a sea change in how investors think, I have little doubt that IGM Financial, the owner of Investors Group, has a model that will keep minting money for shareholders — selling mutual funds and “advice” to investors who can’t be bothered with details like MERs.
 
“There is still $773-billion invested in mutual funds, according to the Investment Funds Institute of Canada; the amount in exchange-traded funds is barely 6% of that: $49-billion, according to the Canadian ETF Association.
 
“To put it in perspective, Investors Group alone has more assets than do the half-dozen domestic ETF players combined — $61-billion as of a year ago, the last time IFIC broke out sales by members. If you count Mackenzie Financial Corp., Investors Group itself and other firms owned by IGM Financial, the total is $128-billion, or more than 2.5 times all ETF assets in the country.
 
“Frankly, I’m amazed the fund industry has stood its ground as well as it has. Whether out of ignorance or inertia, its customers seem content to pay the price of “embedded compensation” just so long as they don’t see separate itemized bills. To me, this is like sticking with the horse and buggy at the dawn of the automobile era.
 
“True, the media pay disproportionate attention to ETFs, despite the best efforts of the industry to brush them aside. Last week’s Canadian Investment Awards were lavished exclusively on high-priced actively managed funds with just one token award going to Scotia iTrade and Claymore for Claymore’s commission-less ETF initiatives, which Scotia iTrade sells. Funny, we’ve never seen an award for “commission-less” mutual funds!
 
“IFIC and Investors Group extol the “value” of advice but seem to have missed a sea change in consumer attitudes to fees and the dramatic contrast revealed by the surging ETF industry.
 
“BMO ETFs unveiled a study Monday revealing that while fewer than one in five know about them, the more Canadians learn about ETFs, the more they want them. Of 1,520 adults polled by Leger Marketing, only 18% were familiar with ETFs. But once they learn about their benefits — chiefly lower investment management costs and tax efficiency — a whopping 74% would use them.
 
“David Chilton, author of The Wealthy Barber Returns, says more people have asked him about fees in the past six months than in the past 20 years, and it’s “ETFs that have shone a light on it.” When he tells Americans about Canadian dividend mutual funds with 2.7% MERs, “they honestly don’t believe me. They think it’s nutty.”
 
“No matter how good an advisor is, it’s hard to overcome the drag of a 2.7% MER. Customers aren’t irate about the first 1%, Chilton says. They understand financial advisors need to be paid. But more are balking at the extra 1.7%.
 
“Even five years ago, few Canadians realized how badly high MERs cut into long-term wealth creation. This lack of price sensitivity was exploited by Canada’s fund industry, among the highest-cost fund jurisdictions in the western world, according to a study by Harvard University’s Peter Tufano and colleagues. The industry brushed off this study and has shown little inclination to lower fees as a result.
 
“The irony of MER scrutiny falling again on Investors Group is that on Tuesday, trading began on the Toronto Stock Exchange for Vanguard Canada’s first six domestic ETFs. The contrast in fees couldn’t be more dramatic. Compare any IG U.S. equity fund to the rock-bottom MER of the Vanguard Total Market ETF (VTI/NYSE): 0.07%. (Vanguard’s U.S.-based ETFs could always be bought here even before their formal arrival). Go to the MER calculator at www.investored.ca and see for yourself how a fivefold (or fortyfold!) difference in fees affects long-term returns.
 
“Not Apples to Apples,  you say? Then throw in a fee-based advisor charging 1% of assets and you’d have 1.07% vs 2.7%, still almost a threefold difference. In the past week, I’ve been deluged with emails, including from former employees of the Winnipeg-based colossus.
 
“Investors Group executive vice-president Kevin Regan argues those fees get you great advice, financial planning, yadda yadda yadda. But you can get comparable advice with a fee-only planner or fee-based advisors charging more reasonable fees.
 
“Gordon Stockman left Investors Group in 2005 to found Toronto-based Efficient Wealth Management Inc. He finds IG clients an “easy crowd to remove to a lower-cost environment, once they find us.” He says the IG Beutel Goodman Canadian Small Cap is identical to Beutel Goodman Small Cap, except IG’s MER is 3.12% and Beutel Goodman’s is 2.3% for its advisor version (class B), 1.19% for the F class version and 1.43% for its direct version (class D).
 
“Mike Macdonald, vice-president of Weigh House Investor Services, says many investors fail to understand the full impact of MERs. Once their eyes are opened by ETFs, they ‘tend to feel their trust has been betrayed by salespeople who say they are acting in the client’s best interest but who are clearly acting in their own best interest. For these so-called advisors, client ignorance is worth a lot of money.’”
 
Author and chartered accountant David Trahair says mutual funds were a great invention — “for the sellers” — but “the MER debate is now over.” He concluded this eight years ago, when he started to move to low-MER ETFs and suggests retail investors follow suit.
 
Source: The Financial Post