Thursday, October 18, 2007

Investment Advice: where do you get it?

There are plenty of opportunities to get investment advice in this day and age. You can walk into any bank at anytime and almost instantaneously see a financial advisor. The Canadian Securities Institute owns the title Financial Advisor; sort of. Only CSI Securities Course graduates with a license can call themselves FAs.

The life insurance/mutual fund people who have finished the financial planning courses offered through their professional organizations can call themselves Certified Financial Planners. No one else can use that CFP designation.

CSI offers a professional financial planning designation, those certified use the PFP acronym.

Accountants can offer financial advice too. CGA, CPA, CMA are all designations that require a huge commitment to achieve.

The stuff you read about written by analysts are usually from people who have achieved the Financial Analyst designation through CSI.

Realtors tout themselves as financial advisors when it comes to that forced savings plan that is your mortgage/house.

So with all the different designations, who do you get your advice from?

The best analysis I've read about financial advice is you get what you pay for. Now most advisors/planners don't actually charge you anything at all. Instead they get commissions on products they sell or deals they broker. So in this case are you really getting advice? I'll say yes and no. You get some advice, but that advice isn't always given without an attempt to influence you in a direction which you may not choose if you got that advice for a fee.

The accountants in this world charge you a fee before dishing out advice. So when they speak up, I usually listen. And today they spoke up. Loud.

  • Canadians are in debt denial
  • a quarter of those who answered didn't think an interest rate hike would hurt them financially
  • one in five said they wouldn't be able to handle an unforeseen expenditure of $5,000
  • Canadians are increasingly relying on borrowed money to finance day-to-day living expenses
  • Debt levels have risen by an average of 5.9 per cent a year since 2000, the report said
  • But only 14 per cent of Canadians reported their own debt levels had gone up significantly over the past three years Me thinks someone's fibbing here, eh?
  • 20 per cent were raiding their RRSPs before retirement — mainly to pay for daily living expenses
Bold was me. So let's see: housing prices went up, which means equity and savings should have gone up, but we spent more, saved less, and basically looked this economic boom gift horse in the mouth. Do you think that may have been because we listened to people who were rewarded not for dishing out advice but for dolling out products?

Remember I'm not a financial advisor. But I will tell you what I plan to do very soon now that I'm working again: pay a fee for service planner or accountant, even just once, to review our economic situation and recommend a plan to achieve our economic goals.

I should add that not all FAs, CFPs and Realtors are shyster salespeople. Nothing could be farther from the truth. But very few can claim to have universal access to products and none can claim to give unbiased advice truthfully. That said, I'd happily recommend people I know in all three designations to my friends and family. But that won't prevent me from getting a truly unbiased opinion.

UPDATE: want more reading on designations and how they glean their incomes? Check out this article from the Van Sun, Oct 19, 2007.

3 comments:

Anonymous said...

This is my personal dilema also.
Who can you trust?
Who has the expertise?

I basically default to the chartered banks. While they don't make you gobs of money - they generally don't loose it either.

I am put off with people who consider themselves financial wizards, and who could close up shop and move to the Bahamas the next day. I don't like people who want to come to my home and "review" my portfolio.

I don't like hidden charges or high management fees, or firms with "boiler room" sales people.
I don't like "creative" schemes and hidden agendas. Such as Registered Education Savings Plans pushed by some companies - when you can do the same through the banks without charges and penalties.

It seems, that with the growth of perceived wealth in real estate, a lot of financial schemes are pushed by dubious characters. Such as one where you buy prescription drugs for third world countries at wholesale prices and deduct the retail price off your income tax.

Siobhan

Justin said...

"Such as one where you buy prescription drugs for third world countries at wholesale prices and deduct the retail price off your income tax."

So that's how they do that...A guy at work tried to get me into that scheme. I was dubious as to the legality of it all, however, there appears to be some sort of tax loophole which makes it all legal. I wonder when they'll close that.

On the topic of investments:
A friend of mine once told me that sound financial advice is never free and if it is, watch out. I'm in the process right now of looking for an adviser. Our workplace (DND) has CFPs available at no charge, but the waitlist is about 3 months long.

Should I go with the workplace CFP? Or move on and find someone else?

Anonymous said...

http://www.cra-arc.gc.ca/newsroom/alerts/2007/a070813-e.html