"Have I Got A Deal For You":
Advisor Conflict Of Interest
I get feedback, a fair bit of it sometimes, depending on the topic, but recently I have received a significant amount asking about the difference between the "standard of care" that is required by IIROC (Investment Industry Regulatory Organization of Canada) licensed financial / investment advisors ("brokers") and the "fiduciary duty" required by portfolio managers (like High Rock) licensed by the OSC (Ontario Securities Commission).
As it stands at the moment (because the various provincial regulators continue to kick the can down the road with "proposed targeted reforms") there is only a requirement of "suitability" for those who offer financial advice (from a bank or independent investment dealer, IIROC licensed). At best, pretty vague terminology. At worst, as the great majority of them are paid commission, wherein there is the potential for a conflict of interest.
Even those who charge you a "fee" (fee-based account) are in fact paid a "commission" as a percent of that fee by their employer (the bank or investment dealer). If you are a "top producer" (generate lots of fees / commissions) you are paid a bigger % of that fee (as commission). If you are a top producer, you are put into the "Presidents or Chairman's Club (at your respected firm) and held in high (if not somewhat dubious) esteem. (see Paul's blog:http://highrockcapital.ca/pauls-blog.html :I Am Going To Blow My Top! 1/25/17)
Dubious because the standards you are measured by (generating revenue for your firm) are not necessarily in your clients' best interest (performance). I know this because I have been there. In fact, at one bank where I was a financial advisor (and Branch Manager), the president of the "brokerage" operation told me that they would not publish client performance returns on the client website because the advisors didn't want it. My response: "are you kidding me?", was not well received. I didn't last at that institution for very long (my decision). My moral and ethical standards were considerably higher than theirs were: Shareholders (and the bottom line) were their first priority. Not their clients (other than the revenue they generated).
So, in a nutshell, even as a fee-based financial advisor, they are incentivized to build their "assets under administration" (AUA), otherwise known as "asset gathering". This becomes, in and of itself a conflict because it may leave you, as a client, fighting for the attention of your advisor. How many times a year do you get to have a one on one with the girl/guy who "sold" you on joining her/his "wealth management practice" as a client?
If they are a "big producer", unless you are a "big client"... forget about it. I know, because I have been there. There is only so much available time in a day, week, month and year (and not enough to have a meaningful conversation), especially if the focus is on bringing in new clients (because that is where the $$ are).
Fiduciary duty requires that portfolio managers put their clients interests before theirs: no conflict of interest. Period!
So we ( at High Rock) have taken on a very challenging task of trying to change the existing order of things which is controlled, for the most part by the biggest financial institutions.
Not only are we (as a licensed portfolio management company, with our legislated fiduciary duty) held to a higher standard, we are trying to change the conversation about what exactly is a conflict of interest: selling mutual funds, structured notes (or new issue stocks, bonds and preferred shares) for a commission and trailer fees are fairly obvious, but so is the pressure to have an enormous "book of business" over-populated with clientele.
So we limit the number of families that we look after. The personal contact is, for us, extremely important and we need the time to make sure that we are in touch. Regularly.
In the end, we don't sell. We serve. It is a very major difference.
We are trying to change the conversation (and the world of financial literacy and "advice").
Join us!
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1 comment:
According to the “performance detail by product type,” my mother had only 1/16th of her funds in Fixed Income. The vast majority – if not all – of her money belonged there. She could not have made that more clear. Financial Advisors Sydney
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