Clients Must Come First

I think it has been a while since I have been up on my soapbox, but here you go:

If you have not seen this latest from the Globe and Mail's Rob Carrick, take note: 

Here is the link: 

https://www.theglobeandmail.com/investing/personal-finance/article-well-never-see-an-investment-industry-where-clients-must-come-first/

"The dream of creating a standard of transparent, client-focused service in the investment industry died Thursday".

"Regulators bailed on two reforms that would have made a huge difference for both investors and the investment industry to change a business model in which too many bad actors are allowed to prosper".

1) "The Canadian Securities Administrators announced that embedded commissions will be banned only for on-line brokerage firms selling mutual funds"

That means that when you buy a mutual fund from your "Advisor", she/he can still be paid a trailer fee by the mutual fund company. That is a very significant conflict of interest in which recent studies have identified that advisors tend to sell the funds that pay them the most (pretty easy to figure that out).

Certainly not putting the client first.

2) "Regulators also torched any hope that investors will be protected by a requirement that advisors operate under a "best interest" standard, which was the preferred way of saying a fiduciary duty to put the client first".

I would argue that even a "best interest" standard is not a legal fiduciary duty. As it stands, as long as you are considered "suitable" at the time of purchase, that is the only obligation that an advisor has to you. Once you own it, the obligation is transferred to the buyer, you, to determine future suitability. If the investment goes south, the advisor is off the hook.

It does appear that the worst of the mutual fund offerings, the Deferred Sales Charge (DSC) option, where as a buyer you are fooled into believing that you are not paying any commission (as long as you hold on to it for a certain time period) and the advisor got something like a 5% commission up front and a trailing commission as well, has been eliminated. 

All of you out there who have ever been unknowingly sold these funds should be appalled that your advisor stooped so low as to put you into these things. It is nothing but an advisor money grab and is shame-full. There is a reason that this practice will be outlawed.

Makes you want to think about the quality of the person who did it and the institutions that promoted and allowed it in the first place.

As Mr. Carrick has stated, clearly: the regulators have failed to put clients first. The institutions win.

But you do have a choice. You can choose to make the switch to the new breed (see SIPA Sentinel June 2017 p8)  of portfolio management offerings that will put the client first: provide you with total fee transparency, legal fiduciary duty, full service and all the safety and security of the CIPF that you would get at a bank or large investment firm.

Why would you not?

If you believe that your advisor is generally a good person, ask him or her about the level of responsibility that they give to you and whether you come first. See what they have to say. Perhaps use High Rock's offering as a guide post. Ask the tough questions. How can you lose?

Will they honour what High Rock does: a signed code of conduct, guaranteeing that your interests come first.

The investment industry will not protect you enough, so your advisor under their regulations doesn't have to either.

Not only do we have to (our licensing to be discretionary portfolio managers is dependent upon it), but we want to.