Why I Write This Blog (Part 1)

1) We all need to invest, to grow our money at a rate that is faster than the pace of the inflation that erodes our purchasing power. 

2a) We cannot grow our money at a rate faster than inflation (currently running at an annual rate of about 2-2.5%, depending on where you live and what you consume) unless we take risk. At the moment, the risk-free (safest) rate of return is the same as a 90 day government of Canada T-bill, about 1.7% (on the wholesale market, if you are lucky you can get one at the retail level, after fees and costs, for about 1.5%). 

2b) Or, as so many Canadians do, unwittingly, is give your money to those vaunted banking and investment institutions who have deluded us over many years that our money is safe with them and either put it in a savings account (earning next to nothing) or GIC (earning, but completely tied up at or about 2%). Safe? Only insured up to $100,000 by the Canadian Deposit Insurance Corporation (CDIC). 

If you need your money ( back, from the bank), you will likely have to pay a penalty or an increased fee for your savings / chequing account.

Banks: borrowing from their clients at 0-2% and lending it back out at the prime rate (if your lucky) currently at 3.95%, or 5 year mortgages at 5% are doing way better than you are (if you give them your money). They continually announce record profits for their shareholders on the backs of their clients (who are not even keeping pace with inflation).

2c) When you are enlightened enough to realize this (and they sense it), they (your banking / financial institution) will steer you towards a financial advisor who is basically  just a conflicted salesperson. When they sell you a mutual fund, they are paid by the bank's mutual fund department (or any of the other mutual fund companies whose funds they sell you). They may or may not explain this to you up front. It doesn't matter, it is still a conflict of interest. 

A study by the Canadian Securities Administrators in 2015 determined that "There is conclusive evidence that commission-based compensation creates problems that must be addressed."

2d) In order to be a fiduciary (i.e. have fiduciary duty to your client), you cannot have any conflict of interest.

Therefore, financial advisors (who are not portfolio managers) do not have fiduciary responsibility for their clients.

We see financial abuse by financial advisors constantly, especially when new clients come to us from these horrible relationships. I see it daily when I go to the IIROC website under "disciplinary cases" and it is only the very tip of the iceberg.

3) In case I have not been able to convince you of my absolute passion for calling out the bad behaviour, done mostly at the unsuspecting investor's expense for the profit of banks and financial institutions and their commissioned representatives, you may / should stop reading this drivel.

4) Can you do better (than putting your money in the bank or in mutual funds)? Absolutely! and there are lots of alternatives with equal safety features (to banks) some, like High Rock, actually do have a fiduciary responsibility to you. But not many. The Small Investor Protection Association (SIPA) suggested that about 3% of financial advice givers fell into the category of fiduciaries (no conflict of interest). That, in and of itself, should frighten you. That adds so much more potential risk (to the equation) when you get bad and expensive advice. Far from safe.

5) Back to risk, because we have to take risk to get ahead of inflation and taxes. I.E. we have to get better returns in the growth of our money above and beyond the increase in our cost of living and 1.5% in a Government of Canada t-bill or 2% in a bank GIC will not cut it.

If you are still reading, you may ask what many readers ask: why are you preaching to the converted? 

In the hope that some of the 500 or so souls who do find their way to my ranting (so the statistics indicate) over the course of the month are not yet clients and / or not yet converted. It is not too late!

If you do know someone who is so very attached to their non-fiduciary advisor and has put themselves at increasing levels of risk as a result, perhaps send this on. 

More on planning, risk and return tomorrow.