Financial Planners

I have been thinking about writing some articles on personal finance for a number of years now, primarily because I want to pass on to my children the lessons I learned over the years.  I don't have any special knowledge or tricks that can guarantee wealth, but the tidbits I did pick up are a lot more than what was ever taught in a class curriculum.

Now they are starting to teach personal finance in the classroom and are suggesting it should be integrated and supported from home.  I can understand that being beneficial, but there are a generation of adults out there who grew up in a house where finances were a private matter not to be discussed and did not receive any education about it either.  

The website www.getsmarteraboutmoney.ca is a good resource and will provide a wealth of information not to be duplicated here, but the questions to ask a Financial Planner need to be highlighted and brought front and center.  I think most people do not want to spend the time necessary to learn all the options and actively manage their own portfolio, but it is important to remember one thing going in.  

No one cares about your money as much as you.

You can hire the best manager in the world, but you cannot turn your back on your account and let others make decisions on your behalf without your input.  Learn enough that you can understand the language and monitor his/her performance closely.  I learned the hard way that just because someone is charging you for their service, does not mean they are diligently working on your behalf.  A lot of them are well-meaning and honestly feel they are providing a service, but they are just passing on recommendations from their head office and not spending time figuring the best way to accumulate wealth for you. 

A fee based planner must make more than their fee to justify their cost, and their performance is very easy to monitor. A commission based planner is merely a mutual fund salesman who is not obligated to protect your best interests.  The method and amount of their payment is very difficult to ascertain, therefore it is difficult to judge their performance.   He/she is legally free to suggest strategies that make them the most money, without taking into account the impact on your portfolio.

There has been much talk about introducing legislation that requires Financial Planners to make decisions based on what is in your best interests.  One would think that was a no-brainer when you are the one paying for their services, but welcome to the world of finance, where the institutions write the rules.

I was invited to attend a workshop put on by the Ontario Securities Commission and this failure in investor protection was discussed and generally agreed to be necessary.  Here is what the OSC came up with;

A number of respondents commented on our initiative to re-evaluate the adviser-client relationship to consider whether an explicit statutory fiduciary duty or other standards should apply to all advisers and dealers in Ontario. While some respondents were quite supportive of this initiative, others noted the current common law fiduciary regime is effective and no further work is required.

In consultation with the CSA, we plan to complete a thorough analysis of this issue and a research paper will be published for comment.

So....no action, just more talk about what is obviously needed.  There is a "Request for Comments" paper, just a scant 50 pages, detailing the predicament this potential requirement could pose.  

If you have the time, read through the report....or just add your comment to the ones already posted.  You have until April 12, 2013 before comments are closed.

http://www.osc.gov.on.ca/en/SecuritiesLaw_81-407.htm

For those interested in what the CSA is, a voluntary coalition of provincial securities regulators, here is their website.

http://www.securities-administrators.ca/