Don’t panic, Mom’s money is safe with an “advisor”

Toronto’s big banks: CBC puts focus on misleading job titles

“Integrity has no need of rules.” – Albert Camus

“If it is not right, do not do it.  If it is not true, do not say it .” – Marcus Aurelius

Words to live by, no?  Unfortunately, the financial services industry in Canada doesn’t tend to screen for existentialists and stoics.  I’d take Marcus Aurelius or Seneca as my financial advisor any day, even if they weren’t one of the rare advisors in Canada who are required by law to act in their clients’ best interest.

The headlines have been ablaze in the last few weeks with furor over alleged mis-selling at Canada’s banks.   Most recently, CBC’s Go Public investigators published a piece about misleading job titles:  a grand conspiracy perpetrated by the Canadian financial services industry in which the English language is manipulated to dupe unknowing consumers.  (See: ‘I feel duped’: Why bank employees with impressive but misleading titles could cost you big time)

“What’s in a vowel?”

Specifically, the authors suggest that by calling their employees “advisors” with an “o” instead of “advisers” with an “e”, banks are intentionally granting staff license to engage in all sorts of nefarious product mis-selling and conflicted behaviour.  The article cites the Small Investor Protection Association (SIPA).  SIPA would rather see much more stringent regulation of job titles to ensure that investors were absolutely clear about whether the professionals they consult about their finances are indeed required to look out for their best interest (a fiduciary relationship) or are simply product salespeople.

The Canadian Securities Administrators (CSA) are currently evaluating many proposals to improve transparency and disclosure for investors, including a review of job titles.  I doubt clearing up the “o” versus “e” controversy is high on their list.  If I think of the first five fiduciary advisory firms (sorry, “advisery” is not a word) in Canada that I’d send my mother to, all of them use the spelling “advisory” with an “o”.  Yes, the grand homophone conspiracy makes for better copy but it cheapens the real issue.

What is the real issue?

The SIPA research does contain some interesting data points.  They found that in Canada, of 121,000 individuals registered to provide financial advice only 4,000 individuals are registered in a category that requires them to act in a fiduciary capacity.  That balance does seem low relative to places like the United States.

Now of course just because an advisor is registered as a dealing representative doesn’t mean they can’t or won’t act in their clients’ best interest and there are also fiduciary advisors who are compensated by commissions.  It’s not as simple as “adviser” vs “advisor”!  Investors have to educate themselves and be prepared to ask probing questions to truly understand the nature of the relationship they have with their current or prospective financial professional.

What questions should investors ask?

We’ve come up with a list of as a starting point:

  1. Do you have a fiduciary obligation to act in my best interest at all times?
  2. How are you compensated by working with me?
  3. How much are you compensated by working with me?
  4. Does your firm provide any other direct or indirect incentive to you for selling or recommending certain investment or insurance products including non-monetary benefits such as prizes or trips?

You might even be so bold to ask for the breakdown of their compensation between different types of products (for example mutual funds sales vs. insurance vs. structured products) which might give you an indication of potential product biases that could impact what they recommend.

At the end of the day investors shouldn’t rely on job titles, regulatory oversight or even assurances from friends and family to vet the motivations of financial services professionals.  You need to educate yourself and ask questions to ensure that you’re comfortable the advisor or adviser you’re dealing with is acting in your best interest.

Graham Bodel is the founder and director of a new fee-only financial planning and portfolio management firm based in Vancouver, BC., Chalten Fee-Only Advisors Ltd. This blog is republished with permission: the original ran on  April 3rd, here


3 thoughts on “Don’t panic, Mom’s money is safe with an “advisor”

  1. SCC Case Law
    Hodgkinson v Simms [1994] 3 S.C.R. 3

    Page 380: “In the professional advisor context, however, a person receiving advice should not need to protect him-or herself from the abuse of power by his or her independent professional advisor when the very basis of the advisory contract is that the advisor will use his or her special skills on behalf of the advisee”

  2. How much financial literacy would it take on the part of fcac csa (osc)iiroc and obsi to really protect retail consumers of financial industry goods and services?
    Including educating retail a4 to the difference between an advisor *nd an adviser.
    To extend the same protection that is inked in law and industry code of conduct to investors using discount brokerage service business models rather th*n pretending there is no protection for that group?
    To vet the contract clauses retail must sign before they can even open an account to invest to ensure the terms are legal and not abusive
    To properly vet compliance on matters that specifically impact retail investors when brokerages outsource to third parties
    Oversight and the big bank owned brokerages seem to have forgotten exactly who is supposed to be accountable responsible *nd laible for harm *s a result of the big banks a,d sta,d alones negligence when outsourcing to third party vendors. It certainly is not the retail investor. So how odd atlea4t one big bank shifts li*bility via its contract with hapless gull able retail opening an account over to retail
    This is a no no but oversight refuse to address this let alone vet such contracts
    How then do they have retails backs protected as advertised?
    No doubt others can think of examples where ret*il has been left to swing
    And then there was that 114 billion bailout of our big banks that was hushed up. Exactly why was this needed? Was oversight asleep at the switch? And why the hush hush. Even the federal reserve. US helped with funds.

  3. Oversight are still hyperfocused on the know your client issue. Which suggests they really don’t have much of a grip on advisors. To the point that other issues harming retail investors aren’t addressed not withstanding the annual resolutions and round of conferences etc
    We are talking about people’s life savings for heavens sake.

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