Patterns and conduct of financial advisors

[squash500]

Happy new year everyone. I don't mean to be controversial but I would like to share with everyone an experience I had with a financial advisor about 2 years ago. He works for a bbb---big bank brokerage. He was managing my father's money. He was not only charging my father on an assets under management basis but he was also getting my father into principal protected notes that were underwritten by the bank he worked for. He was also getting my father into ipos etc. My point being--that he was making extra commission for himself and his firm on top of the assets in the account fee. Unfortunatly, my father didn't know the difference. The advisor kept saying to my father "trust me" etc. My father started getting perturbed when he wasn't making very much money but was still paying a lot of money to the advisor every month. It was at this point that I asked my father if I could look at his portfolio. To make a long story short---I went to meet with my father's advisor by myself---after my father gave his advisor verbal permission that I could do this. When I got to the advisors office---I started to question the advisor about how much extra he was making on these ppps and ipos--he said---none of your business----I said it certainly is my business----he wound up kicking me out of his office. To make a long story short again--I convinced my father to transfer his money to tdw discount brokerage where I would handle his money using etfs and gics. At first he was sceptical -as I have no financial licenses whatsoever----But I have managed to do ok for him in the year and three quarters I have been handling his affairs for him. The first thing he said to me---I can't believe how much I am saving in fees. I guess the main point I am getting at after all this rambling on is as consumers are we entitled to critically probe all the hidden fees that fee based advisors are charging? Are advisors obligated to answer probing questions? After reading Rob Carrick, John Lawrence Reynolds and Jonathan Chevreau extensively I thought that I had educated myself enough to ask these probing questions. All the best---Squash500

[DanH]

...as consumers are we entitled to critically probe all the hidden fees that fee based advisors are charging?

Sure. I expect any consumer or client to want to know more about total fees and compensation. If the advisor isn't forthcoming on such issues, you have to know what questions to ask - and how to size up the answers.

Are advisors obligated to answer probing questions?

No, but like your father's former advisor, those who kick inquiring clients out of their office without answers risk losing business. Whether or not you get an answer also depends on how you ask the question - i.e. your choice of words and tone of voice.

[squash500]

Mr. Hallett, thank you for responding----I've read alot of your articles in Canadian Moneysaver and other publications----I view you as a true expert. I guess the point I am trying to make is that it is up to the consumer to educate him or herself about how advisors get paid. Most advisors themselves certainly won't tell you. There are exceptions--ie John Degeoy. all the best---squash500

[blonde]

STUDY the SYSTEM and ALL the linking processes and sub-processes. Never ever ignore a MEANINGFUL Metric, c/w benchmarking.

ASK process questions...drill down with PROCESS questions. When/if an answer is 'suspect'...go up the food-chain.

Do not be surprised to learn that there is NO money to be had by an adviser/or (UCS) for educating the client. I wonder why??

Money Talks.

[scampbell]

After a few years of educating myself, I decided I was ready to move beyond fixed income and into equities. I still wasn't confident in my research abilities and wanted access to issues that I didn't understand too well (such as preferred shares), so wanted to work with an adviser. After "interviewing" 6 different advisers (some at the big banks, some private), I was mad! There was an incredible amount of wrong information and in some instances, no information ( such as fee disclosure). There were few who were OK with my questions, most were very defensive.

Just as I was starting to think that I was expecting too much, I interviewed one last big bank adviser who answered all my questions-and then some-with no defensiveness AND was able to get me all the research I wanted as well as issues such as preferred shares and convertible debentures. He's been advising me for 3 years now, and I am very satisfied with the portfolio we've built together. He is always available to bounce ideas around with me and will call me when there's a major issue affecting my portfolio.

The last few years, I have often accompanied friends and family to their advisers to help them ask the questions (and understand the answers) that need to be asked. This process has generally lead to better communication between client and adviser, and on a few occasions has precipitated changing advisers.

For people who don't have the time and/or inclination to look at their returns closely and determine what questions to ask, investing can cost them too much.

[squash500]

I think you did everything right. In my opinion, the first good thing you did was educating yourself. Its also admirable that you took the time to help your friends with the process. Keep up the good work. All the best---squash500

[Bylo Selhi]

How to tell if your adviser has headed off the rails

You have a long-time financial adviser, someone you think is honest and trustworthy.

But what if this paragon of ethics is running a Ponzi scheme?

Bernie Madoff in New York and Earl Jones in Montreal were seen as upstanding members of the financial community, until charged with fraud and theft of millions of dollars.

So, how can you tell if your relationship is going off the rails and your money is in danger? Here are some warning signs.