What do you do with an investor who needs an advisor and is just starting out? Are ETFs viable? Are index mutual funds? Not in the current framework.
Last week I linked to a blog post on Jonathan Chevreau’s Wealthy Boomer blog. I’m re-linking to it because there is some good reading in the comments section which is worth a read. I warn you now though, the comments are long and the material will probably be a bit dry to some. For others, I’m sure you’ll find it worth your time.
Essentially some of the other commenters are trying to figure out a new framework for financial advice, planning and investment management instead of just bashing the current one. Even if you don’t read all the comments, what do you think would need to be done to the financial advice and planning landscape in Canada to make it ideal?
I’d love to hear your thoughts, be it simple, single ideas (like get rid of mutual fund trailers) or suggestions for a complete overhaul of the system.
I think the takeaway from this discussion is that there needs to be clear transparency about what exactly a financial intermediary does and what they get paid for.
I think there’s going to be a greater acceptance of advisors moving away from technical planning and instead focusing on client relationships. The tax, investment and insurance planning are then outsourced to other people who are experts in those areas.
I’m seeing this model grow very rapidly. Makes sense, if sales is what you were good at – that’s what you focus on.
One of the ironies is that the more this model is employed, the more product providers see value in creating a captive sales force. Then of course we’re back to the 1970s.
The problem is that the industry has no incentive to do the right thing. Just as the traders – with huge bonuses as rewards – took unwarranted risk and brought the world’s economy to its knees. The traders looked out for themselves first.
Who can blame them? It’s human nature. Scammers are everywhere, trying to grab your money. OK, financial advisers are not scammers per se, but the difference is in the details. They sell honest products and are not out to cheat. But unless the products they sell are good for the individual to whom they are sold – unless products that are just as good but which carry smaller sales loads are offered to investors, then the advisor doing the selling is acting in a manner that is absolutely not in the best interests of the client. That’s a lack of integrity. But if full of integrity, the salesman cannot earn a living. There must be a compromise, but I don’t believe that’s possible.
How can that be resolved? should the advisor spend hours and earn 20 bucks, or should the advisor take the $1,000 fee and hope the client can overcome the bad start? It’s more than a question of ethics, but how can this be resolved? I don’t believe it can. Salesmen work on commission, and the higher the better from their point of view.
You can make as many intelligent suggestions as you care to make, but who is going to force the salespeople to accept less and offer better service to clients?
@Ink – hmmm… “this has all happened before and will all happen again.” But you’re bang on about the transparency about the intermediaries’ roles.
@Mark – Perhaps we need to get rid of the role of “salesperson”. But with the money being made right now, it’s not going to happen (firms and advisors and their advocacy groups / lobby groups)
10 Commandments for the Financial Services Sector (now @ 25% of GDP)
We need a real referee on the field – to regulate, enforce and ensure restitution – we have seen what not having one means.
Passive Investors need protection from the actions of others by lessening the negative impact of specific ill-advised transactions, penalizing those who take illegal advantage.
Uninformed active investors (who rely on advisors/sales people) need to be protected from themselves and those they pay for a service they do not receive. We do it with smoking, drinking, seatbet laws, etc. Begs the question.
The ten commandments for the financial services sector and those who failed us since Bre-X:
(1) Education & Product Transparency,
(2) Regulation, Enforcement & Restitution,
(3) Protection from Criminals – White Collar Crime
(4) Control of Hedge Funds – especially when they do more than Invest, i.e. direct/manage
(5) Brokerage Account Statements – make them comprehensible,
(6) Retirement Account Investments – a new Universal Model – we have one – modify it, use it
(7) Executive Compensation – roll back the ratio to what it was before the world went mad 30 years ago
(8) Corporate Financial Statements – eliminate new accounting/auditing rules that make the results a fiction – how do we now judge the state of any financial entity pre-investment?
(9) Taxation of Investment and Retirement Income – People should not invest for tax purposes – government should not encourage it. Retirement income to $100K should be tax free.
(10) Transactional Greed and Fear Controls – all talk about restoring confidence is nonsense, given current behaviour by all key players. Restoring greed, perhaps?
I want to invest, not gamble, and I will not be back into the market until I can invest…real money in productive assets with transparency so that I am confident my decisions are fact-based.