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Financial Literacy for Canadians
10/21/2017 6:11:09 AM
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The Professional Financial Advisor
Toronto-based Financial Advisor John De Goey offers thoughts about fee-based advice, holistic planning and capital markets.



By John De Goey  | Monday, March 08, 2004


 
Many people in the financial services industry have been spreading misinformation for a long time now. There’s one prominent industry speaker based in New York named Nick Murray who spent much of the 1990s saying “no load means no advice” and getting away with it.

Two generations ago, people were outraged during the debate surrounding teaching children about the birds and the bees. Sex was a taboo subject until the 1960s and most parents didn’t teach their children precisely because they knew so little themselves. Fast forward to the 21st century and the same can be said about money. The issue now is not “the birds and the bees”, it’s “the words and the fees”. Most Canadians simply cannot pass a meaningful judgment on the merits or lack thereof of any mutual fund offered by prospectus.

More to the point, most Canadians don’t understand what mutual funds do or how they work. After more than a decade of earnestly telling my clients that there is a difference between a management expense ratio (MER) and a deferred sales charge (DSC) “load”, many still cannot confidently explain the difference.

This isn’t entirely the fault of Canadians, mind you. Many people in the financial services industry have been spreading misinformation for a long time now. There’s one prominent industry speaker based in New York named Nick Murray who spent much of the 1990s saying “no load means no advice” and getting away with it. The fact of the matter is that DSC “loads” and qualified financial advice are not necessarily two peas in a pod at all. Many advisors have offered excellent advice without constricting “loads” for about as long as people have been teaching sex in grade school.

Of course, better consumer education leads to more discerning consumers. In spite of all the sanctimonious protests to the contrary, much of the financial services industry is concerned with complicating matters so that there is a need to simplify them. Instead, the industry should strive to simplify and enhance the lives of consumers by making choices clearer and disclosures plainer.

Going back to school doesn’t apply only to consumers. The vast majority of financial advisors in Canada today have a licence to sell products without a corresponding education regarding the provision of integrated, holistic financial advice. Imagine a doctor who was licenced to write prescriptions but not trained in making diagnoses. Imagine an accountant allowed to file tax returns without being trained regarding the finer nuances of the Income Tax Act. That’s the great problem with financial advice in Canada today- it grew out of an industry based on sales and is now masquerading as a bona fide profession. The posture of the industry simply doesn’t pass the smell test of what constitutes a real profession.

Perhaps the Fair Dealing Model recently released by the Ontario Securities Commission explained it best. It used to be that financial services was positioned as financial advice being an afterthought to the placement of products, whereas now it has involved to become product placement as the natural extension of offering qualified advice. All this time, we’ve had the cart before the horse.

How can it be that we have doctors, dentists, lawyers and accountants going to university for 4 to 6 years in order to assist people in a professional capacity, yet have financial advisors working as “professionals”, often with only one self study course that may have taken a few months to complete as their academic training? Furthermore, the more established professions often feature mandatory best practices, peer review, liability disclosures, letters of engagement and fee-based compensation. Does anyone seriously believe there is such a thing as a “commission-based professional”?

So there you have it--a broad population that knows just enough about finances to be dangerous being advised by an army of sales agents masquerading as professionals. Is it any wonder why there have been so many lawsuits filed in the investment industry over the course of the last bear market? Are we going to wait until we have another bear market before we take proactive action to control the damage?

What we need now (heck, we needed it 20 or 30 years ago) is a system that teaches both consumers of financial products and the purveyors of financial advice to be responsible in doing what they do. Advisors shouldn’t be fired just because clients’ accounts sometimes go down. All management, including portfolio management, is based on focusing on the things you can control. No one can control (or reliably predict) capital market movements. Unfortunately, too much of the industry still revolves around consumers who want an advisor who can foresee the future and advisors who claim to be able to identify hot sectors, stocks and funds. No reputable profession would ever made such ridiculous claims.

John J. De Goey, MPA, CIM, FCSI, CFP is a Senior Financial Advisor with Assante Capital Management Ltd., member CIPF and an instructor and author with The Knowledge Bureau. The views expressed are not necessarily shared by Assante. jdegoey@assante.com

 
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