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Canadians Benefit from Advisor Scandals

Written by Posted On Tuesday, 25 February 2003 00:00

In a recent decision, the Ontario Securities Commission (OSC) found that well-known Canadian financial author and broadcaster Brian Costello contravened the Ontario Securities Act by failing to become registered as an advisor prior to recommending investments. The OSC also ruled that "his failure to make full, complete and conspicuous disclosure of his many conflicts of interest was contrary to the public interest."

Costello earned money recommending real estate partnerships and other high risk investments to consumers who subsequently lost thousands in life savings.

Canadians who rely on investment advice from highly visible, media-acknowledged "expert advisors" have been misled in the past and will continue to be so since these "credentials" do not guarantee unbiased information. This recent public scandal makes those attempting to sort out RRSPs, REITs and other real estate and financial investments painfully aware of their vulnerability.

Real estate professionals work in agency relationships with clients and, therefore, owe consumers a complex set of fiduciary duties that put the client's interests first. This is not the case for most financial advisors. The majority of financial advisors are paid by their employer - either by salary, commission or both - to sell that company's services or products. This bias is reflected in the advice they provide. Given a choice, consumers should seek out and pay for financial advice from an independent advisor.

Consumers who do not hire fee-for-service financial advisors can reduce the impact of this bias by using a small network or circle of financial contacts instead of relying on one source of information. Differing points of view will help investors get a clear picture of a service or product, relative to their needs and goals.

The following exercise from my personal strategic planning book, The Actionbook: Financial Strategies for Your Future, will get you started on your financial network.

Actionsheet© - Questions to ask when selecting a financial advisor

These questions will assist you in preparing for and assessing an interview with a potential advisor. You may want to tape-record some meetings and go over the material again to be sure you really understand what to expect from a specific professional.

  • Why do I trust this advisor? Do I have real grounds for trusting the advisor or does he or she merely seem like a pleasant person? How much am I relying on the company's marketing-driven image instead of facts?

  • What are his/her advisory credentials? What types of biases or preferences will this person's education and experience bring?

  • What code of ethics does the advisor work under? May I have a copy? Any comments from the professional association about the advisor or the company?

  • What does the advisor have to gain from working with me? Have I received full written disclosure of all the fees, benefits and compensation that the advisor will receive, directly or indirectly, if I become a client?

  • Will the advisor have sufficient time for me? Am I typical of the advisor's client base? Who will actually handle my file? How will we keep in touch?

  • How will he/she keep up to date with financial matters and with my situation? What does he or she do now to update professionally?

  • Are the references relevant? Do these people have similar needs to mine? Do they understand enough about finances to provide knowledgeable references?

  • Do we have the same expectations? Are we compatible? Do the advisor's approach, attitude and skills complement mine? Is the advisor's definition of success for me the same as mine? What compromises will I be making in this relationship? Who will be responsible for staying a step ahead rather than jumping on financial bandwagons?

    Copyright 2003 PJ Wade. Reprinted from "The Actionbook: Financial Strategies for Your Future" (The Catalyst). All rights reserved.

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    PJ Wade

    Futurist and Achievement Strategist PJ WADE is “The Catalyst”—intent on Challenging The Best to Become Even Better. A dynamic speaker and author of 8 books and more than 1800 published articles, PJ concentrates on the knowledge, insight, communication prowess, and special decision-making skills essential for professionals and their clients who are determined to thrive in the 21st-Century vortex of change.

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