Self-help Resources of Investors & Insureds
Understanding Financial Certifications
The regulator of mutual fund and stock brokers has a useful tool for checking on what the array of certifications and titles mean. Don't be fooled by a line of letters behind someone's name or a fancy sounding title. The key is not the getting a certification, but in adhere to the standards and practices required to earn and use those
The regulator of mutual fund and stock brokers has a useful tool for checking on what the array of certifications and titles mean. Don't be fooled by a line of letters behind someone's name or a fancy sounding title. The key is not the getting a certification, but in adhere to the standards and practices required to earn and use those letters and titles when advising you! See: https://www.iiroc.ca/investors/learning-basics-and-protecting-your-investments/understanding-financial-certifications
Self-help Resources of Investors & Insureds
How to Make a Complaint - Mutual fund and stock salespeople
Investors and insureds should not expect meaningful action by bringing concerns about potential negligence or wrongdoings by an advisor to the attention of the dealer or insurer. Complaint handling is used by the industry to divert complaints, not to investigate and respond "fairly, honestly and in good faith." Insurers and dealers will
Investors and insureds should not expect meaningful action by bringing concerns about potential negligence or wrongdoings by an advisor to the attention of the dealer or insurer. Complaint handling is used by the industry to divert complaints, not to investigate and respond "fairly, honestly and in good faith." Insurers and dealers will blithely ignore their duty to act in your best interest. They will delay to run out the limitations period (simply 2 years, but the devil is in the details). They may offer cents on the dollar as if this was a fair or meaningful response. Consider as the first step, filing complaints to the responsible regulator. For mutual funds and stocks, here is a link to "How to Make a Complaint" https://www.iiroc.ca/investors/how-make-complaint
For Ontario life insurance here is a link to the complaint form: https://www.fsrao.ca/complaint-form-0
Understanding Your Investment Statement
Since 2016, your registered securities adviser’s firm has been required to provide an annual charges and compensation report.
Let’s break down what it includes
Since 2016, your registered securities adviser’s firm has been required to provide an annual charges and compensation report. Let’s break down what it includes:
- Account Administration Fees:
- These cover the cost of managing your account.
- Charged by your adviser or firm.
- Account Transfer Fee:
- If you move your account from one firm or institution to another, this fee may apply.
- Fee-Based Compensation:
- Your adviser charges a percentage of your portfolio value.
- Covers ongoing portfolio management.
- Commissions:
- These apply to stock trades or mutual fund purchases with sales charges.
- DSCs (Deferred Sales Charges) and Trailing Commissions:
- Paid by the mutual fund company to your adviser/firm.
- DSCs upon selling a mutual fund.
- Trailing commissions as long as you hold the fund.
Remember, transparency matters. Ask your adviser about these fees to make informed investment decisions!
Understanding Your Investment Statement
Investment Options Unveiled
- When it comes to investing, you’ve got choices! Securities (like mutual funds, shares, bonds) or insurance products (think segregated funds, universal life insurance and annuities). Let’s explore the world of securities.
- Tip: Registered securities advisers promise valuable expertise – take care! Unfortunately, the old line of “buyer beware” applies as advisors promise professionalism but are often motivate by sales. An advisor’s real value is helping you budget, pay down debt and create a financial plan. What they tend to be bad at is stock picking or, worse, hocking private equities.
- Online discount brokerages provide cost-effective access to limited investments. You will need to determine your risk tolerance and investment objectives and then choose investments that meets your tolerance and objectives.
Decoding Securities Advisers’ Compensation
- Ever wondered how securities advisers get paid? They’re not working pro bono! For many firms there are bonuses for volume of sales. Few firms reward advisors for the quality of their work.
- Here’s the scoop:
- Follow the money Dealer earn money from high fee services. Think of private equity and fee based compensation as high revenue generation for the dealer, advisor and high-cost for you.
- High fee is not = high quality of advice. The quality of advice is almost 100% disconnected from the fee charged. The worst advisors often charge high fees, so don't judge the book by this coverage (charge).
- Knowledge & Advice: If you work with a true professional, you compensate them for their insights, research, and time.
- Access to Products: They facilitate your investment journey, but you can get almost any product that fits your needs at an online broker for a fraction of the fees. Remember fees are like a tax that hold you back from your goals.
- Fees & Charges: Ask about these—some are negotiable! Check around, as often an advisor pitches high fees as if they were discounting the fees just for you.
- Watch for additional fees, often buried in the fine print. Ask about all of the fees and charges that you will be paying when you invest.
- Remember, clarity is key. Read the fine print and ask questions!
Demystifying Management Fees
- Let's talk numbers! Portfolio managers charge management fees based on a percentage of your investment portfolio's value.
- Negotiate wisely at the outset. Your financial journey deserves transparency and intelligent choices. The top advisors offer discounts on fees for staying with them (for a long term of at least two years) and for the more money you invest. It doesn't take much more effort to invest $100,000 than to invest $1,000,000. Why should you pay 10x as much if you invest a million?
- Commissions are amounts charged per buy or sell transaction. With the exception of gamblers, most people should make very few trades in a given year.
- Conflict of interest between management fees and commissions. Advisors push you towards management fees so that they earn more when they make long-term recommendations to buy and hold. With this proven strategy, the commissions are low. Advisors want to increase their pay. So they recommend management fees. This is a conflict of interest.
- On the other hand, if your advisor recommends lots of trades, run! Churning and high-frequency trading are high risk, pay the advisor well, and, in most cases, have been proven to leave the investor trailing the stock market's returns. If you want this, you might as well buy a lottery ticket. With a lottery ticket, you will get the additional benefit of the dream of winning the jackpot.
- Unveiling Flat Fees for Services
- Financial advisers may charge flat fees based on an hourly rate. These fees cover their valuable knowledge and advice. This fee is usually charged by true professionals, certified or registered financial planners. Everyone should have a unique financial plan (unlike the ones the bank-associated advisors churn out with almost no adaptation for your lifestyle and goals but using lots of pages).
- Fee-Only Advisers: They don't collect commissions and offer unbiased recommendations. It's a great option. Just make sure the advisor is qualified and licensed.
- Remember, transparency matters. Ask about fees before making investment decisions!
- Discount Brokers: What to Expect
- Discount or online brokers vary in services and charges.
- They typically charge per trade, but additional fees may apply based on account size and scope.
- You get what you pay for. An online broker's only responsibilities are to make the trades you instruct and to safely hold securities for you.
- Choose wisely based on your needs and investment goals.
- Demystifying Mutual Fund Fees
- Mutual funds pool money from investors and invest in stocks, bonds, and other securities.
- Fees are built into mutual funds, affecting overall costs.
- These are usually high-fee options. Managed mutual funds statistically underperform the market, showing that, in most cases, there is no value in the management and underperformance results from the higher fees. Consider the low-fee equivalent, exchange-traded funds.
- Always inquire about fees before investing.
- Understanding the MER
- The Management Expense Ratio (MER) reflects a mutual fund's total charges, including management and administrative costs.
- It's expressed as a percentage of the fund's value.
- Remember, MER indirectly impacts your returns—consider it alongside services received. MERs are also like taxes. They take your money regardless of performance, and the cost compounds to result in a long-term significant drag on performance.
- Trailing Commissions Explained
- Trailing commissions are cleverly tucked into a mutual fund's MER.
- Here's the deal:
- Paid by the mutual fund company to your adviser's firm annually.
- Stays active as long as you remain invested in the fund.
- Typically ranges from 0.25% to 1%.
- Different fund companies offer varying trailing commissions.
- Warning: These commissions can sway an adviser's investment recommendations
- Back-End Load or Deferred Sales Charge (DSC)
- DSCs play the long game:
- You pay when you sell mutual fund securities within a specified period (usually 5-7 years).
- The longer you hold, the lower the charge.
- No upfront cost, but selling early means paying more.
- This type of fee is insidious. It is rarely in your best interest (I can't think of any time when it is the better option).
- Low Load Funds Demystified
- Low-load funds offer a win-win:
- A lower sales charge at purchase or redemption (usually around 3%) is still a high fee compared to the better performance of an Exchange-Traded Fund.
- Bonus: No redemption fee if you hold the fund for at least three years.
- No Load Funds: The No-Fee Attraction
- If there are no-load funds, skip the upfront fee drama.
- But wait! Before you dive in:
- Evaluate the MER (Management Expense Ratio).
- Assess risk and historical performance.
Choose wisely—your financial future depends on it!