Are financial advisors looking out for your best interests?

Financial advisors

Are financial advisors looking out for your best interest? The quick answer is no, but the reasons why are a little more confusing than you’d think.

Back in March you may have seen some front-page news articles stating some TD bank employees admitted to breaking the law to meet sales goals. TD of course denies that these allegations are accurate (as a company probably would until they’ve investigated further). This along with similar accounts has started a federal investigation into the major Canadian banks’ practices.

I think after seeing Wells Fargo opened 2 million fake accounts to meet sales goals last year the TD accusations aren’t a complete surprise. Sure, they’re a friendly Canadian bank and wouldn’t go to such lengths as bank fraud, right? Well let’s hope so! But they’re certainly not without their trickery. All of the major banks have a common deceiving fact about their financial advisors. 

What’s so deceiving about the banks’ financial advisors? They’re just there to guide us to the best product that suits our goals, right?

Here’s where it gets complicated. Financial Advisors are just titles handed out by companies. According to some bank employees that came forward these titles are essentially for sales people. These banks also have aggressive advertising campaigns to drive you into their banks to get you to purchase their products.  The products they’re going to be pushing usually have higher management expense ratios (MER). Which is essentially the money you give them for “managing” the funds you buy into.

The issue with these funds is that they’re often no better than just buying into the S&P 500, or similar indexes that have extremely low fees.  You can save a lot of money by just investing in low fee index funds. Canadian Couch potato is a great resource for finding these funds and lots of investing strategies for all levels of net worth. Surprisingly one of the banks that offers some of the lowest fee funds is TD. There are  many others but TD has great value in their E-series funds

Stock picking is a trap that’s so variable that some of the best investors in the world can still lose to a cat picking stock. Seriously, check out that article, it really happened.

So who can we trust?

NO ONE! Run for your lives! Hoard your money under your mattresses!

Ok, that’s not quite true. There are still plenty of people out there that will have YOUR best interest in mind, they might be hard to find though . According to the Small Investor Protection Association (SIPA), only 3% of the 121,000+ registered people in the investment industry in Canada can act as a fiduciary.

“A fiduciary is an individual in whom another has placed the utmost trust and confidence in to manage and protect property or money. This person has an obligation to act for another’s benefit. The duties of a fiduciary include loyalty and reasonable care of the assets within custody. All of the fiduciary’s actions are performed for the advantage of the beneficiary.” Source

The difference between the people who have your best interests in mind with their advice and those of the sales people is very hard to notice at first glance. Let’s compare the two. Advisor is a non-regulated title that any company can hand out. While it’s identical in meaning to the spelling Adviser, an Adviser is actually a regulated term by the Securities Act and works in the best interest of their clients. While you wouldn’t want to take an advisor’s advice because they’re just trying to meet sales goals. Advisers give actual advice in your best interest. The difference a vowel makes! Now you know why the banks are going to be getting a lot more heat from this minor difference. It seems they’re more than likely trying to deceive the general public. Who would actually know the difference between those two words?

In my opinion you can also trust Warren Buffett. He’s one of the only people that consistently beats the market average returns over our investing history. This is a pretty important fact because he does individually pick stocks but still retains the opinion that for the average person index funds are the best way to invest. Again, this man beats the stock markets over and over and STILL says low cost index funds are the better choice for most investors.

So between Buffett’s advice and Fiduciary advisers, you should be in good hands. Just make sure you stay away from “advisors”.

Bonus content!

If you’re interested in learning a bit more about this in a humorous view on the American state of financial advisors. I suggest this great bit by John Oliver and his team on Last Week Tonight:

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