When Jessica Moorhouse was in her mid-20s, she and her husband decided to invest some of their money. They went to their local bank for help.<\/p>\n
The first adviser they met seemed to care about helping them. \u201cHe invested us in high-fee mutual funds but at least we felt like we were actually getting some value for those fees,\u201d she recalls.<\/p>\n
Later, another adviser who took over left Ms. Moorhouse unimpressed. \u201cWhenever we\u2019d talk about our retirement goals or other goals, he would always focus on products. He\u2019d say: \u2018Oh, you\u2019re concerned about retirement? Well, have you considered this other mutual fund portfolio instead?\u2019\u201d<\/p>\n
Over time, she realized that the second adviser \u201cdidn\u2019t know that much more than I did,\u201d and began doing her own research. Today, she\u2019s a certified financial counsellor in Toronto, host of the More Money podcast and the author of Everything but Money.<\/p>\n
Her early experience with bank advisers is not unique. Many Canadians who visit a financial institution looking for guidance instead get sold products that aren\u2019t a good fit. <\/p>\n
A recent Ontario Securities Commission report revealed the sales culture<\/a> inside Canada\u2019s big banks. One striking finding saw that one in four mutual fund dealers admitted to recommending products or services that were sometimes not in their clients\u2019 best interests.<\/p>\n Opinion: Where\u2019s my stock market homework?<\/a><\/p>\n The report highlighted pressures that dealers face to meet sales targets, which can affect their pay and influence the products they recommend. The result: Customers may think they\u2019re getting advice, but they\u2019re really getting a sales pitch.<\/p>\n Ryan Lee, a certified financial planner with Twain Financial in Vancouver, sees this often. New clients come to him with mutual funds from several banks, thinking they\u2019re diversified. <\/p>\n \u201cBut when we look inside these, we find they\u2019re basically invested in the same things,\u201d he says. \u201cThis creates the illusion of being well-diversified when they are really not.\u201d<\/p>\n Anita Bruinsma, a certified financial planner with Clarity Personal Finance in Toronto, hears similar stories. Many clients don\u2019t fully understand what they already own. <\/p>\n \u201cThey see a list of mutual funds on their statements and they don\u2019t know what it all means,\u201d she says. Often, they\u2019ve never been shown their asset allocation or how their investments fit with their goals.<\/p>\n So how can you tell the difference between good advice and a sales pitch? There are clear warning signs to watch for.<\/p>\n One obvious signal is how quickly a meeting turns into a sales call. Ms. Moorhouse suggests setting a timer. \u201cIf they are giving you advice and telling you to buy such and such product in 10, 20 or 30 minutes, that\u2019s a red flag because there\u2019s no way they can know anything about you that fast.\u201d<\/p>\n Opinion: When it comes to my children\u2019s financial futures, I\u2019m turning to a secret weapon: time<\/a><\/p>\n A first meeting should focus on learning about you, not selling. Good advisers may spend an hour or more \u2013 sometimes over several meetings \u2013 gathering details about your finances. They\u2019ll ask for financial records, current investments and tax information.<\/p>\n They\u2019ll also ask about your risk tolerance, time horizon \u2013 such as saving for a house or retirement \u2013 and long-term goals. \u201cIf they\u2019re trying to sell you a product without understanding your full picture, that\u2019s a big red flag,\u201d Mr. Lee says.<\/p>\n Another warning sign, he says, is if the person sitting across from you can\u2019t answer simple questions about the tax implications of an investment product. Professional advisers aren\u2019t accountants, but they should be familiar enough with Canada\u2019s tax laws to explain how investments will affect what you\u2019ll owe the government, now and in the future, he says. <\/p>\n A salesperson might also avoid telling you the pros and cons of a recommended product. For example, Mr. Lee says that when he speaks to clients, he goes over the upside and downside of RRSPs. They\u2019re great for lessening your current tax burden but you can\u2019t take the money out if, say, you suddenly need cash to buy a car. If you expect you might need the money sooner rather than later, perhaps a TFSA is a better alternative, he\u2019ll advise clients.<\/p>\n A final red flag is a lack of transparency. Ms. Bruinsma says sales-focused advisers often avoid discussing the management expense ratio, or MER, on a mutual fund. <\/p>\n These MERs can be 1.5 per cent or more of the fund\u2019s value each year compared to lower cost exchange trade funds with fees often under 0.25 per cent. Over time, high MERs can cost investors tens of thousands of dollars, so advisers should be upfront about these fees.<\/p>\n What can you do to protect yourself against sales pitches?<\/p>\n First, do your own research before any meeting and come with a clear set of goals. If you know what you\u2019re looking for, you\u2019re less likely to be sold something you don\u2019t need. Arrive with questions and see if the adviser can answer them. You should leave knowing exactly why an investment is recommended and how it fits your objectives.<\/p>\n If offered a high-fee mutual fund, Mr. Lee suggests a few follow-up questions. First, ask to see other investment options, including ETFs, that offer similar market exposure. Then compare their long-term performance and MERs. (If the adviser demurs, it\u2019s a sign they\u2019re more interested in hitting sales targets and earning hefty commissions than having your best interests in mind.) <\/p>\n Also, ask if there are fees for altering, withdrawing or transferring any investment, as these changes can erode returns and sometimes exceed the cost of MERs.<\/p>\n Another question to ask: \u201cHow are you compensated?\u201d says Lisa Kramer, a professor of finance at the University of Toronto. \u201cIf a financial adviser is unwilling to be transparent about the relationship between their advice and their financial incentives, that is a warning flag.\u201d <\/p>\n It may feel awkward to ask, she adds, but \u201cthis is our money, so we are entitled to know the answers.\u201d<\/p>\n As Ms. Moorhouse discovered in her 20s, the quality of financial advice from a bank can vary greatly. It can be hard to tell the difference between sound advice and a sales pitch. If you\u2019re unsure, walk away and consider other options.<\/p>\n One option is the do-it-yourself route with a robo-adviser. \u201cThey\u2019ve got portfolios of low-cost index funds, so you don\u2019t have to figure out how to construct a portfolio by yourself. It can be very easy to do,\u201d Ms. Moorhouse says. (A good place to start is with The Globe and Mail\u2019s robo-adviser guide<\/a>.)<\/p>\n