If you have investments and deal with an advisor, how would you answer these three true-false questions?
1. It would be rude to ask my advisor about his or her compensation more often than I already do.
2. If I frequently ask my advisor about compensation, I will get worse service.
3. I don’t need to ask my advisor about their compensation more often because I trust that it is fair and reasonable.
If you answered true to any of the above statements, you should rethink your attitudes toward investing. That’s the conclusion of a study released this week by the British Columbia Securities Commission.
You’re far too trusting — a Canadian thing when it comes to banking and investments — and you need to get more engaged in how your money is handled. You should ask whether your investments fit your plan and risk tolerance, not just nod politely. You should do your own research, so that when an investment is recommended, you have a point of reference.
And you should lose that polite you-can’t-ask-people-how-much-they-make stuff. It may seem rude, but it’s your money. You shouldn’t feel embarrassed.
Yet 71 per cent of those surveyed in the B.C. study felt they don’t need to ask such questions. They believe their advisor is honest and that the fees are fair and reasonable.
Out of every 10 adult Canadians, five do not invest, three invest with an advisor, and two invest on their own, according to the study. Paul Bourque, BCSC’s executive director, says you should trust the person handling your affairs. Otherwise, why use them? But don’t trust them blindly.
“Trust is a double-edged sword,” he says. “It’s good to have, but you have a responsibility to know what your advisor is doing.”
The BCSC has a mandate to encourage investor education as well as to protect investors from fraud, just like its Ontario counterpart, the Ontario Securities Commission.
Its study also looks at how your personality influences decisions. (A quick quiz on their web site will tell you which type you are.)
“We’re not trying to change anybody,” Bourque says. “We’re just trying help people identify who they are and saying if you do something small, you can change your behavior.”
Taken as a whole, the study shows that many Canadians take investment advice on faith. They’re betting that once they’re picked an advisor (in many cases with little or no research), they can trust that person to treat them fairly and manage their money wisely.
Here are some troubling findings:
• A majority of those who use advisors say they have never checked that person’s credentials or looked to see whether the advisor has been disciplined or convicted of securities fraud. This is easily done by going to the web site of the Canadian Securities Administrator, the national umbrella group, and searching.
• One in four people surveyed isn’t sure how their advisor is paid. The highest level of uncertainly is in Quebec (one in three). The highest uncertainty by age group is men 35 to 54. Women in that age group score far better.
• Half of those surveyed aren’t sure what they paid their advisor in the past year.
• One in three of them agrees with the statement that they do not need to understand all of the risks and benefits of an investment, as long as their advisor does.
As RRSP season approaches and you get a call to chat about goals, performance and acquisitions, make it a New Year’s Resolution to ask some hard questions. It’s in your best interest.