Beata came to Canada from Poland in 1981 with her husband and young son.
“We had $25 in our pocket. No family, no friends, no English. We worked hard, and now I can lose it all because of lack of knowledge and bad advice,” she said.
Her husband, a registered nurse, was close to retirement when he died of cancer last year.
The 59-year-old widow had to decide what to do with his inflation-protected Healthcare of Ontario Pension Plan. She could receive a $3,000-a-month pension for the rest of her life, or she could convert the pension to a $736,000 lump sum and transfer it to a registered retirement savings plan to defer taxes.
Her financial adviser worked in a bank branch, and said he didn’t make any commissions. So why was he pushing her so hard to commute the pension?
“He used many arguments, including my potential need for expensive home care in my old age, my financial legacy for my son and respect for my husband’s memory.
“He said he would look after managing my investments. He said investing in an RRSP was the only right thing to do.
“But isn’t his primary loyalty to the financial institution he works for?”
After seeking advice, Beata was introduced to a banker at a rival institution who agreed to help. His detailed analysis showed she was better off with the lifetime pension.
As a widow who did not manage the household finances, she felt vulnerable. Now she is angry about the pressure from the bank adviser to pick the wrong option.
“Sometimes, clients choose to commute because an adviser has convinced them it is the best choice,” Harold Geller, an Ottawa lawyer, said in an industry magazine called Forum.
“There is an inherent and significant conflict of interest for advisors who are paid based on assets under management or products sold.”
For most people, Geller said, it is far better that they be protected by pensions for life than risk outliving their investment capital.
He tells advisers: “Ask yourself what the value is for the peace of mind of a pension cheque arriving every month. Compare that to the worry of an investment account that rises and falls, managed by someone paid on commission.”
Judy Paradi and Paulette Filion of Strategy Marketing recently published a report with the provocative title, “Financial advisers are failing women.” They have some interesting statistics, based on their own interviews with female clients and independent research done in Canada.
• 80 per cent of widows leave their financial adviser upon their husband’s death;
• 73 per cent of women report being unhappy with the financial services industry;
• 87 per cent of women looking for a financial adviser say they can’t find one they can connect with.
“For men, it’s about the pile of money,” Filion explained in a talk at the Rotman School of Management. “For women, it’s about choice and what they can do with the money.
“Women love financial plans, which act as a road map to their goals. But they are less likely to have a financial plan than men are.”
Women almost never describe themselves as investors, the consultants said. They are friends, colleagues, mothers, daughters and wives first. They want someone they can trust, someone who will do the right thing and give advice, even on products or services that don’t make any money for the adviser.
It’s not all bad news for financial service providers. About 30 per cent of women are happy with their advisers — and they don’t care whether that adviser is male or female.
Female-friendly advisers are able to listen carefully to what women say, show respect for their differences, and build their confidence in making good financial decisions.
Unfortunately, Canadian laws do not require most advisers to put the client’s interests ahead of their own.
This means women such as Beata may still get bad advice from advisers who have a conflict of interest when it comes to remuneration.
This conflict is seen as a major issue in the United States, where the Obama administration has tried to bring in a higher standard for financial advisers.
“In the U.S., the debate is raging,” Geller said. “In Canadian courts, this is an evolving debate. Canadian regulators have not addressed this issue directly.”
Never put blind faith in a financial adviser working for a big bank or investment dealer. Always seek several opinions before making a major decision about your pensions or investments.