Saturday, October 3, 2015

Opening a new account:As easy as 1,2,3?

Think opening a new account is as easy as 1,2,3? Careful consideration must be given before you fill in all the forms and sign on the dotted line. Here's some tips to help avoid some costly mistakes. Get the article here

Tuesday, September 15, 2015

Choosing your Advisor Checklist

Here's a handy checklist you can use to help you select and evaluate your advisor. It's written for a UK audience but it applies here as well. Choosing an advisor is more important than choosing which funds to buy. Get the Checklist here.

Sunday, September 13, 2015

The ABZ's of Personal Wealth by Ted Graham

We are delighted to host an eBook by Mr. Ted Graham . The book contains practical, no-nonsense ideas for building wealth without a shred of Bay Street hype. In his own words :
" . I am (very much) a senior--- having owned securities for 76 years, and common stocks for 69 years. I also head up several entities which hold investments, mostly for family members. Our cause has been to assist the people new to the financial world -----to understand the methodology of managing money and of investing. Especially, we hope to help young people who wish to be educated in the perplexing world of personal finances. No one can avoid the necessity of personal finances. Everyone is impacted by banks, mutual funds companies and stock brokerages. The individual has a simple choice, learn about personal finance so that—as a small investor, one can do well in the world of money, or ignore the whole subject, in the fond hope that some else (a spouse, a banker or a broker)- will  “look after my (i.e. your) money”.

This book, ‘The ABZ’s of Personal Wealth’, is an attempt to help you to maximize your own prosperity. In producing the book, I had great assistance from my children and from our tax strategist. We hope you benefit from the book. "
Get the book
If you have questions, please contact

Saturday, September 12, 2015

INVESTOR ALERT Pre-Signed Blank Forms

INVESTOR ALERT Pre-Signed Blank Forms                                  September, 2015

When you sign a blank or incomplete form ,you put yourself in harm's way. Under securities rules, salespersons are obligated to deal fairly, honestly and in good faith with their clients and observe high standards of ethics and conduct in the transaction of business. Obtaining pre-signed forms from clients is contrary to this obligation. Salespersons ( aka “Advisors”) may only use forms that are duly executed by you after all information on the form has been properly completed and provided. This is why we urge you to completely fill in the form and retain a copy of the signed and dated original for your files.

Every client must be afforded the same protections, and that the expected conduct is no different if the client happens to be a family member. This principle applies where a spouse’s signature is forged, either by an advisor or by the other spouse. There is always a risk that the spouse who signs the other’s name, or who authorizes someone else to do so, is being deceptive. We are not aware of any circumstance where one person can be authorized to sign another person’s name to a document – a person may act as the authorized agent of another, or under a Power of Attorney, but in neither instance may the agent or attorney sign the other person’s name .

The know-your-client (KYC) , and suitability obligations are among the most fundamental obligations owed by registrants to their clients and are cornerstones of Canada's investor protection regime. If these are contaminated , the client-advisor realationship is contaminated.

What forms are involved?:Some examples of pre-signed forms noted by our team include KYC forms, blank trade order forms, Loan applications, RSP changes, cheques,CRA forms , U.S. Tax Cerifications , risk disclosure and acknowledgment forms, private placement subscription forms and New Account Application forms . In other cases, information on legitimately completed and signed forms may be subsequently altered or removed, or signatures may be physically cut from other documents and then used to create photocopied forms that appear to have been signed by the client. Be alert to any changes in your account statement and check all trade confirmation slips.

Why such a rule?: The existence of pre-signed trade order forms in client files may be evidence that an advisor is engaging in discretionary trading or even fraud. Some dealers and advisors have taken the position that pre-signed forms can be used appropriately in certain situations strictly for the convenience of a client. Securities regulators do not agree with this position. Any act of forgery is a step onto a steep and slippery slope of deception that is always potentially harmful to clients and actually harmful to the dealer and the securities industry as a whole. If you are not available to sign a document either wait or send a FAX or email or use a courier service giving specific instructions. Follow up to obtain a copy of the revised form.

A pre-signed form may allow an unscrupulous advisor to unduly increase your risk tolerance , investment knowledge, income, employment status or net worth or mis-state your objectives. Because every investment recommendation and every investment decision is based upon information contained on the forms, any inaccuracy in the information necessarily taints a recommendation or decision made based on that information. Further,the uncertainty about your risk tolerance impairs the dealer’s ability to comply with securities laws, to ensure that all investments are suitable for you. An incorrect risk tolerance could lead to unsuitable investment recommendations and undue losses . In the event of a complaint, the dealer may point to your signature on the form and deny your claim for restitution . Subversion of the KYC system is serious given that it is at the heart of securities regulation.

In the case of forms to be submitted to the Canada Revenue Agency or to Human Resources and Social Development Canada, there is the risk that you will be taken to have certified as to the accuracy of incorrect information that you did not have an opportunity to review.

Know Your Client (‘KYC’) information that is incorrect could cause a dealer to run afoul of Anti-Moneylaundering laws and regulations and could cause you trouble as well.

A potentially more significant risk is that a pre-signed form could be used for unauthorized discretionary trading or fraud. If you pre-sign a trading form, the risk of fraud is particularly serious with respect to this form, given that the form typically directs a dealer to do one or more of the following things: (a) switch the client’s funds within the same fund family;( b ) effect a purchase or sale of securities; or (c ) pay sale proceeds to a specified bank account or recipient. Responsible investors don't let themselves get exposed to wrongdoing by pre-signing blank forms.

Even in cases where there is no evidence of intent to use a pre-signed form for the purpose of discretionary trading or misappropriation of assets , the use of such forms destroys the integrity of the audit trail for activity in the relevant client’s account. Having a reliable audit trail is important to the dealer and to its regulators. A dealer's ability to assess its employees’ compliance with regulatory requirements, and a regulator’s ability to do the same, are both undermined if the very documents upon which the assessment relies are not genuine.

Bottom Line

We consider forgery as the creation of a false document with the intent that it be acted upon as the original or genuine document. The use of pre-signed forms is therefore forgery .Forgery is fundamentally dishonest and it is harmful. That is why regulators prohibit pre-signed blank/incomplete forms.The sooner digital signatures are commonplace in the advisor world, the better.

Remember , your advisor /salesperson broker is not required to act in your Best interests. They are not fiduciaries. Don't sign anything you do not understand . Consider it a Red Flag if your salesperson says “ it's just for administation, sign it and I'll fill in the blanks”. Sign only a completed form ,cross out sections that do not apply and retain a signed/dated copy of what you do sign for your files. It's YOUR money. CAVEAT EMPTOR

Tuesday, September 8, 2015

WARNING: Seniors "Free lunch" educational seminars

Seniors "Free lunch" educational seminars

The North American Securities Securities Administrators Administration has issued an ALERT on these so -called  “ Free lunch “ seminars. 

State securities regulators warn senior investors to be aware that a combination of “free lunch” seminars, misleading professional “senior specialist” designations, and abusive sales practices can create a perfect storm for investment fraud. Remember: there’s no such thing as a free lunch.

Many individuals over the age of 50 have received an invitation in the mail offering a free lunch or dinner investment seminar. There’s a certain consistency to the invitations enticements: a free gourmet meal, tips on how to earn excellent returns on your investments, eliminate market risk, grow your retirement funds, and, spouses are urged to attend. These words should be red flags for investors.

And while the ads may stress that the seminars are “educational,” and “nothing will be sold at this workshop,” many of these seminars are intended to result in the attendees’ opening new accounts with the sponsoring firm, and ultimately, in the sales of investment products, if not at the seminar itself, then in follow-up contacts with the attendees. Seniors seeking educational insights and information should be aware that the primary goal of the sponsors of these free meal seminars is to obtain new customers and sell investment products.

Here are some recent seminar titles our readers have told us about :

Invest like the millionaires -exploit low interest rates- borrow to invest
Opportunities in Equity Crowdfunding- Find the next Apple 
Using Home Equity to magnify returns 
New hedge fund offers exceptional opportunity 
New tax strategies to save you $$$ 
Why Segregated funds fit into your Portfolio 
Exploring the Exempt Market 
Market linked annuities perfect for retirees 
Making superior returns in volatile markets 
Fee based accounts offer piece of mind and cost savings 
When commuting a pension makes sense

The venues and meal offerings are enticing.The invitations are beautiful - comparable to wedding invitations.


Saturday, September 5, 2015

The DSC sold Mutual Fund under the Microscope

The DSC under the Microscope September,                               September , 2015

Lately, some dinosaurs of the fund industry have been promoting the benefits of the DSC ( deferred sales charge ) sold mutual fund. One benefit they claim is that all your money goes to work for you right away since there is no front end sales charge. In fact , according to independent research the typical FEL today is 0 %. Another “ benefit” claimed is the early redemption penalty keeps people invested during downtimes. First off , there is little robust evidence this claim is accurate. Besides, isn't it claimed that one of the main benefits of a financial “advisor” is to contain investor behaviour -for that service , a never-ending trailer commission is paid - so why is a redemption constraint needed in addition? Further, if the fund is in a registered account you're going to have to pay taxes at your highest marginal rate if you redeem the fund and take out the proceeds as cash. That too should act as a constraint on pulling money out of savings. How much investor punishment is too much?

Could it be that the real reason the DSC is popular with salespersons is commissions? Look to the commissions paid advisors who sell funds to understand why the DSC charge option persists. Fund companies pay dealers/representatives who sell DSC funds a juicy 5-% upfront sales commission .The dealer/salesperson ( aka “advisor “) also receives ongoing yearly compensation -called trailing commissions - of 0.15 to 0.5 % until you redeem the fund.Given their structure, DSCs give the incentive for an advisor to work hard to get their new clients into an investment but leaves little incentive to do any work thereafter. Once you’ve committed to the investment the advisor has received the lion’s share of their compensation and arguably has little direct motivation to continue fostering his or her relationship with the client.

As noted , the prevailing standard investment industry justification for DSC charges is that they provide an incentive for investors to stay in their funds for the long term and not make self-destructive moves in and out of the market. There's some validity to this because retail investors do hurt themselves by jumping in and out of the market too much.The problem is that there is little definitive evidence that the DSC actually accomplishes this behavioural change . Additionally, if you're not getting the level of return you need this just traps you to stay with the same fund company. Investors might be interested in “buying and holding” but with a different fund; the DSC fee effectively prevents this.

In any event, flexibility matters more. Today's market swings are unprecedented and some investors are discovering that they have taken on too much risk. It's unacceptable to have to pay charges of up to 5.5% simply to adjust a portfolio to make it more suitable .And for retirees ,the need for more liquidity as unexpected expenses, particularly health-related and personal service expenses, rise , makes flexibility a key feature of portfolio design.

The real cost of buying DSC funds is often greater than is anticipated at time of purchase. In practice, what frequently happens is that the DSC either gets triggered by an early sale, or an opportunity is lost when the investor hangs on to a expensive/poorly performing  fund in order to avoid triggering the DSC penalty fee.Incredibly , some money market funds are sold on a DSC basis which makes no sense since the purpose of holding a money market fund is liquidity.Such funds do pay trailers which may explain why you are sold them.

When investors are sold deferred sales charge mutual funds, instead of front-end funds, their main motivation is to save on fees. In fact, however,, investors who hold these funds pay more, not less, in fees.An investor who buys a mutual fund on the DSC sales charge method pays no transaction fee at time of purchase. And if the fund is held for up to seven years the early redemption fee can be totally avoided. There is a significant cost, however, if the fund is redeemed before the end of the DSC schedule.

At the time of purchase, this waiting period never seems to be a problem. The investor is optimistic about the fund’s potential, or he wouldn’t let himself be sold it, and at this point he cannot imagine any reason to sell it before the DSC fee expires. Paying no fee sounds more attractive than paying even a relatively low 1% or 2% up-front fee ( actually 0% is most common today). In this case, the certain cost of 1% or 2% seems greater than the possibility of having to pay 5% or 6% in the unlikely event that the fund is sold before the DSC period expires. The thinking is that the DSC fee doesn’t matter because it will never be applied. Fund salespersons can exploit this thinking to their advantage.

This thinking frequently turns out to be wrong, however, because many investors do sell before the DSC fee schedule expires.The average investor hold period is 6-7 yeas, meaning that about 50% of funds are sold before DSC expiry. Further, very few mutual funds are themselves more than 7 years old ( due to mergers and closings) . The reality is that new and better products are always becoming available, mutual fund managers leave the fund they were managing, fees are increased, fund mandates change, the funds gets merged with another fund and sometimes fund managers go into a deep slump. For these reasons, investors routinely make a decision to sell the fund before the end of the DSC schedule. The fee is usually about 5.5 %, if redeemed in the first year, 5% if redeemed in the second, and so on. The fee for early redemption can be based on the purchase price or the market value at the time the fund is sold. This will be defined in the Prospectus

From the financial advisor’s point of view, selling on a DSC basis is initially more attractive than charging a front-end fee. With a DSC purchase, the dealer/financial advisor makes a commission of about 5%, which obviously is more attractive than the 1% or 2% they would earn on a front-end sale. The bottom-line reason for the DSC fee is that the advisor gets paid by the fund company as soon as you have been sold the fund. If you don’t keep the fund, the mutual fund company needs to get its money back. They do so through the DSC early redemption penalty fee that you pay.The original advisor could be long gone either via retirement ,hopping over to another dealer or selling more lucrative insurance products .

Trailer commission paid to the dealer/ advisor are generally higher on the “front end” version of a mutual fund. Typically, the trailer commission on a front end fund is 1% per annum , while the trailer commission on a DSC fund is 0.5% per annum. Except for a few firms like Fidelity, the management expense ratio (MER) is generally the same for both the front end and DSC versions. Over the long term, therefore, the representative actually earns more by selling front end funds.That is unless he/she redeems the fund at the end of the redemption period and sells you a new DSC fund, starting the nasty cycle all over again, a process called churning.

In some cases, the mutual fund owner effectively becomes a prisoner to the DSC fee. Often, to avoid triggering the DSC fee, the opportunity to purchase improved or lower cost investments will be lost. Too many people feel they have no choice but to hang in for a few more years until the DSC fee expires – and to keep hoping that the markets would improve.If the investor dies or a major financial emergency occurs, the penalty will still have to be paid . There is definitely a benefit for liquidity.

Bottom line: Each year Canadians incur tens of millions of dollars in early redemption penalties or hold on to losers. We find it hard to see any benefit of allowing yourself to be sold a DSC mutual fund.

Saturday, August 29, 2015

Paper on the regulator- corporation complex

Accommodating Power: The “Common Sense” of Regulators : Laureen Snider , Queen's U.
The OSC seems not to have been captured by the sector it regulates but handed over to them” Andrews, 2006: 86 “

This paper examines the perspectives, strategies and practical `common sense' of those charged with regulating and enforcing securities laws in the post-Enron era. It argues that crackdown periods following stock market disasters disrupt dominant patterns of governance and empower regulators to proactively enforce laws against powerful financial actors. The article shows how officials negotiate their regulatory terrain and accommodate the economic and social capital of the `stakeholders' they are charged with regulating outside crisis periods and how they re-interpret and redefine their mission in response to political, economic and ideological change. Empirically the article is based on 21 interviews with regulators and enforcement staff in securities commissions and law enforcement, and on the discourses and directives found in key regulatory documents Read the article here 

Saturday, August 22, 2015

How to assess mutual fund ads

We wrote this piece over 10 years ago. The recent scuffle over investment awards in sales communications prompted us to republish the paper. The key point to remember is that these ads are sales pitches. Canadian Securities regulators help unsuspecting retail investors understand the limitations of past-performance data by requiring fund ads touting historical returns to include a warning that states “The indicated rates of return are historical annual compounded total returns including changes in unit or share value and reinvestment of all distributions and dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ” .

The Annual investment awards have one basic purpose- to market the "winners". Current research shows that most funds under perform their benchmarks over the longer term. The awards have little economic or information value for Main Street but do have potential sales value for Bay Street.They have the same value as "Free lunch" seminars at best. BE AWARE. Here's the article: Analyze fund ads for clues 


Monday, August 17, 2015

Folklore of Finance: How Beliefs and Behaviors Sabotage Success in the Investment Management Industry

To better understand the flawed beliefs and behaviors within the industry, what State Street describe as “folklore,” they examined the views of thousands of investors, investment providers, government officials and regulators across 19 countries over 18 months. What they learned is that true success lies beyond what the industry previously accepted. It includes not only producing alpha - perhaps more importantly, it also requires helping investors achieve their long-term goals. They’ve outlined concrete steps that the industry must take to develop a new “Folklore of Finance.” Explore the full report

Thursday, August 6, 2015

Subject: Closet Indexing:Your Mutual Fund May Be Too Lazy

It is well documented that on average active mutual fund tends to underperform the market. However, there is now a further issue with mutual funds according to the recent research of Antti Petajisto formerly of Yale University and now at Blackrock.The problem is this. The point of owning a mutual fund is paying a team of analysts to pick stocks on your behalf, but according to this research, a significant group of mutual funds are no more than “closet indexers”, closer to following the market than trying to beat it. This matters because not only are you paying a high fee, you aren’t getting what you might expect. It’s a little like paying a premium for Gucci loafers and then discovering that the shoes you received are remarkably similar to a pair from Walmart.