Managing Your Money

The importance of unbiased advice: Canada’s need for alternatives to the big banks

If you knew your doctor would only prescribe medications from Acme Pharmaceutical Company, would you feel reassured that you were getting the best possible medical advice? Probably not, as there might be better medications available from other drug manufacturers that weren’t being considered. The same holds true in the financial industry. If you’re dealing with an advisor or a company who has limited product options, or mainly proprietary products, you’re putting yourself in the same boat.

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The financial landscape has changed significantly over the past two decades where many of the independent firms got bought up by the big banks. This has left very few large independent wealth management firms in Canada, in a time where there is an increasing demand by high net worth individuals and families for unbiased, independent advice. The number of high net-worth individuals has been steadily increasing. According to Credit Suisse Research Institute’s annual Global Wealth Report, there are over one million millionaires in Canada. And they expect that number to increase by 50% by 2021. These high net-worth individuals and families are looking for a personalized experience. They are not satisfied with a cookie-cutter approach. Amongst high net-worth individuals, there is now an expectation of a holistic approach to wealth planning not only a concern for investment management. They want guidance from their advisor on: estate planning, tax issues, retirement, business succession planning, philanthropic strategy, etc.

In my opinion, independent firms are in a better position to put their clients’ interests first, offering un-conflicted and unbiased advice that focuses on guidance and not on selling products. Now maybe I’m biased because I work for Canada’s largest independent wealth management firm, but having been in the financial industry for over 22 years, and having worked at another firm that does manufacture its own products, I clearly see the benefits of being able to provide unbiased advice. When a firm’s main offering is purely advice, and their focus is not on selling proprietary investments, loans, and credit cards, it puts their advisors in a better position to develop solid long-term relationships, consider the “big picture”, and understand what’s important to clients and their families. The products simply become part of the solution instead of the main focus.

Biases can also appear in the way advisors get paid. When some investments pay higher commissions than others, you have to wonder what’s behind the advice. So make sure you ask about fees and commissions, and whether or not there are alternative products to consider.  Ask why a given product might have a higher commission or fee than another. Clients are often shy to ask questions about fees or how advisors get paid, but they shouldn’t hesitate. It’s your money!

The last type of biases that I’ll mention are psychological biases. These are a little harder to identify because they’re not always conscious.  We all like people who like our ideas. And this goes both ways. It’s human nature.  When your advisor agrees with your ideas, you naturally like him/her more. Advisors want clients to like them so they sometimes propose ideas that are in line with what their clients want. But is this always in the best interest of the client? I have had clients who I advised against their ideas. Funny, many of these were right before the Nortel bubble burst. Some took my advice to sell, some stuck with their own ideas. The bottom line was that I wasn’t trying to be liked, I was giving professional advice. And in the end the final decision was up to each client. So if you’re turning to an advisor for advice, and the advice doesn’t go along with your ideas, take a moment to consider if you’re being open minded enough or if you’re stuck on your own opinion.

Getting unbiased investment advice is never going to be easy, but you can start by finding an independent firm where advisors are focused on advice and not products. Then get clarity on the fees and commissions involved with the investment recommendations. Don’t be scared to ask your advisor “What percentage do you get paid on this investment vs. that investment?  And why?” There should be full transparency on the costs. And lastly, try to step out of the box if you’re getting advice that differs from your own ideas. It is to your advantage to be clear on what you’re getting and at what cost.

Lynn MacNeil, F.PL. Vice President, Investment Advisor, is a Financial Planner with Richardson GMP Limited in Montreal, with over 20 years of experience working with retirees and pre-retirees. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at 514.981.5795 or [email protected].

The opinions expressed in this article are the opinions of Lynn MacNeil and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Richardson GMP Limited, Member Canadian Investor Protection Fund.

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