Ad "Buyer Beware"

As I am a student, I am required from time to time to blog about non-musical themed assignments. This particular blog is about a buyer beware group project for Ad class.

My group consisted of four members, Dave Hollier, Tristan Field-Jones, John Gaudes, and myself. Together we looked at the role financial planning has in helping people grow their wealth, and we targeted Scotiabank and their "You're richer than you think" campaign. We wanted to find out if this was something that they could actually prove to us.

We broke the project down into several parts, my group members and I looked into the various regulatory bodies that would keep an institution like Scotiabank in check. The Manitoba Securities Commission (MSC) would give Scotiabank advisors a license to sell and advise on mutual funds. The Mutual Fund Dealers Association (MFDA) would ensure that the bank follows their guidelines in place with respect to making sure the advisors provide the right investment fit for their clients. The Ombudsman for Banking Services and Investments (OBSI) would handle client complaints etc. All these regulators ensure that financial institution are doing their fiduciary responsibility to give good service and advice to their clients. We put together a powerpoint presentation which captured all of these details and additional ones discussed below.

As a part of our primary research, Gaudes and I visited a Scotiabank branch and spoke with an advisor. In my meeting we discussed mortgages and their rates, loan rates, term deposit rates, banking fees etc, and all of these items would probably save me money if packaged together and in turn possibly make me a little more "richer," so to speak. However, we didn't really talk much about my overall goals, and what was important to me. This was something I had expected to discuss.

The Scotiabank advisor mentioned to me that she was not licensed to sell mutual funds, but she did say she could talk a little about them. She then proceeded to use the term "recommend" to me several times when discussing stock based mutual funds or "equities", which I believe was something she is not allowed to do. Had I not known anything about the investing in the first place, I might have been convinced to invest into something that may not have been appropriate for me.

Having worked in the financial services field for over 10 years, I certainly am well versed in what advisors like the one I met can and can't do. She clearly stepped over the line, and this concerned me. How many "advisors" are there out there that are not acting in their clients' best interest? How much non-informed advice is there out there?

In additional research on their websites, we found no shortage of cases where clients had complained to the MFDA or MSC or OBSI. Complaints ranged from people being victims of churning (buying and selling investments unnecessarily to produce commissions for the advisor), leveraged schemes(borrowing money to invest) as well as inappropriate advice where the investments were to risky for the clients risk tolerance and objectives as indicated on their KYC (Know Your Client questionnaire)form.

Part of the problem is the fact that the financial services industry is set up in such a way where a lot of advisors' income is bonus and commission based. I know this because I used to be paid in nothing but commission and bonuses. When a lot of money is on the line, temptation to go for the easy money is there. And as the baby boomer generation is starting to inherit massive sums of wealth from their parents, there will be plenty more money that will be thrown at this growing industry.

But when everything goes right, and you are a client that the banks would consider a high value client, you may really feel that you are well taken care of. Plus building a good relationship with your advisor can make all the difference in the world. Sadly, in many cases it takes a large amount of money to get an appointment with a really good financial planner. The more money you have, the more attention you will likely get from your advisor.

In conclusion, I suppose that many people could be richer than they think if they did take some of the advice that is out there. When you become richer, so do they, as their fees will always be a percentage of how much money you have. However, I can't say if Scotiabank's version of financial advice is better than anyone else's, as everyone's situation may be different. I think it's best that everyone finds out for themselves, and a little research can go a long way in being confident that you are doing what's best for you.