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There Are 9 Responses So Far. »

1. Comment by White Eagle on 23 April 2008:

   Preet,

   Thanks for bringing to light the lack of training required to become a mutual funds salesperson.

   Based on this info, it’s not surprising that the Mutual Fund "Specialist" at my local bank said that she never heard of E*Trade!
2. 

   Comment by Zahid Jafry on 23 April 2008:

   Great post, Preet!

   According to the MFDA and IDA (these are the self-regulatory organization responsible for policing the industry), there are over 100,000 financial advisors in Canada. Currently, the MFDA has over 70,000 licensed mutual fund dealers, while the IDA has over 30,000. These are just the licensed ones, too. Needless to say, an argument can be made that financial advisors make up a very saturated industry, where point of entry is quite easy. Academically, the IDA only requires two courses, the Canadian Securities Course and the Conduct and Practice Handbook, while as Preet pointed out, the MFDA requires even less.

   Preet makes a legitimate point that there are good advisors that have only fulfilled their licensing requirements. However, all things being equal, the more professional designations and academic background your advisor has, the better. That being said, just because an advisor reads about integrity and ethics…doesn’t necessarily mean he’ll adopt it as his or her morals. This is, especially, true given the revenue-driven culture of the retail investment industry.

   Good advisors can be a challenge to find and assessing them can be even harder. Every advisor (well, every advisor who is going to make it in this business) has a great deal of people skills, and, if they’re doing their job right, you’re going to think they are the best thing since the invention of the printing press. With the ABCP debacle fresh in my head, I say tread carefully.

   Zahid Jafry
   Onus Consulting Group

3. Comment by Preet on 24 April 2008:

   Wow, 100,000 financial advisors - didn’t realize it had gotten up to that amount. I should be able to sell at least 100,000 copies of my book then.

   Thanks for the informative follow up Zahid!
4. 

   Comment by Acorn on 24 April 2008:

   I wonder if an adviser is responsible (at least ethically) for stopping or warning you about a “bad’ investment or a “bad” time frame for investment transaction, which a person is about to make. Or, it is OK to act as a broker – just buy or sell based on your request. Even on TV, I’ve almost never heard that a financial adviser said: “Fundamentally, this is a good stock, but we are going to buy it later, when the technical indicators will tell us so”. In oppose, it’s always like this: “if a stock is good – you can buy it at any time”. Sometimes, this stock is in downtrend or at a reverse point and technically has a long way to go down… How it is possible to mislead an average investor?! Also, is there any Adviser’s Association Committee, which is supposed to establish and maintain educational norms and ethical rules?
5. 

   Comment by thickenmywallet on 24 April 2008:

   Great post. I believe that greater qualifications is one side of the equation. The other side is regulation and deterrence; there isn’t enough of it. Do investment advisors get spot audited for irregular transactions or do the brokerage houses have to hand their own over to the regulators? Lawyers have spot audits every 5 years regardless of your financial management record; there is a move towards "practice management" audits (the law society basically looks at your practice and gives you advice on how to run your practice properly). In other words, the regulators are all over us.

   Can the same be said for the financial industry?

6. Comment by Preet on 25 April 2008:

   Yes and no. There is a tremendous amount of compliance for all accounts - the applications need to get reviewed by the branch manager and these days, anytime trades or investments in an account don’t match the risk profile on the account, the clients need to sign forms indicating a change in their risk tolerance.

   Managers get commissions too (a percentage of their advisor’s pay), so they are incentivized to approve more trades - not to say that managers are crooks, just pointing out a conflict of interest.

   The procedures seem more geared towards preventing lawsuits than anything. Perhaps that is why it would be a good idea for more people to take the onus of educating themselves on at least the very basics, because no one is going to care more about your money than you.

7. Comment by Al on 25 April 2008:

   I wonder what the future for this industry is. Some of the smartest minds in finance are getting hammered (hedge fund managers), so why would we expect a simple advisor to be able to give us good advice? There’s not much point using a broker that doesn’t advise whe discount brokerages are a lot cheaper to accomplish the same function.
   I guess the real question is, does the general public know this, and if so, are they willing to take their financial future into their owns hands? If yes, say goodbye to a large percentage of those 100,000 financial advisors.
   Re Zahid’s comment about ABCP. This is a case where an advisor could be harmful. Most investors won’t buy something they don’t understand, unless they are convinced to do so. I invest for myself, and I keep it simple. Financial advisors could talk you into the newest fad, which is complicated, untested and dangerous.

8. Comment by Preet on 25 April 2008:

   The industry has to move to being more like that of lawyers, doctors and accountants - years of training, no commissions. Strictly fee for service, or hourly.

   There should be very little link to products or transactions. That way you could keep having money managers earning a percentage since capital flows will dictate where investment money goes (not tied selling). With no incentive to use mutual funds or what have you, you might find less money flowing there. That side of the industry’s comp will sort itself out if we sort out the advice delivery platform.

   Preet

9. Pingback by My New Job Part I : WhereDoesAllMyMoneyGo.com on 12 November 2008:

   [...] educational hurdle to becoming a financial advisor is low. I’ve mentioned before that with less than $500 and successful completion (60% pass mark) of a … Again, I want to point out that there are many great advisors who take it upon themselves to [...]

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