Last week’s CBC Marketplace episode Show Me The Money took an average investor (with a hidden camera and glowing lights in her pants) into BMO, CIBC, RBC, Scotiabank, TD, Dundee Securities, Edward Jones, Investor’s Group, Money Concepts, and Primerica shopping for advice on what to do with a $50,000 inheritance she’d just received.
Of course we had to talk about it on Because Money, and – graciously – +Preet Banerjee agreed to reprise his expert role from the Marketplace episode to talk a little more about the complicated world of financial advice, his surprise over the high rate of non-compliant and pretty horrible advice given, and to expand on his view that there are really good people out there working as financial advisors who oughtn’t be lumped in with the bad ones, and that what the industry really needs is a good trimming of the “dead wood” in the industry.
I – unsurprisingly, I suppose – disagree. The investment advice industry, conflated as it is with the broader world of financial planning, looks from the outside as though it’s an advice industry that happens to offer products that help you implement your financial planning goals. Those products pay for the planning you receive, which is why Preet made the case that those with smaller amounts to invest are better off paying a commission on their investments instead of paying directly for their advice.
But those small investors need more than just investment advice. In my experience (and in friend of the show +Noel D’Souza‘s) the new/small investor’s needs are more heavily weighted to the goal setting, prioritizing competing goals, and cash flow planning than on the investing advice. They’re looking for more than cursory advice there, which is why reliance on advisors paid with trailing fees doesn’t fit.
Remuneration for that kind of advisor is tied to the amount of the investment, and results in outsized emphasis on investing alone for clients who need more than that, while at the same time not creating much of an incentive for the advisor to spend more time on such a small account when there are more lucrative clients waiting.
Smart organizations don’t spend any more time on loss-leader activities like cash flow planning, debt paydown, or behavioural coaching than they have to. The nice person across the desk from you has a nice manager who has a nice district vice president who has a nice regional manager, and every one of those people has one job: make the most amount of money for the company in the least amount of time without making any egregious errors, running afoul of securities regulators, and generally being as feel-good, PR-friendly as possible.
An episode like this one – while illuminating for investors – is another chance for the investment advice industry to blame a few bad apples or poorly-trained but well-meaning individuals and go merrily on their way without making it any easier for consumers to find a source of advice with a price tag they can evaluate fairly.