This stuff makes me sick. A Toronto advisor got a slap on the wrist – a $65,000 fine and 30 day suspension – for making unsuitable recommendations for two retired clients. The advisor implemented extensive “double” leverage through the use of a margin account and borrowed funds from home equity lines of credit to invest in mutual funds with deferred sales charges.

“She referred to a leveraged strategy as a “no brainer” and minimized any risks associated with it.”

Furthermore, the advisor convinced her clients to transfer the commuted value of their pensions and invest in DSC mutual funds.

Perhaps most egregious, the advisor used her personal email address to communicate with the two clients, stating that she had difficulty remotely accessing her work email. In reality this protected her unsuitable recommendations from any employer oversight. In fact, she conveniently deleted several emails including the one in which she recommended her client borrow to invest.

These disgusting and shameful acts are all too common in an industry clinging to a commission-based model that’s clearly lacking in regulatory controls and oversight. We’ve heard the arguments not to paint the entire industry with the same brush, or that misconduct only happens with “a few bad apples”, while the rest of the industry is full of good guys and gals looking out for their clients’ best interests.

Bullshit. This doesn’t happen by accident. It’s the preferred playbook of unscrupulous advisors.

  • Invest in deferred sales charge mutual funds
  • Churn those mutual funds annually to generate commissions and trigger a new seven-year DSC schedule
  • Encourage leverage through a margin account and/or home equity line of credit
  • Encourage clients to take the lump sum commuted value of their pension and invest in a LIRA
  • Encourage taking early CPP and invest the monthly benefits
  • Discourage any other financial planning strategy (i.e. mortgage pay down) that doesn’t involve investing

Victims are not limited to seniors and immigrants who don’t know any better. It’s not surprising to find ordinary investors trapped in costly financial relationships with their “trusted advisor”.

That’s the problem with conflicted advice. Your advisor’s interests (his or her compensation) is not aligned with your interests (improving your financial situation). The end result is you get sold funds that may be “suitable” for you but might not be the best or most optimal for you and your wallet. You’re also told to invest above all else, which may or may not be the right advice for your personal situation.

This Week(s) Recap:

I’ve been busier than usual with financial planning and freelance work so I only managed one post here last week. I wrote about mental accounting and how we spend money.

Over on Rewards Cards Canada I revealed that I applied for 13 credit cards last year. Here’s what happened to my credit score.

Finally, many thanks to Rob Carrick for including my article on why I don’t pay off my mortgage in his Carrick on Money newsletter.

Promo of the Week:

Last year we partnered with Canada’s leading robo-advisor Wealthsimple to offer a free portfolio review and check-up with one of their portfolio managers. It proved to be overwhelmingly popular, and based on the feedback of my post earlier this year on how to transfer your RRSP to Wealthsimple, you guys are craving more info how to work with a robo-advisor.

That’s why we’re pleased to offer Boomer & Echo readers another chance to book a 15 minute call with a Wealthsimple portfolio manager.

Are you curious about moving over to a digital advisor but have some questions? Wealthsimple isn’t only suitable for a millennial audience:

  • 32% of their clients are > 35 years old with a quickly growing % of clients with > $250k of assets under management
  • Retirees are one of their fasting growing segments – hundreds of Canadian retirees are currently working 1:1 with the Wealthsimple team
  • Their portfolio managers have conducted hundreds of financial planning calls + Portfolio Reviews
  • They have a combined 80+ years of experience (average 10 years each)
  • Team members hold CFA, MBA, CIM, CFP and PFP designations
  • They are a fiduciary so they’re obligated to give you actionable feedback that’s in your best interest, not theirs.
  • Wealthsimple Black ($100k+ deposits) and Wealthsimple Generation ($500k+ deposits) can qualify for additional benefits including even lower fees (0.4%) and more hands on financial planning sessions as well as Tax loss harvesting, tax efficient funds, Asset location and additional perks including a VIP airline lounge pass and Medcan discounts

Book a 15 minute call with a Wealthsimple Portfolio Manager.

Weekend Reading:

An honest and refreshing look from an advisor on why financial advisors should leave portfolio management to the experts and focus instead on financial planning. <— YESSSS!!!

In one of the more ridiculous surveys I’ve come across, this USA Today feature says we spend $18,000 per year on “non-essentials”. It goes on to list these items, which include three types of ‘dining out’ on restaurant meals, take-out, and buying lunch, along with personal grooming and ride sharing. In my world we don’t call these items “non-essentials” – we call them ‘miscellaneous’ spending, as in if you have your savings and fixed expenses covered then who the hell cares how you spend the rest of your money?

Frugal Trader explains what happens to your RRSP and TFSA after you die.

The maximum OAS a couple can get is $19,600. Here’s how to get all of it.

Recently retired Michael James on Money explains his bucket strategy for retirement spending.

We’re a long way from maxing out two RRSPs and TFSAs, but once we do we’ll want to start investing in taxable accounts. My Own Advisor Mark Seed has you covered with this post.

Jason Heath explains the tax implications of transferring between registered accounts – such as from a LIRA to an RRSP.

You can’t compare rent to a mortgage payment. Ben Felix explains why this way of thinking about the rent versus buy decision is extremely flawed in his latest Common Sense Investing video:

Don’t blame the government. Here’s what the Bank of Canada says is the real reason for the housing slowdown.

Respectfully interacting with people you disagree with, and other useful and overlooked skills from Collaborative Fund’s Morgan Housel.

Here’s Nick Magguilli on the necessary conditions for successful market timing:

“How do you know when a market decline will be 20% (or greater) before it happens?  You don’t.  You have to go off some feeling that this decline is “the big one” and not one of the smaller declines that happen more periodically.”

And here’s Nick again on cumulative advantage and how to think about luck – or why winners keep winning.

How about a double shot from A Wealth of Common Sense blogger Ben Carlson? First up he explains why you’ll never invest in the next Big Short.

Ben goes on to list some financial superpowers, including the ability to witness your neighbour getting rich or buying stuff without getting FOMO.

Finally, if you’re not following Sam Cooper’s stellar investigation into B.C. casino money laundering then you’re missing out. His latest expose reveals how organized crime first made its way into B.C.’s casinos.

Have a great weekend, everyone!

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