Do you have a banking advisor? Have you ever been influenced to change your actions because of what they said? I have. And it sucked. This is going back a bit but to be honest this put me off of bank advisors. To this day I have a really hard time trusting anything that they say is legit. Did you know that 95% of Canadians who use bank advisors have confidence in their advisor? That is an insane high number. That’s like dictator approval rating high. Not at all saying that banking advisors are dictators however with all the frustrations that we see in the media about shady practices that number seems off to me.
Trusting Your Banking Advisor:
Personally I think that’s too high but I’m in the 5% who doesn’t trust my advisor at all. Since we have our holdings in a brokerage account my advisor doesn’t even get to call the shots when it comes to my money and I like it that way. This distrust runs deep. Over the last decade or so I have had some pretty horrible experiences with advisors. Even as recent as mid-2016 we had another horrible experience. But let’s go back to the beginning, to say 2002 or 2003, when I was 18 or 19. Some of the specific details are a little fuzzy but I will be able to give you the general gist of the situation.
Opening an RRSP:
I won’t name the name of the bank but it was at one of the big 5 Canadian banks. The banking advisor I had was through my parents but I was not at all important due to not having much money. I can’t exactly recall the details of why I was in the bank in the first place but I had some money set aside from working a part-time job and I wanted to set up an RRSP like the semi-responsible nerd that I was.
So I asked to buy maybe a GIC or something to that effect and then the “advisor” started to do some math. She took into account the amount I wanted to invest which was only a couple of thousand dollars and then asked what I made a year and told me definitively that it would not be worth it to start and RRSP. The explanation was that since I was not making a lot of money the tax refund would not be worth it. I was kindly told that I would be better off investing outside of an RRSP. Well I took that information and did nothing with it. I didn’t purchase any non-registered product so that money just sat there in my savings account. Also this was before the days of the TFSA so I didn’t even have that to use either.
You Don’t Know What You Don’t Know:
But here’s the thing that frustrated me years later when I learnt more about money. She was right about me not making enough money to actually claim the contribution. She failed to mention that I could roll over the contribution when I was making more money. If I did that I could use the tax refund to my advantage while earning sweet tax-sheltered compound interest. Also before you start saying GIC, blech, it was 2002 or 2003 and interest rates were much higher back then.
I’m not sure why I didn’t push back but it was mainly because I didn’t know there was something to push back on. I trusted that this professional had my best interest in mind. I wasn’t aware I could have carried over contribution room to future years. Often we don’t know what we don’t know. But that was lesson #1 for me in “never trust my bank advisor.” Since then whenever I have an encounter with a bank advisor I have my shields up to 100%.
Round 2 but Older and Wiser:
Recently we got a new person, which is just helpful in case you have a problem with the bank and they can help you with the internal procedures. As part of her taking us on as clients she did a whole bunch of analysis on our current holdings (mix of stocks and ETFs) and based on our risk assessment analyzed our portfolio. The goal was to determine if we had the right mix of asset classes for optimal performance of our holdings over time. I thought we did pretty well as our holdings did better than what our ideal asset mixed put us at and we had returns of 7% with fees of maybe 0.5% on average. That’s not too bad for DIY investors.
Then came the sell; she wanted to sell us a balanced mutual fund that had a 2% MER fee and had historical performance of 4-5% returns. I know past performance is not indicative of future results, but 2% fee. Are you kidding me? Oh how nice of you. We were told it was an actively managed fund managed by the best and the brightest. But you see 2016 Sarah was much wiser (and older) than 2002 Sarah and was not prepared to listen to the garbage. My first question to her was, “why would I be interested in taking on a fund that had a lower historical performance by 2% vs what I already have and take on 1.5% extra in fees?”
My current returns were 7%-0.5% = 6.5% and she was suggesting that I move to something like 5%-2%=3%. That would have cut my returns in half! She managed to choke out something about actively traded funds perform better but she ended the sales pitch. It was also painfully obvious that she was reading from a script. Any time we had questions that deviated from what she had she seems a little flustered.
She didn’t know who she was dealing with and while I wasn’t rude (not my thing) I’m not taking anything at face value when it comes to bank advisors. There are incentives for selling funds and until those incentives are more transparent we all need to be aware. Think about it like people who are trying to get in the way of you and your money. Fees are a killer and if you don’t believe me watch this super funny video from Last Week Tonight talking about fees on retirement accounts:
**There is adult language so headphones if there are others in the room.
So caveat emptor. You are in charge of your money and no one is going to care more about you than you. Asking for help and working with someone you trust is important. Ask the right questions and making sure you know how your advisor is being compensated. If you are informed you can better understand your options and make choices based on the information you are presented.
Take care of your money and it will take care of you. Also make sure you trust the person who is taking care of your money. If you are letting make decisions make sure you know for a fact that they have your best interest in mind.
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