Bad investment advisors

Although TV journalists are often accused of clever editing tricks that can make Mother Teresa look like Attila the Hun, CBC’s Marketplace took some hidden cameras and a “mystery shopper” into some of Canada’s biggest banks and investment firms. The mystery shopper’s role was to pretend she had just received an inheritance of $50,000 and wanted to invest that money. To maximize the effect, the mystery shopper was given a “flash roll” of $50,000 of fake money.

The results as portrayed by the CBC were not pretty.

Some of the staff at these banks and investment firms did not appear to have even a basic knowledge of the investments they were selling and made guarantees of lofty returns. Other so-called advisors or staff bypassed the important and essential risk tolerance questions and questions about debt.

Although the press makes money with their sensationalist “make-them-bleed” type of journalism that is so derigueur today, no doubt the CBC does a very good job of portraying a bad advisor.

Red flags for a bad investment advisor:

-        Poor knowledge of their own investment products.

-        Evasive answers about fees or risks.

-        Guarantees of future performance.

-        Pushy sales tactics.

Flags for a good financial advisor:

-        Excellent knowledge of investments and can explain in plain language; what it is, how it works, what the risks are, advantages and disadvantages, etc.

-        Experience!

-        Open and transparent disclosure of all costs that is associated with an account or an investment.

-        If you are asked “Know Your Client” questions: past investment experience, your investment knowledge, tolerance to risk, time horizon, investment objectives, financial condition, (including debt) etc.

-        Ensuring an investment is suitable and appropriate given a client’s personal situation.

-        A good advisor is never “pushy” or needs to make the sale.

I am sure the major banks and the large investment firms portrayed in the video did not like this CBC report one bit.

We do not know what parts were edited out for effect but what was portrayed in the investigative report implies that the big firms mentioned in the TV program have earned a failing grade. I could only groan while I watched an employee badly fumble a simple question about a mutual fund.

As a financial advisor, I could only watch in horror, the various missteps, lack of basic knowledge and questionable sales tactics that have absolutely no place at all in the industry I work in.

I seriously doubt that all bank employees or advisors are incompetent as portrayed in the video report or that the bigger the firm is – the worse it is. That portrayal would be patently unfair.

I am totally biased of course, but my view based on this investigative report is clear. Yes, do trust your bank with your everyday banking needs but for your investments, it is best to seek out a financial advisor that has been referred to you by a trusted colleague, friend or family member. To ensure the chemistry is “right” between you and a potential new advisor, be the mystery shopper and interview the advisor. However, please leave the $50,000 in cash at the bank!

[Editor’s note: I should point out to CBC’s Marketplace that using cash for investment purposes is prohibited under strict anti-money laundering rules and is not allowed under any circumstance whatsoever.]

Source: CBC Marketplace aired February 28, 2014: http://www.cbc.ca/marketplace/episodes/2013-2014/show-me-the-money