ANNA’s Story: No one will care more about my money than I will.
Posted by John | Filed under My Best Strategy
This “success story” is aimed at those who might be in the position of “ready to save, not sure how to do it”.
After I graduated university in 2000 I worked hard at two jobs to pay off my student loan. I lived in a rented apartment with no furniture until that debt was cleared. When I was finally able to relax about being in the financial clear I was suddenly faced with uncertainty on how to proceed with saving and investing money. Intuitively I knew that a basic savings account would grow at an extremely low rate, but I didn’t understand how people moved on to the next step in their savings lives. What was a stock? How did people buy bonds? What was an RRSP? What did it mean to get a tax credit?
After mentioning my worries to a friend – her mother gave me a call. She was an experienced financial advisor and offered to educate me about financial investments. The first few months working with her were life-changing. She set me up on automatic withdrawals from my bank account and explained the difference between stocks and bonds and mutual funds. She set me up with RRSP accounts and a “cash” account.
I happily allowed her to invest my money where she saw fit and trusted her judgment. For the first year we bought the mutual funds she suggested. I never thought to examine the cost of the management for those funds. Most of them were paying fees above 4%. This meant that for every 100 dollars I was putting into the fund – an immediate 4 dollars was disappearing in fees (to her and to the mutual fund company). In addition, all dividends were being reinvested into the funds – so for every dollar the fund paid out, I lost an additional 4 cents of the dividend.
The next year we began diversifying into some stock. The early 2000s were decent years for stocks and I appeared to be making money. As my salary began to increase I would increase my contributions. As the money grew she would make recommendations on investments. I continued to have faith in her judgement and would agree to her recommendations. However I noticed we now always seemed to be buying stock at a high price based on rumor and selling when it tanked. Her buying and selling fees weren’t cheap. She was making money – I was not.
As I grew older and more experienced with money I began to question her decisions and more specifically her fees. Whenever she suggested selling an asset I would ask “how much is your fee?” When I look back – she never, ever once told me what her fee would be. In fact, she made me feel guilty for asking. Her comments would either be dismissive – “don’t worry about that…” or accusatory “I don’t like what you’re implying…”.
In 2007 I began to get concerned that her decisions were no longer making sense in my financial picture. I was getting older and had to start ensuring that my portfolio reflected my middle-aged “stage of life”.
Stocks, bonds and funds that she had previously told me were longer-term holds were now being sold at tremendous losses. Even the stocks that might have made me a decent profit were making her more money than me. I recall one stock that she sold for a $1200 profit. Not bad right? Well she took $800 of it for her fee, leaving me with $400. I had tied money up in that stock for 6 years – and ended up with $400 dollars for the trouble.
By 2008 I knew I was being a wuss. I had changed jobs a couple of times and had investment accounts from those employers.
I was so insecure with my advisor’s decision-making that I wasn’t telling her about the other accounts, and I was reluctant to transfer her any more money. I stopped the monthly deposits to the account. I couldn’t tell my friends about my problems since she was a friend’s mother, but I knew that it was ridiculous to be too frightened of hurting her feelings to pull my money.
I finally bought a book: “The Idiot’s Guide to Investing in the Canadian Stock Market”. I taught myself about MER’s and fees, stocks and options and brokerage ratings. The book convinced me that I needed to cut this relationship loose.
I requested my advisor’s permission (as a courtesy) to interview other advisors within her firm. She wasn’t happy. She sent me a rather nasty email detailing all the supposed money she had made for me over the years (she neglected to deduct all the money she had collected in fees). I didn’t care.
After 8 years of sticking my head in the sand I had finally grown a pair (of you-know-whats). I found another advisor whom I felt was more in line with what I needed. I asked blunt questions about his fees and didn’t give a flying fig whether he thought it was rude.
So far I’ve been happy. My advisor is engaged and communicative. I now have enough knowledge to research his suggestions on my own. He charges fees and is always upfront about costs. I agree with this relationship. He deserves to be compensated for his time and advice. In exchange, I expect to make a profit from my money more often than not.
My advice to others that might be starting out in the savings world:
1. Interview advisors and ask them questions. Don’t hesitate to ask about fees. If a advisor won’t reveal their fee structure to you, don’t do business with them. It’s your money. You have the right to know how it’s being used.
2. Learn about investments and taxes on your own. Unfortunately we sometimes assume that the people with illustrious titles at financial institutions know what they are doing. Experienced ones do, many do not. Research any advice regarding taxes, RRSPs, home-buyers programs or anything else your advisor has told you. Hopefully they are correct – if they’re not you could get in real trouble with the government.
3. When it comes to investments things ebb and flow – they go up, they go down and there’s no need to panic when things are down. But follow your gut. If you’re uncomfortable with your account, or an investment be prepared to get rid of it sooner rather than later. A small loss in the near-term (however painful) outweighs a big loss later on. Especially since your money was tied up all that time and not available for other things.
I regret that I let all those years go by without taking charge. I learned a hard lesson – at the end of it all, the only person who cares about whether you are making money is you.
February 2, 2010 at 12:22 pm
Your story sounds just like I would be in the same situation. (Un)Fortunately, I don’t have any funds to invest yet, but I certainly don’t have a clue how any of it works at all. And, I would also be too nervous about being taken advantage of in my stupidity. Luckily, you did finally get out of the relationship. I guess we should not always trust that just because someone is a friend/family member of a friend doesn’t mean that they are looking out only for your best interests.
February 2, 2010 at 12:25 pm
Anna,
Thank you for sharing your story. You’re so right, too many of us, especially women, are afraid to speak up sometimes and many of us in general assume that an advisor will always act on our best interest. Congrats to you for stepping up, out of your comfort zone and taking control of your investments.
I’ve been in a similar situation myself, having about 1/3 of my investments tucket away with a well-known firm for about 3 years. My investment MER is at 2.68% and nothing within their portfolio of funds is below 2.5-ish, yet, none are stellar perfomers either (ie., 4-5 Morningstar ratings). To top it off, I found out that transferring these funds to another firm before 7 years will cost me 7% of my total value. Of course, they never tell you this upon signing up. So I’m now researching my options.
Your story has given me a lot of food for thought, I’ll continue my search. As you said, a short-term loss now will outweigh a longer-term, larger loss over time. We are ALL in control and cannot let others decide for us.
February 2, 2010 at 2:04 pm
Wow, I guess I’m really lucky that I have such a good financial advisor. I of course realize that she makes her money from me but she also knows that if I’m not happy she makes zilch. Maybe the trick is to find someone who is a lot like you, I’m not a very aggressive investor and she’s not a very aggressive seller. Plus I ask lots of questions and she doesn’t mind saying “I don’t know but I’ll find out”.
But good for you for taking control. It’s never too late.
February 2, 2010 at 5:48 pm
Same thing happened to me. And after I got over my advisor’s fancy surroundings and glitzy gold jewellery and realized she was making $ off me and I was not – I pulled the plug and walked away. Now my huge losses are ‘growing back’ and I’m just sitting tight on them. Onwards.
February 3, 2010 at 8:51 am
Thank you for sharing that story. I’m thinking after 15 years, I ought to do something about my financial planner as well. The duds I have with the high MERS make me really upset that I could have put it all in a savings account and earned more…
I really didn’t pay much attention to it all until 2008 when it all tanked and I started tracking the cost basis v. the value and realized that it’s taken well over a year to get back to a break even position. So my investments are at 0% and even less if you take into account the MERS, and by tracking I found out about the real duds – the ones that have not made any money in 5 years, have lost value, and my advisor never called me once to say we ought to change that.
So change is a-coming….
February 4, 2010 at 2:17 am
Great story Anna!
I think the main theme here is more-so psychological than financial: the concept of “ASSERTIVENESS.”
In Canadian society, we’re often conditioned to believe that being “upfront” is often associated with being “rude” unless your in a position of authority. But what does any of this have to do with being truthful? The problem with this notion is that those in powerful positions know all-too-well how to abuse that double-standard in order to manipulate people to their (financial) advantage.
I commend Anna for stepping up, being strong and independent, learning to be self-reliant and resourceful, and ultimately using assertiveness to HER advantage. There is absolutely NOTHING wrong with being assertive; it really all just depends on how the receiving-party reacts. Some simply can’t handle the truth. I think we can all learn something from Anna’s experience.
Congrats again, Anna!
Take Care.
February 5, 2010 at 11:30 am
wow, what a great story! I know that i’m super nervous about putting my money anywhere other then a basic savings account or GIC…and I know that i’ll have less money in the end because of that.
February 9, 2010 at 10:16 am
It’s a great story, but paying fees to a financial advisor is still a possibility for disaster. There are alot of different methods of investing, but the most important one is to *learn* it is your money, no one, including a “nicer – more informative” financial advisor is going to care as much.
There are courses to take, books to read — but the best investment is one that you can sleep at night with. I had poor performing funds, and I switched to a self-directed RSP. Definately not the course for everyone, but has worked well for me. I taught myself what I needed to know, and *luckily* have 2 other sources of “free advice” that I talk with that have taken the Canadian Securities course (my older brothers). They took the course not to become a financial advisor, but to learn how to invest.
The best financial planner is one that charges by the hour — this means he/she is not paid one dime for any fund that you invest in.
If you are going to pay someone, pay someone who is 100% unbiased.
February 10, 2010 at 1:29 am
You make some great points Kat. I received my MBA two years ago and have learned a lot more about investing. I too have a discount brokerage account. I agree to a point about using a hourly fee-based advisor but I have reasons for using a commissioned one:
I don’t have a lot of time to research stocks. I understand oil and gas but other commodities and industries are not my subject matter. My advisor has access to a lot of research which he has the time to evaluate. An hourly rate advisor will only advise upon request. My advisor and I talk often. His commission is $125 per trade for stock. I had previously researched an hourly fee advisor in Calgary – the price tag was $275 per hour and did not include anything beyond the paid time. If I wanted advice on modifying my portfolio I would have to ask for it and pay for it. This may not be good news if an “ill-wind” is blowing on a holding. If I don’t keep an eye on the news and research I might not see disaster coming. I’m more comfortable with a commission-based advisor in this scenario.
None of the fee based advisors in Calgary that I researched were qualified to actually sell stock. So in addition to paying the fee for advice I would have to pay a trading fee and purchase the stock on my own.
My advisor’s firm sometimes allots him blocks of stock to sell to clients (I believe this happens when the bank has financed the corporation). The two times he has sold me some of those alloted shares I have been able to purchase them at a slight discount to the market – the price from the bank was fixed but the stock had already risen on the market. That is an advantage over a fee-based advisor. Naturally I research his suggestions before I buy them.
As I said, things have been good so far. I’m diversified in things like wind and consumer goods – and I never would have come up with these on my own.
You’re lucky that your brothers are qualified securities traders and can give you good advice. It sounds like you’ve taught yourself a lot. Happy investing Kat!
February 10, 2010 at 10:53 am
Thanks Anna!
Sounds like you’ve thoroughly investigated it to make it work for you. Hopefully it will continue to. It’s still a large fee to pay, and the discount only works when the stock goes up — but I am impressed with the stats! Sounds like you have one of the rare good ones.
If you ever become dissatisfied, you may want to look into something called “couch potato” stratedgy. It’s a well-documented investment strategy that requires minimal monitoring (portfolios might require tweaking annually, but probably not) and essentially invests in the actual index on the stock exchange for a particular group. ie there is a financial index that has all of the banks represented – this is the index that is publicly traded – not one that is offered by the specific brokerage.
Thanks for replying back though! And it is great that you were able to leave those other funds/advisors behind.
Happy Investing too!
February 12, 2010 at 10:11 am
I’ve read your story, and am impressed. I have been unhappy with my financial advisor at a large mutual fund company for quite a while. My RRSPs still have not completely recovered (they are about 95% there…frustrating!). Plus, on top of it all, being in my mid-40’s, my hubby and I haven’t done enough retirement savings/planning. 2010 is our year to get back on track, and we have started with a 3 step plan. Step 1: For my company retirement plan, I have finally changed from “non-contributory” to “contributory” (the good thing here being that for the last 19 years, at least the company has been putting their portion in…now, I’m finally putting mine in!). Step 2 – we have moved some money that was just sitting in a regular savings account into a TFSA – that’s the beginning of the emergency fund. Step 3, after looking at our budget, and juggling things around, we will be able to pretty much double our annual RRSP contributions (probably still not enough at our ages, but a step in the right direction.) Here is my issue. I don’t want to send that new budget amount to my existing financial institution. I want to become educated, and put it somewhere so it will grow more than my mutual funds. I am really not sure where to begin! We have been with this financial institution for a long time (20+ years!), and at the time, we thought we were being smart investing with them. I want to be in more control and I want my funds to GROW. I’m looking for a good book to explain basic investing. I have not been able to find the book mentioned in Anna’s story (maybe the title was somewhat different??).
Longer story than I had intended. I am inspired by Anna’s story and will continue investigating, especially the couch potato strategy mentioned above!
February 12, 2010 at 10:51 am
@Nadia
One source that I use for research is a website that is Canadianbusiness.com. They have a forum where you can ask questions and alot of financial planners that work throughout the industry (funds, banks, insurance etc) post and reply to. You could check back in previous responses etc. But remember… what Anna says is 100% true — NO ONE will care about your money as much as you.
Read alot before you decide where to put your money. Invest as much time as you can…. because a little time researching, can may be the difference between retiring at 65 or retiring at 75.
February 12, 2010 at 12:06 pm
Hi Nadia. I totally understand about “hiding” your money from your financial institution.
I can’t seem to find my “Idiot’s” guide online (maybe it’s no longer in print?). But I did find: Investing for Canadians for Dummies. Check out your local library – they might have it. I remember reading that one too and it’s a great book.
Good Luck!
February 21, 2010 at 7:32 pm
Congratulations Anna! I appreciate how you are now moving and looking forward to a brighter future…an educated consumer is a good consumer! However, have you ever considered your financial institution’s in-house financial planner? If they have been with the company (as mine has for 10 plus years) they can present a wholelistic approach to your financial position – present and future. I highly recommend it…and their advice and guidance are extremely affordable. Good luck! “Boutique” investment firms/houses are just that…boutiques!
February 26, 2010 at 8:23 pm
I think it’s essential for anyone considering working with a financial advisor to ask questions – about the advisor’s credentials and philosophy and about the investing strategy he/she is suggesting. A good advisor makes sure above all that the client really understands what he is doing and is comfortable with the strategy. Educating the client has to be one of the goals. And making sure the client is aware of any fees charged by the advisor or the mutual fund company is a given.
But I think we need to be careful about the link between how the investments are doing and the advisor you’re working for. I don’t care who you are or what qualifications you have – no one knows which stocks or funds are going to outperform or underperform. If that were the case we wouldn’t see two ‘experts’ giving completely opposite opinions on the same investment at the same time.
The value of a financial advisor is his/her ability to look at the big picture and to tailor a financial plan or investment strategy to fit the client’s unique situation. This includes finding out what your short and long term goals are, taking a look at the tax implications, understanding your risk tolerance and (with your help) getting an idea of what your future job and family situation may be like.
It doesn’t matter if the advisor charges a fee or is paid a commission (to imply that fee based advisor are ‘better’ is suggesting that the thousands of advisors paid by commission would be more likely to be unethical – and that’s simply not the case). What matters is that you are both asking questions AND listening to the answers.
But being informed about your own financial situation doesn’t necessarily meaning doing it on your own. I’m frankly wary of the discount brokerage solution for most people. I’ve seen too many people buy and sell at exactly the wrong time because they got caught up in the emotions of greed and fear and didn’t have an objective advisor helping them stay the course.
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