Test drives sell a car...

In this past weekend's National Post, Camilla Cornell, in an article entitled Test Driving the Advisors, had the amazing idea of documenting her experiences at 4 different givers of financial advice. Approaching them as an "ignorant" prospective client, she went about exploring the differences in their presentations.

Such a concept is a noble one, but it does little in giving us ample insight into the nuances of each service. To the reader, it appears that each outfit, with the exception of the discount brokerage, offered their version of how the portfolio should be taken care of. However, it is interesting that the full-service advisor recommended an 85%-15% equity-fixed income diversification compared to a 60%-40% suggested by the fee-based advisor. Quite a difference, don't you think? Of course, it could be entirely coincidental that equities pay full-service advisors higher commissions than fixed income. On the other hand, fee-based advisors earn the same amount regardless of the make-up of the portfolio they recommend.

While the intentions were noble, there really didn't seem that big a difference from one advisor to the other. All advisors drew up portfolios based on their best abilities, and all advisors met with their clients once a year. Not much for a reader to deduce one section of the retail investment industry from the other.

As well, it must be noted that Ms. Cornell described the planner at Scotiabank's advice as free, which is inaccurate because, in fact, a fee is charged from the client....the MER, an embedded fee deducted from the clients' returns on the respective mutual fund. The bank is paid by the mutual fund firm through an annual trailer fee that is taken from that MER. That being said, planners at banks aren't compensated through commissions but earn salaries, which are complemented with bonuses based on targets being met. Using a planner does minimize a conflict of interest but also a certain level of proactivity, which was exemplfied when full-service advisor, "John Blythe," followed-up days later with a full-blown portfolio analysis. A new client means more to the full-service advisor than to the planner at a bank.

A great article. Perfect for RRSP season. Check out the link below.

'Z'

How to Choose an Advisor: Test Driving the Advisors
http://www.nationalpost.com/todays_paper/story.html?id=280614