For you to know...

Next week, Onus Consulting Group's website is undergoing some minor revisions, which hopefully you guys will love as much as the company does.

Probably the most useful will be the ability for visitors to download the firm's very well-received Investor Awareness Kit. As well, a link will be appearing on the Helpful Tools section on our home page to visit showmethebenchmark.com, which is a site set up by Warren MacKenzie of Second Opinions Investor Services to allow people to compare their investment returns to their benchmark.

Stay tuned.

Blogging blogs....

Before founding Onus Consulting Group, I maintained a passive interest in blogs. Reading them... but always with a grain of salt. My thoughts were that anybody could set up 'shop' and write about pretty much whatever they wanted. Even then, I admired it as an effective means to collect general sentiment to whatever subject I was reading up on. Blogs, like most great ideas, started quite modestly. In 1999, a college student, Brad Fitzpatrick, wanted his high school chums to keep up with how he was doing and founded LiveJournal. Before this, there was no evidence that the general public was comfortable sharing the personal details of their life or attitudes on certain topics online. The success of this sort of transparency was unprecedented in our increasingly privacy-conscious society.

Now, as the writer of one, there has been a stronger drive to find great blogs that aid the personal finance acumen of Canadians. Talking about my experiences as I encounter them and thoughts, only helps so much [if I do acknowledge so myself]. As the founder of Onus Consulting Group, there is a stronger incentive for me to speak of issues that relate to the services of the firm. At times, this can hinder the multi-dimensional perspective the reader seeks.

What do I suggest? Some of the most efficient and powerful blogs in the blogosphere dealing with personal finance are the ones that are written by journalists. Particularly, consumer advocate, Ellen Roseman, of the Toronto Star (http://www.ellenroseman.com/). This individual has virtually created a legacy for herself by fighting for the rights of individuals who have grievances with companies. Her genuine 'do-gooder' attitude is incredibly refreshing and really resonates with her readers. As I, myself, found myself doing this weekend when friends lamented to me about being cut off an all-you-can-eat sushi dinner, I found myself saying: "Write Ellen Roseman." Her manner of asking questions does a terrific job of engaging her audience. This is, especially, exemplified with the consistently strong number of comments she draws.

The National Post's Jonathan Chrevreau is another great example of a well done personal finance blog (www.wealthyboomer.ca). However, it is for different reasons. Rather than the casual aura of the blogosphere, the dynamic of his blog, entitled the Wealthy Boomer, reads more like an extension of his articles. The content of his material is incredibly useful. Not just to the wealthy boomer. Or any boomer, for that matter. But, for any Canadian looking for insight into the retail investment industry. In that regard, his blog is much more focussed than that of Ellen, who will write about a host of topics. Additionally, his video blog features interviews with some of the notable players in financial services. Its presence drew my envy, as he has made a remarkable use of this medium.

In conclusion, it is refreshing to see newspapers give their journalists discretion over what to write about....a quality I find is rare to be commended. This is not to say that the average joe talking of their experiences or the founder of a company talking of issues that relate to the services of his or her firm will not be useful to you. It just must be noted that adding blogs by able journalists, such as the two featured, to your blog reading can represent a very successful upgrade of your personal finance knowledge.

'Z'

What's the damage?... Wait, don't want to know!

Late last week, I was discussing the state of the retail investment industry with a proud do-it-yourselfer. It was clear from immediately talking to him that he knew more than the average Canadian, and I was quick to commend him for his knowledge and passion. All that being said, he completely devastated me with his next comment:

"It is ridiculous. Some advisors now charge their clients twice: a fee for themselves in addition to the MER."

It must be added this line was said with contempt, although it wasn't particularly relevant to this gentleman, a retiree who very much enjoyed picking stocks for his portfolio. The clients are charged twice but only after significantly reducing the MER to accommodate this charge (these are referred to as F-Class funds). This is done in order to make it clear to the investor how much he or she is paying to their advisor, leaving just the MER, which goes to the fund company, embedded. This method is clearly, I believe, beneficial to the client, which leads me to wonder: How widespread is this belief that this transparent fee serves as an increase in fees to the client?

The term, "unbundling," I first encountered in John DeGoey's book, The Professional Financial Advisor. At full-service brokerage firms, it is referred simply as "fee-based." (*) Basically, it means the financial advisor's embedded compensation is removed and fees are charged to the client in a transparent manner (in brokerage firms, it is as a percentage of clients' total assets). Whether it is recommended or even provided as an option is purely at the discretion of the full-service financial advisor. DeGoey, himself, mused the riskiness of convincing a client to convert to fee-based. I never thought it'd be such a challenge till hearing this comment.

Through the course of Onus's research of Toronto's full-service financial advisors, it is more likely they offer it as an option without recommending it. This conclusion I always found unsatisfactory......unsatisfactory, that is, until I heard this remark.

Investor advocates have been screaming for transparency in the industry. Not because they enjoy screaming mind you, but for the good of Canadians. Finally, on account of such efforts, the industry is moving into such a direction as to allow clients to see how much they are spending on their financial advice as opposed to it remaining hidden. If this is all for naught...

Do clients genuinely feel better not knowing how much in fees they are paying? Is it truly difficult for Canadians to see the value of unbundling? If this is so, do even the most passionate of 'investor advocate' advisors have the guts to recommend this approach?

On the last question...Of course, I believe so.




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(*) Fee-only at a full-service brokerage, which is more accurately referred to as 'asset-based,' is not to be confused with authentic fee-based advisors, who charge an hourly or fixed fee. As their pay comes directly from the client, this is where their loyalty is directed. For an example, see http://www.secondopinions.ca/ or http://www.tewealth.com/.

A cumbersome business....

Still thinking about my thoughts published a couple days ago regarding Ms. Cornell's article, I have to really appreciate her intentions for writing it. Many Canadians don't know where to start when they realize they need financial advice. Knowing whether to use their bank branch, do-it-themselves, or using a fee-based or commission-based advisor has been likened to drawing straws.

While Onus has interviewed a multitude of financial advisors over the course of its existence, we didn't focus on the planners at banks or fee-based advisors. Rather, our energies went into analyzing the different full-service advisors in the brokerage houses. Quite frankly, it was because it was where I personally saw the difference in quality of financial advisors.

At a given brokerage house, there can be great advisors and not-so-great advisors. Every full-service broker has his or her own "book" (the roster of an advisor's clients), which is run pretty much as an independant business. It is important to note that relationship between a broker and brokerage is more of a partnership than an employer-employee relationship. The brokerage provides the analysts, the office, the support staff, and the broker provides the clients. When a commission is charged, the broker get a piece and the brokerage firm get a piece (the percentage of who gets how much is controlled by what's known as the "grid"), which is relative to how much in commissions the advisor charges. The more in revenue brought to the firm, the larger percentage of the commission kept.

What have I found? That, for one, there is a vast range between fees charged. That, this variation in fees doesn't bear a direct relationship to the advisor's competence or attention paid to a client's portfolio. That, all advisors are probably the most likeable, charming people I will ever meet.

And so it continues.....

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