A recent article by the Ontario Securities Commission (OSC) highlighted their concerns that some financial advisors are not gathering adequate information about their clients, and some are making inappropriate use of client testimonials. The regulator also has concerns about the quality of financial advice being offered to seniors and other vulnerable investors. Although the OSC addresses advisors, these issues are good for investors in Alberta to be aware of as well.
Knowing Your Client: In its annual summary report on compliance and registrant regulation, the OSC says that the inadequate collection, documentation, and updating of client information “continues to be a significant and common deficiency” in the industry. When working with your advisor, you should be asked for a list of all of your investments, where they are held and what type of investment they are. This allows your advisor to look at your full investment picture to better determine your investment objectives and risk tolerance. As well, your advisor should have a list of your insurance policies, a copy of your will, and be familiar with your life and retirement goals. Your financial advisor should ask for regular reviews to ensure that the information they have is current and accurate.
Client testimonials: The OSC is also keeping an eye on the use of client testimonials. Your advisor should make sure that testimonials are balanced, fair, and not misleading. “Financial advisors should be able to substantiate all claims that they make in their marketing materials,” reads the report. Your advisor can publish a testimonial with your permission. When giving a testimonial make sure that it is accurate and honest by all accounts.
Vulnerable investors: In addition, the regulator says its compliance reviews uncovered instances in which advisors failed to provide appropriate services or products to vulnerable investors. This comes back to knowing your client. Your advisor needs to know your whole financial picture in order to make recommendations that are in your best interest. My advice to seniors needing financial or investment advice, especially those with hearing or other cognitive issues, is to bring a family member with you when dealing with any financial person, as this protects both you and your financial professional.
Do your due diligence: One challenge today for seniors is how to find products that offer reasonable income with minimal downside or volatility risk; a 5 year GIC paying less than 2% does not cut it. Unfortunately, all indications are that interest rates will continue to stay low or go even lower, especially if Central Bankers were to decide to mandate negative interest rates. With this in mind I would suggest that anyone looking for investments offering greater income be very wary of those offering 8% or higher rates of return in today’s volatile markets. Once retired, with no more earning capacity, you should be looking at products with less volatility, as there are a wide range of investment products available that offer guarantees. There are products that offers a return on your invested principal on premature death with a guarantee of lifetime income that may or may not be taxable, with the option to lock in future gains. This is the time to sit down with your trusted advisor to determine what the best product is for your individual situation
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