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Hidden camera investigation uncovers ‘atrocious’ investment advice

Posted by GuruDan on April 29, 2014

CBC
CBC – Fri, 28 Feb, 2014 9:58 AM EST

People walk in Toronto's financial district in Toronto, on Oct. 29, 2012. THE CANADIAN PRESS/Nathan Denette

As RRSP season closes and many Canadians prepare for tax time, a CBC Marketplace investigation reveals that financial advisers at some of Canada’s top banks and firms are giving consumers inaccurate, misleading and inappropriate advice.

Meanwhile, consumers face a complicated patchwork of regulatory bodies if they want to complain about bad investment advice, as some investor rights groups call for more robust consumer protection rules.

Since a third of Canadians rely on advisers to help them make financial decisions, Marketplace sent a person wearing hidden cameras to visit the five big banks and five popular investment firms in Ontario. The full investigation, Show Me The Money, reveals how individual banks and firms performed. The show, including practical tips on how to hire a financial adviser, airs Friday at 8:00 p.m. (8:30 p.m. NL) on CBC Television.

“That’s one of the worst pieces of advice I’ve ever heard in my life,” financial analyst and former adviser Preet Banerjee told Marketplace co-host Erica Johnson when shown hidden camera footage of one of the tests. “That was atrocious. That’s the only word to describe that advice.”

The tests revealed a wide range in the quality of advisers. Some performed well, giving clear answers and asking appropriate questions about the tester’s financial situation and risk tolerance. Other interactions, however, Banerjee found troubling.

In some cases, information was incorrect or misleading – even in response to direct questions, such as how fees are calculated. Some gave unrealistic promises about returns, including one adviser who said that a $50,000 investment should increase by $10,000, $15,000 or $20,000 in one year.

Others failed to adequately assess the customer’s risk profile, which advisers are supposed to use to ascertain the suitability of investment products they recommend to a person.

In an unusual twist, one firm tried to recruit the Marketplace tester to become an adviser herself. While some designations and certifications do require training, and individuals have to be licensed to sell specific products, “financial adviser” is not a protected term. There are currently about 100,000 advisers in Canada.

Several advisers in the Marketplace test neglected to include any conversation of paying down debt in their financial advice, which Banerjee says reveals a conflict of interest that most consumers don’t consider as they’re weighing the recommendations of an adviser.

“If you invest there’s a commission involved with that, or a percentage of assets,” he said. “But if you pay down debt, there’s no financial incentive for the adviser to do that. So that’s one of those conflicts of interests that people should know about.”

As a result of the Marketplace investigation, one firm suspended the employee and reported the behaviour to the regulatory body, the Investment Industry Regulatory Organization of Canada (IIROC).

The Marketplace test was similar to a broader mystery-shopper test in the UK by the Financial Services Authority. That test included 231 mystery shopping tests of investment advice at six major firms. The results of that test, made public last year, found that more than 25 per cent of investment advice was of poor quality because it was unsuitable or because the adviser did not collect enough information to be able to make the recommendations.

Ontario firms could face a test this year, as the Ontario Securities Commission (OSC) conducts a mystery shop to determine the quality of investment advice. While the OSC declined to provide specific details about its test to Marketplace, the results are expected to become public later this year.

However, investor rights advocates are critical of slow-moving efforts to provide better consumer protection. In a letter to the OSC, the Investor Advisory Panel pressed for reform, including how fees are structured and how complaints are investigated. “We have debated, discussed and studied the issues and their solutions for many years. It is time for decisions that will lead to a more robust investor protection regime in Canada.”

Among the most pressing issues: Financial advisers are not in fact required to act in the client’s best interest.

“There’s a big debate raging about that very issue right now,” says Banerjee. “So, it seems in a couple of years they will be bound to do what’s in the client’s best interest. But right now that’s not actually regulation.”

That runs contrary to the very reason many Canadians turn to advisers in the first place.

"If you walk into a financial institution, I think the average person on the street assumes they’re going to have someone who’s going to take care of all their financial issues,” says Banerjee. “But on the other side of the desk, there’s a wide range of people that you could see. Some of them are just order-takers or salespeople and others are true financial planning professionals."

For consumers struggling with the consequences of bad investment advice, a confusing patchwork of organizations oversee complaints, including IIROC, the Mutual Fund Dealers Association (MFDA) and provincial securities associations. Each body oversees different types of complaints, depending on the nature of the complaint or the type of product the adviser is licensed to sell.

The Ombudsman for Banking Services and Investments (OBSI) also investigates complaints, but only for participating banks and firms. And OBSI has limited enforcement powers, offering only non-binding recommendations, so it’s entirely up to the bank or firm to decide whether or not to comply.

OBSI’s 2013 report, released this week, reveals a sharp increase in the number of banks and firms refusing to compensate investors for mistakes.

According to the report, banks and investment firms refused to pay back investors even when OBSI found wrongdoing in 10 cases last year. In total, investors were denied more than $1.3 million in restitution. The OBSI report called this trend “disappointing.”

Marketplace notified all of the banks and firms about the test and approached some for interviews, but all declined. Some viewed the test as an isolated incident; others vowed to investigate and take appropriate measures.

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Posted in Investment, Mortgages, Non-insurance, Retirement Planning, Tax Planning | Tagged: , , , , | Leave a Comment »

DIY home selling: Wise or a fools’ folly?

Posted by GuruDan on June 18, 2012

By Liam Lahey | InsightTue, 12 Jun, 2012 2:11 PM EDT

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When selling one’s home, the desire to hire a real estate agent is waning in Canada, according to a new survey commissioned by PropertyGuys.com.

Canadians say real estate commissions are too high, agents don’t have their best interests in mind and bidding wars are engineered by the industry, say respondents in the survey conducted on the Angus Reid Forum.

The survey found:

  • 82 per cent of homeowners agree that the average five per cent commission real estate agents charge is too much.
  • Fifty per cent say that agents don’t have their best interests in mind when selling their home.
  • Another 60 per cent believe that property bidding wars are engineered by real estate agents.

"There’s an overwhelming sentiment that the status quo, and the commission rate that seems to sustain in Canada at around five per cent; folks don’t like that and they find it too much," says Walter Melanson, director of partnerships at PropertyGuys.com in Moncton, N.B.

"We know there’s a sentiment among Canadians to try something new and different … so many are disgruntled towards the amounts they paid in the past (to real estate agents) and they’re likely to consider alternatives."

Melanson says there’s a genuine consumer desire for change in the Canadian real estate industry.

"If we look at the traditional real estate industry, there hasn’t been any great deal of reform and the little box they built about 100 years ago operates quite the same as it did then.

"You’ve got an industry today that doesn’t want change and … those that suffer the most are the folks that choose traditional agents and are waiting for something big to happen within that space that helps them start to save money."

Want to go it alone? Here’s what you need to know

While it’s true you could sell your own home without a real estate agent, there are a number of factors to consider before doing so.

For starters, understand that real estate agents generally charge a five per cent fee for their services that include having forms and contracts approved by lawyers to execute a sale contract.

Real estate agents also advertise that your property is up for grabs beyond sticking a sign on your front lawn and they’re front and centre whenever a potential buyer shows up to take a tour of your house or property to highlight the unique features and/or renovations you’ve done to the building. And agents also handle the negotiations with a potential buyer.

"Buying or selling a home is the single largest investment a purchaser or seller will make in his or her lifetime. As such, the services of a full-time real estate professional are required to ensure the best possible outcome," says Christine Matysiewicz, director, RE/MAX Ontario-Atlantic Canada Inc. "Surprises can arise at any given time during the home buying/selling process. From legal issues such as easements, encroachments and grandfather clauses to the negotiation table, the process is not without pitfalls."

If you’re selling, your realtor will set a price based on comparable sales in the area. He or she will likely get a higher price for your property than if you tried to sell it yourself.

"Your home will also sell faster because of the exposure it will receive. Your realtor is also connected to your neighbourhood — he or she will continually assess market conditions and how they impact your property," she continues. "Your realtor is also a skilled negotiator and has been educated on the complex laws and regulations in real estate and is trained to put together a legally binding contract … and if you’re buying, your realtor can open doors to thousands of properties through the MLS system."

If considering alternatives, one should weigh their own needs and goals, as well as their own abilities, Matysiewicz advises. "They should know what level of personal involvement they are interested and available in having in the transaction process. Most of us have very busy lives," she points out.

Some questions consumers might want to ask themselves may include:

  • Do you have the time, energy, know-how and motivation to sell/buy on your own?
  • Will you be able to effectively market your home?
  • Do you feel comfortable showing you home to strangers and can you make your home available to potential purchasers when needed, given your hours of work and other commitments?
  • Will you be able to deal with a parade of potential bargain hunters and tire kickers?
  • Can you overcome the emotional attachment you have to the property? Would you be able to negotiate effectively and accept criticism of your home?

Are you able to manage technical issues related to contracts and negotiations?

If you’re selling and mulling over which realtor to turn to, Matysiewicz recommends touring your own neighbourhood to see who has a strong presence. It’s ideal to engage someone who is very active in the local marketplace.

"Doing so assures they’ll have the right mix of knowledge and experience to meet the challenges and identify the opportunities within that specific area. It’s also more likely that they have established links to potential buyers in the area as well," she adds. "Family, friends and colleagues can also be a great source for a referral. Visit the local real estate offices that services your area. Don’t be afraid to ask questions. You can also ask for and check references for your own peace of mind."

Meanwhile, the PropertyGuys’ survey findings also shows 67 per cent of respondents agree traditional real estate agents, and their commission fees, are one of the factors contributing to home price inflation. In Ontario, this number was higher at 70 per cent.

This survey also finds:

  • 66 per cent of homeowners polled say alternatives to traditional real estate agents will benefit home sellers.
  • Only 19 per cent of homeowners think their real estate agent was definitely worth the commission paid.
  • 87 per cent believe that how much money they have at the end of the day is most important when selling a home.
  • 50 per cent of Canadians disagree that real estate agents have your best interest in mind when selling a home.

While those in the traditional agent/broker segment may want buyers and sellers to believe that it is dangerous not to use an agent, the truth is that the real estate market has changed and savvy consumers, with the right tools, technology and know how, can sell their home without the use of an agent, Melanson adds.

"The folks that connect best with our concept are those that are comfortable with showing their house themselves and in engaging with others," he says. "These are confident sellers. They lean more on process and systems than they do on people."

The Canadian Real Estate Association politely declined to be interviewed for this article. However, for undecided consumers, the CREA’s How Realtors Help website provides information about realtors and the services they provide.

 

Posted in Insurance related, Non-insurance, Real Estate | Tagged: , , , | Leave a Comment »

 
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