Further to my article here yesterday, a reader correctly points out that financial sector representatives calling themselves “advisors” with an ‘0r’ in North America do not fall within security regulations requiring them to put the best interests of their clients first.
This one vowel distinction from ‘advisers’ is of course farcical in terms of any meaningful notice to the public, and just another example of how sales firms have dictated terms and end run the prudent policy needed to help protect the public. See Why bank employees with impressive but misleading titles could cost you big time:
A common trick for misleading customers, according to Elford, is the banking industry’s use of the term “financial advisor” — spelled with an “o.”
He says “advisor” is an unregulated title that anyone can use, whereas the title “adviser” — spelled with an “e” — can only be used if the employee has a fiduciary responsibility to the client.
“Advisors can sell you the third, fourth, fifth or least beneficial product to you,” Elford said. “They do that a great deal of the time if it makes them more commissions, or if their bank manager is telling them they need to sell more of the house-brand product.”
The Ontario Securities Commission confirms that “adviser” is a legal term under securities law that describes a person or company that is registered to give advice about securities, whereas “advisor” is not.
In an email to Go Public, the Canadian Securities Administratorsconfirmed that it does not regulate most titles used by employees in the financial industry.
A larger point however, which is nearly always missed by everyone, is that even many registered ‘advisers’ in the fiduciary sense today, still work in firms affiliated with product creating arms that see their wealth management services as a distribution channel for the firm’s corporate underwriting. Hence they use under the counter new issue fees and other pay incentives to encourage advisers to recommend the products they collect most on.
An even more endemic and unacknowledged bias is the fact that nearly all firms have a fee structure which collects more on equity and corporate debt allocations and products than government bonds and savings deposits. Hence advisers and firm analysts routinely recommend that the bulk of client capital is allocated and held in these higher fee categories regardless of where we are in a given market cycle, regardless of extreme price risk suggesting negative and below safe deposit returns for years into the future, and notwithstanding the minuscule loss tolerance of most clients in the later years of their work and life cycle.
Finally, the bias inherent is most obvious in the simple fact that most firms/advisers will accept non-registered capital for management without recommending that the client use it to pay off their outstanding debt (mortgages, car loans etc) first. Truly putting the best financial interests of the client first, will nearly always require that an individual use their cash savings to pay off personal debt before giving any non-registered funds to investment management services. Worse, in many cases, advisors/advisers actually recommend that clients borrow funds so that they have more capital to invest with the firm.
These are classic hallmarks of the priority of firms to put their own financial interests ahead of the client’s, no matter what representatives may call themselves. Buyer beware.
